Don’t Limit Your Employees to a State Retirement Plan

Posted September 6, 2023

As part of SECURE Act 2.0, passed in late December 2022, Eligible Automatic Contribution Arrangement is required for 401(k) and certain 403(b) plans in plan years after December 31, 2024. Such plans must automatically enroll eligible participants using an initial 3% minimum and 10% maximum contribution rate.

Several states, including Colorado, New Mexico, California, Oregon, Illinois and Virginia, have required employers to offer their own workplace retirement savings program or be automatically enrolled in a state-run plan.

State-run plans are intended to assist most employees with access to a workplace retirement savings program, but they can have some notable shortcomings. State-run plans are intended to ensure most employees have access to a workplace retirement savings program, but they can have some notable shortcomings. For example, most states only offer Roth IRAs, which means contributions aren’t tax-deductible. Other drawbacks can include limitations on the amount you can contribute annually and a narrow choice of investment options.

Partnering with a retirement plan specialist, like CoSource Financial Group, allows you to develop a customized retirement plan that can offer more control, flexibility and tax benefits. Consider the following:

Tax deductibility and potential employer tax credits. Customized retirement plans are not limited to Roth IRAs. By choosing a 401(k) or certain 403(b) plans, employers can offer tax-deductible contributions to employees and stand to gain potential employer tax credits.

Higher contribution limits. State-run plans that are Roth IRAs limit the contribution amounts of employees to $6,500 per year for individuals and $7,500 for those 50 and older. Typical 401(k) plans available from retirement plan specialists allow up to $22,5000 annually for individuals and $30,000 for those 50 and older.

Ongoing employee education and the opportunity to work with a financial planner. Mandated state-run plans are not likely to offer ongoing employee education from financial planners like a customized retirement plan does. Working with a retirement plan specialist allows employers and employees to have a designated financial planner working on their plan and available to meet throughout the year to answer questions that may arise.

Greater customization around plan design and features including profit sharing. A customized retirement plan offers a unique design and beneficial features that state-run plans do not.

Regular monitoring and evaluation. From the design to the participation rates to individual investment choices, a retirement plan specialist will regularly monitor and evaluate all aspects of your plan, a service you are not likely to get with a state-run program.

Offering an employee retirement plan can seem complex, but with the right partner, it doesn’t have to be. A retirement plan specialist can the stress out of the equation with a comprehensive service offering just right for the business.

Take advantage of a complimentary, no obligation review of your existing plan to aid in pursuing your goals and objectives. Retirement plans are an important component of employee benefits packages—helping individuals save for a financially secure future—and they also offer valuable tax savings for business owners.

Jeremy Callegan

Jeremy initiated his career in the retirement plan industry in 2007, excelling in executing and managing corporate sponsored retirement plans at a local third-party administration firm. His expertise encompassed compliance factors such as plan design, non-discrimination testing, and annual Form 5500 preparation. Leveraging this experience, he strategically designed plans to minimize tax burdens and turnover, benefiting business owners, key personnel, and their workforce. In December 2014, he assumed the role of relationship manager at a prominent national record-keeper, overseeing 401(k) operations in Louisiana and Mississippi. Jeremy cultivated and sustained connections with 350+ financial advisors, managing 675 retirement plans and 20,000+ participants. Motivated to enhance proactive service in the retirement plan sector, Jeremy joined CoSource Financial Group in February 2017. Specializing in implementing or acquiring corporate-sponsored retirement plans, he prioritizes efficient plans for employers and effective solutions for participants. According to him, a well-structured retirement plan not only attracts and retains employees but also ensures a timely and respectable retirement through sound advice.