Business Matters

Increasing Employee Satisfaction: The Role of State Retirement Plans for Businesses

Employee satisfaction is the intangible yet powerful force that facilitates more engaged and productive workplaces. Studies have shown that satisfied employees are likelier to take pride in their work, be loyal to their company, and produce higher quality work.

Organizations that prioritize employee satisfaction are more likely to see success. This goes beyond monetary compensation and includes work-life balance, career growth opportunities, recognition, and a safe culture.


The work environment and compensation are essential to employee satisfaction, but the benefits of a state retirement plan can also make a big difference. Employees who are satisfied with their employer’s retirement plans are likelier to stay on staff and may even recommend the company to friends or family members.

As a result, happy employees can help businesses grow and thrive. Over half of the states in America have enacted laws requiring private-sector businesses of a specific size to participate in a state-facilitated retirement program if they don’t offer their plan. While the inner workings of these plans vary from state to state, they share some standard features.

Most of these programs are administered through payroll deductions, with employees being automatically enrolled but allowed to opt-out. Many of the upcoming registration deadlines for state retirement plans are fast approaching, so now is the time to learn more about them. By preparing for these programs, you can better understand how they work and ensure your business is set up to comply with the law.

These state-sponsored retirement plans often take the form of a Roth individual retirement account (IRA), allowing employees to make tax-favored contributions later withdrawn from the account without penalty. They also tend to include employer-matching contributions. In addition, these plans can be offered voluntarily or in conjunction with other retirement savings options like SIMPLE IRAs and Traditional IRAs.

In comparison, traditional pensions are defined benefit plans that guarantee an employee a fixed annual income in retirement. These benefits are based on an employee’s years and months of service, age, and average final compensation, calculated based on their salary over the last four highest-paid years.


State and local pension systems can impose significant costs on businesses, notably smaller employers. These expenses and ongoing investment fees are often exacerbated by legacy debt, unfunded liabilities from past contributions, and required minimum benefits payments.

In contrast, most private-sector workers receive retirement savings through employer-sponsored plans such as 401(k) accounts or defined contribution (DC) plans, which are not subject to the same significant tax penalties. The taxes levied by state and local governments are used to support essential public services. In a time when budget deficits are increasing, the need for tax revenue is greater than ever.

Consequently, many lawmakers are exploring reducing the taxes that state and local governments can levy on businesses. As the retirement plan marketplace continues to evolve, more states require businesses to offer employees a retirement plan option.

As the number of mandates grows, business owners need a clear understanding of the requirements and options available to them. With the help of a knowledgeable business advisor, owners can meet state requirements while offering a robust employee benefit. This can help increase workforce satisfaction and attract top talent.

State-facilitated IRA savings programs typically provide employees with low-cost investments. They may also have lower contribution limits than 401(k) plans. In addition, most states require the employer to perform administrative work, such as filing, reporting, and adjusting contributions limits, for which many small businesses don’t have the time or staff.

Fourteen states and two cities have passed retirement legislation to address the retirement savings crisis. Many of these initiatives are early and will take time to show their impact. But one thing is clear: providing a retirement plan is suitable for both the business and its employees.


Most employees say a retirement plan is one of the most critical factors in their decision to stay with a company. As a result, a good retirement program can help you attract and retain talented people.

However, many small businesses need more resources to offer their workers a comprehensive retirement package. This is where state retirement plans can come in handy. Unlike traditional employer-sponsored plans, state pensions are administered by the government and not by the business owner.

Moreover, employees contribute to these plans through pre-tax paycheck deductions. The amount of money an employee can save in a state pension is determined by the number of years they have been employed, their age, and the amount of their salary.

As a result, state-run pension plans are a crucial part of overall national savings for retirement. They account for 19 percent of the total retirement saving assets. These plans are also an essential funding source for the 28 percent of state and local government workers not covered by Social Security.

While state-sponsored retirement plans have pros and cons, whether to participate depends on your business and your employees’ needs. While government-run programs offer low costs and few fiduciary responsibilities for employers, they are also inflexible and may require time and resources to manage.

In addition, some states have imposed registration deadlines that you should be aware of to avoid being penalized. State-administered pensions accounted for 19 percent of national retirement savings assets in 2017. Many need to be more funded and facing demographic pressures.

Moreover, their investments tend to be riskier than private-sector pensions, primarily invested in fixed-income securities such as corporate bonds and US Treasury bills. In contrast, state-administered pensions often invest in corporate equities, which are expected to generate higher returns but can be more volatile.