For decades, offering a retirement plan was seen as a “nice-to-have” benefit—something small and mid-sized businesses (SMBs) implemented once they reached a certain size or maturity. That era is over.
Across the country, states are rolling out new laws requiring employers—even those with just one employee—to provide workers with access to a retirement savings option. And while the specific rules vary by state, the message to employers is consistent and clear:
Retirement benefits are no longer optional. They’re becoming a legal requirement—and a competitive necessity.
As we move into 2026, SMB leaders must understand what these laws mean, the choices they have, and why choosing the right type of plan matters for compliance, cost, and talent retention.
Why States Are Requiring Retirement Plans
More than a dozen states—such as California, Oregon, Illinois, Colorado, Maryland, Connecticut, Virginia, Maine, and others—have enacted legislation requiring private employers to offer retirement plans or enroll employees into a state-run IRA program. Many smaller employers are now subject to mandates for the very first time.
The driver behind this shift is simple: America faces a retirement readiness crisis. Too many workers lack access to employer-sponsored savings vehicles, and state governments are stepping in to reduce future dependence on social programs.
That means even the smallest companies must begin preparing now.
State IRA Programs vs. Employer-Sponsored 401(k): What’s the Difference?
When a state mandate applies, employers typically have two choices:
Option 1: Enroll employees in the state-run IRA program
These programs were designed to make compliance easy, but they come with limitations:
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Lower contribution limits than a 401(k)
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Employees only (no employer match)
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Less flexibility in plan design
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Limited investment lineups
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No tax credits for participation
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Administrative oversight still required, including payroll deduction and reporting
State IRAs are compliance-friendly—but not necessarily talent-friendly.
Option 2: Offer your own employer-sponsored 401(k)
A 401(k) gives SMBs far more control and greater long-term value:
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Higher contribution limits, helping employees save faster
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Ability to offer employer matching to strengthen recruiting
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Customizable plan design to support different workforce needs
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Broader investment options
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Potential cost savings with tax credits under SECURE Act 2.0
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A benefit employees recognize and value
A company-sponsored 401(k) is not just a compliance solution—it’s a competitive advantage.
Why Forward-Looking SMBs Are Choosing 401(k) Over State Plans
Even though state-run IRAs satisfy the mandate, many employers are intentionally choosing to offer a 401(k) because it delivers stronger outcomes for the business and its workforce.
1. A Powerful Recruiting Advantage
Today’s candidates—especially younger workers—expect retirement benefits just as much as healthcare. In competitive hiring markets, the presence of a 401(k) can determine whether a candidate accepts an offer.
State IRAs are largely invisible, but a 401(k) signals:
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Stability
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Employer investment in employee financial wellbeing
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Long-term career paths
This matters immensely in industries with high turnover or tight talent pools.
2. Better Retention and Engagement
Employees who participate in a workplace savings plan are proven to be more loyal and engaged. A 401(k) with a match creates a “golden handcuffs” effect naturally—encouraging employees to stay and grow with your business.
3. A Competitive Edge for Small Businesses
For years, SMBs struggled to offer benefits that matched what larger employers could provide. With today’s modern, streamlined 401(k) platforms and government tax incentives, smaller companies can now offer retirement plans that look—and function—like those at Fortune 500 firms.
This levels the playing field in a significant way.
4. Less Administrative Complexity Than Many SMBs Expect
Modern 401(k) providers automate:
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Enrollment
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Compliance testing
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Payroll deductions
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Reporting
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Employee education
In many cases, employers spend less time administering a 401(k) than they do keeping up with the deadlines and data submissions required for state IRA programs.
Compliance Deadlines Are Expanding—And Penalties Are Real
Every state sets its own implementation timeline, but the trend is unmistakable:
More states are joining the mandate movement, and enforcement is tightening.
Some states already issue penalties for non-compliance, often ranging from hundreds to thousands of dollars per year.
SMBs that take a “wait and see” approach risk:
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Fines
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Administrative headaches
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Frustrated employees who miss access to meaningful savings tools
Proactive compliance is both simpler and more cost-effective.
How Retirement Benefits Shape Your Growth Strategy
Beyond compliance, retirement benefits reflect your culture and long-term thinking. According to national HR and workforce trends:
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Employees with access to retirement benefits are more engaged, productive, and financially secure.
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Workers are increasingly choosing employers who offer clear pathways for financial wellness.
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High-growth companies treat benefits like 401(k)s not as overhead, but as strategic tools to attract, retain, and motivate teams.
In other words: offering a 401(k) helps SMBs grow—not just comply.
Choosing the Right Path Forward
If you operate in a state with retirement mandates—or expect to soon—now is the time to evaluate your options.
Ask yourself:
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Do we want a minimal compliance solution, or a competitive employee benefit?
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Are we prepared for the administrative reporting required by the state program?
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Do we want the flexibility to design a plan that supports long-term hiring and retention?
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Could our business benefit from tax incentives designed to promote 401(k) adoption?
For many SMBs, a 401(k) offers a stronger return on time, talent, and dollars invested.
Retirement plans are no longer just perks. They are:
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Legal requirements in many states
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Strategic benefits that improve hiring and retention
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Affordable for SMBs, especially with new tax credits
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A meaningful way to support your employees’ long-term financial wellness
As mandates expand nationwide, the companies that act early will not only stay compliant—they’ll strengthen their workforce and sharpen their competitive edge.
This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.
