What do employers need to know about state-sponsored retirement programs?

Workers in the U.S. have long been facing a substantial retirement plan coverage gap. In fact, only about 50% of workers in the private sector participate in an employer-sponsored retirement plan.¹ The biggest reason? Their employers simply don’t offer one. To help close this gap, many states have introduced retirement programs, some of which require employers — including sole proprietors and the self-employed — to participate. As these programs expand, business owners have more options than ever. But making the right choice means first understanding how these programs work, what may be required of your business and which alternatives are available.

State-sponsored retirement programs are created by individual states to provide more employees with a way to save for retirement — especially those whose employers don't offer plans. Here’s what you need to know about them:

Each program is established and managed at the state level, making it a simple way for employers to meet that state’s participation requirements.

Many states require businesses with employees — sometimes including sole proprietors and the self-employed — to offer a retirement plan, either by setting up their own or enrolling in the state program.

Employees are typically enrolled by default through payroll. However, they can opt out or adjust their contribution amount at any time.

In many programs, employee contributions are made aſter tax to a Roth IRA. However, the program structure and features will vary by state.

Employers generally have limited administrative responsibilities, such as registering for the program, helping ensure eligible employees are enrolled, processing contributions through payroll and keeping employee information up to date.

Most state-sponsored programs don’t allow employers to make matching or other contributions to their employees’ accounts.

As of April 30, 2026, 22 states have enacted new programs for private sector workers. But nearly every state in the U.S. has at least considered legislation to establish state-facilitated retirement savings programs, so this number is expected to grow.

Learn more about individual state programs with our most recent fact sheet.

While both are designed to facilitate saving for retirement, there are a number of key differences between employer-sponsored plans and state-sponsored programs.

State-sponsored retirement programs are designed to offer a simple, accessible path to compliance with minimal effort. However, some employers may prefer employer-sponsored plans, which offer more flexibility and long-term value for their business and employees.

Understanding the differences can help you decide which aligns best with your goals.

Business owners often choose state programs when they are looking for:

• Low cost — Typically, minimal or no direct employer fees
• Simplicity — Designed to be easy to set up and maintain
• Minimal administration — Limited employer involvement after initial setup
• Straightforward way to meet applicable state requirements

As businesses grow, some employers begin to look for features that go beyond basic compliance, such as:

• More savings flexibility — Higher contribution limits and broader participation options
• Additional ways to support employees — The ability to contribute as an employer or offer a more competitive benefit
• Greater investment choice — More options to align with individual preferences and financial goals
• Plan design flexibility — The ability to tailor a program to the needs of the business
• Long‑term scalability — A solution that can evolve as the business grows
• Employer tax advantages — Costs associated with employer contributions and plan expenses are generally deductible from the employer’s income²

For many businesses, state-sponsored programs are a practical way to meet applicable state requirements. For others, they’re a first step before exploring alternatives that offer more flexibility, customization and long-term value. Ultimately, there isn’t a one-size-fits-all answer. But with some careful consideration, you can find the option that best fits where your business is today — and where you want it to go tomorrow.

¹Center for Retirement Research at Boston College, Can Service Providers Convince More Small Firms to Offer 401(k)s?, May 5, 2026.

²Retirement Plans Startup Costs Tax Credit. For more information, visit the IRS website, irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit.