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Demystifying State-Mandated Retirement Plans: What Employers and Employees Need to Know

May 7th, 2025

3 min read

By Joshua Thomas

state-mandate-retirement-program
Demystifying State-Mandated Retirement Plans: What Employers and Employees Need to Know
4:43

If you’re an employer, you’ve probably heard the term "state-mandated retirement plan" tossed around a few times. Maybe you've been ignoring it. Maybe you’ve been meaning to Google it (but TikTok always wins in the end). Or maybe you're just wondering if this is one of those things that will disappear on its own.

Spoiler alert: It won't.

State-mandated retirement programs are here to stay, and more states are joining the movement every year. But don’t sweat it—this guide will break down what they are, what they mean for your business and your employees, and how Paragon Payroll can help make compliance a breeze.

What Are State-Mandated Retirement Plans, Anyway?

Let’s start from square one. A state-mandated retirement plan is a program that requires eligible employers to offer a retirement savings option to employees. This could mean enrolling employees in a state-sponsored Roth IRA or offering an alternative plan like a 401(k).

Typically, the state-sponsored option is a Roth IRA, where employees contribute post-tax dollars and enjoy tax-free withdrawals in retirement. These plans are employee-funded (no employer contributions required), and the employer’s main role is to facilitate payroll deductions and submit them through the state portal.

Sounds easy enough, right? But like anything that involves regulation and payroll, the devil is in the details.

Who Needs to Comply?

It depends on your state, your headcount, and how long you’ve been in business. For example:

  • In California, employers with 5+ employees must comply.

  • In Illinois, the same applies, but only if you’ve been in business at least 2 years.

  • In Virginia, it kicks in for employers with 25+ employees.

And more states are rolling out their versions of these programs each year.

[👉 Check this full compliance chart here]

Why States Are Doing This

Because only about 10% of employees at small businesses currently have access to a retirement plan. Yikes. The goal is to increase retirement savings among workers and reduce reliance on public assistance later in life. States also want to nudge employers into offering benefits—without mandating employer contributions.

Win-win... kind of.

Employer Benefits: Why You Should Actually Want This

Sure, it might feel like just another thing to worry about, but there are upsides:

  • You become a more attractive employer: Offering retirement options can help you compete for talent.

  • Less administrative burden than you think: Especially if you automate it (more on that in a minute).

  • Tax credits: If you opt to offer your own 401(k), there are tax credits available for setup and automatic enrollment.

  • Reduced turnover: Financial wellness benefits like retirement planning can improve retention.

Employee Benefits: Retirement Is Cool, Actually

  • Automatic enrollment: Employees are more likely to save when it’s done for them.

  • Tax advantages: Roth IRAs grow tax-free. That’s a big deal.

  • Portable accounts: The accounts belong to the employees, not the employer.

  • More confidence: Employees with savings options feel more financially secure.

So How Can Paragon Help?

We offer two pathways:

Option 1: Automate It (Recommended)


For just $60/month, we handle everything through our isolved integration with PayKonnect.

  • We automatically report employee contributions to the state portal after each payroll.

  • No manual uploads, no missed deadlines, no stress.

Option 2: Go Manual (If You Must)


You do the registering, logging in, uploading, and managing every pay period.

  • Paragon will process the deductions, but you're on the hook for everything else.

Spoiler: Manual is more work, more risk, and less fun.

The Fine Print: Money Movement & Responsibility

Important to note: Even with automation, Paragon does not handle the money movement. That means it’s up to the employer to ensure funds are sent to the state or retirement provider. We handle the deduction, but not the deposit.

You are also the entity responsible for logging into your state portal to approve contributions, if required.

Why You Should Care

State-mandated retirement plans are not optional—but they don’t have to be a headache either. With a bit of planning and the right tools (hey there, Paragon!), you can turn this requirement into a competitive advantage.

Need help understanding if your business is affected or how to get started? We’ve got your back.

Let’s Get Compliant (and Make Life Easier)

Let's Talk! or email info@paragonpayroll.com to explore your options.

Retirement is serious business. But we’re here to make it a little easier—and maybe even a little fun.