To help combat the retirement savings crisis, many states have passed legislation that requires most employers, including small businesses, to provide their full-time employees with retirement benefits.
Oregon was the first in 2017 when it mandated that employers must offer retirement accounts to all full-time employees. Currently, 18 more states will have followed by year-end 2026, with Hawaii and Washington State rolling out auto-IRA programs over the next six months. There are also three city-specific mandates to date. On May 19, 2026, Philadelphia joined New York City and Seattle, with the creation of the Philadelphia Retirement Savings Board.
Each state or municipal mandate requires small businesses to provide retirement plans for their workers, typically through state-sponsored "auto-IRA" programs. The mandate applies even to very small businesses. In California, Oregon and Hawaii, for instance, businesses with as few as one full-time employee must provide that worker with a retirement savings plan. In Colorado, Connecticut, Delaware, Maine, Minnesota and Virginia, the threshold for compliance is five full-time employees or more, although there are sometimes service or income minimums (see chart below).
If nothing else, make sure your small business clients are aware of the mandates in their states. The penalties for noncompliance can be steep. Also remind clients they shouldn't automatically default to the state-run program. A more traditional 401(k), SEP IRA or SIMPLE IRA could be the better option in the long run, even if your client must pay to administer it. The mandates require small businesses to provide employees with a retirement plan, but it doesn't necessarily have to be the state-administered program.
If you have clients in a mandatory retirement plan state, make sure they announce their participation to employees well in advance of rolling out the program. While providing employees with a retirement plan may seem like a generous employee benefit, some workers may be annoyed when they suddenly see a portion of their paychecks missing without knowing why. The typical minimum automatic deduction is 3% of gross pay if an employee doesn't specify how much they wish to contribute to their retirement plan.
Let's look at how the requirements vary in several of the nation's most populous states:
New York State
New York's
- 30 or more employees: March 18, 2026
- 15 to 29 employees: May 15, 2026
- 10 to 14 employees: July 15, 2026
Penalties for noncompliance are estimated at $250 per employee for a first offense, climbing to $1,000 or more per employee for repeat violations. For a business with 12 employees already managing tight margins, that adds up fast.
New Jersey
New Jersey expanded its
For instance, under the SECURE 2.0 Act passed in 2022, make sure your clients know that small businesses establishing a qualifying 401(k), SEP IRA or SIMPLE IRA for workers are eligible for up to $5,000 in federal startup tax credits per year for three years, with additional credits for automatic enrollment and employer contributions. None of those credits apply to the New Jersey state program, however.
A Garden State business with 15 employees that sets up a private plan instead can potentially capture enough in federal credits to offset the full cost of running the plan in its early years. And because employer contributions are federally deductible, a well-structured 401(k) also reduces the pass-through income that New Jersey is taxing at 10.75%. The New Jersey state program accomplishes nothing beyond the minimum. A private plan does considerably more.
California
California's
The minimum move is not the best move
Many businesses will default to CalSavers because it is free and the easiest path to compliance. But as mentioned earlier, the default option is often not the optimal option.
CalSavers is a Roth IRA program with lower contribution limits than a private 401(k) and no employer matching structure. Again, under the SECURE 2.0 Act, small businesses that establish a qualifying retirement plan for workers are eligible for substantial tax credits. In addition to the aforementioned $5,000 per year for three years in startup tax credits, they receive additional credits for automatic enrollment and employer contributions. For employers with one to 50 employees, the
For a California business that's already managing high labor costs, the mandatory employee retirement plan obligation is not a small consideration. A well-structured plan can effectively run at near-zero net cost in its early years while simultaneously strengthening the compensation package used to attract and retain talent in one of the most competitive hiring markets in the country.
Next steps
Most employers who act on this mandate will do what seems obvious: enroll in government plans to satisfy the requirement and move on. That's understandable. But the default option is rarely the optimal one, and in this case, it comes with a real cost that most business owners overlook.
Missing the enrollment deadline may lead to financial penalties. But the greater cost — the one you won't see on any notice — is staying locked into a program that only does the bare minimum when a stronger alternative is available. Your clients who truly come out ahead won't just be the businesses that avoided a fine; they'll be the ones that used the deadline as a catalyst to build something valuable. That's where you come in.
Beyond the tax credits, a retirement plan strengthens the compensation package businesses can use to attract talent — one of the bigger operational challenges for many small employers. What's not to like?
