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In Practice September 25, 2026
Do State Auto-IRAs Act as Small Plan Stimulators?
Experts say state mandates initiate conversations, rather than competition.
Reported by
Mallika Mitra
In a growing number of states, employers who do not provide their own retirement plans are required to join state-run individual retirement account deferral programs. As of June 1, 22 states and three cities had enacted new programs, and 17 states had set up auto-IRA programs, according to a report from Georgetown University’s Center for Retirement Initiatives.
But instead of participating in a state-run IRA deferral program, some small business owners are opting to create their own plans.
State-run programs can help address the coverage gap, but they cannot replicate the value, flexibility and outcomes retirement plans managed by private sector advisers deliver, says Christopher DeAndrea, director of retirement plan consulting at MPW Retirement: “In many cases, they simply help employers meet a requirement.”
Why Small Businesses Are Creating Plans
For many small business owners, the choice between a 401(k) and the state-facilitated IRA centers on what they would like the retirement benefit to accomplish, says Chris Magno, senior vice president and general manager at ADP Retirement Services.
Business owners who opt for an employer-sponsored plan are typically looking for the ability to save more than allowed in a state-mandated retirement plan—the 2026 deferral limits are $24,500 for a 401(k), compared with $7,500 in an IRA—and offer an employer match to employees, which is not possible in a state-mandated retirement plan. They are also looking, Magno says, to capitalize on tax benefits to offset the costs, have more control over plan design and investment choices, and attract and retain employees.
Additionally, many companies wanted to start their own plan but were held back by inertia, says Nate Moody, who sees the impact of the mandate on both sides, as a partner in and senior adviser at Lebel & Harriman Retirement Advisors, as well as vice chair of Maine’s workplace retirement savings program.
“They recognize that in order to use their retirement plan as a true employee benefit in the context of recruiting and retaining talent, going with the state program isn’t a differentiator whatsoever,” Moody says. “It’s, by definition, ubiquitous across all plans that plug into it.”
Creating their own plan gives businesses the opportunity to make one that reflects their culture and workplace demographics. Plus, in some cases, as in Maine, Moody says the small business community is skeptical of governmental programs; owners would rather do it themselves.
How Providers Embrace the Trend
For providers, the state mandates offer an opportunity for more adoption. When looking at states with mandates in place, financial technology company Human Interest has found plan additions running about 40% faster than the company-wide baseline.
“We’ve found that state mandates generally prompt small business owners to look at all of their options—not just a state-sponsored plan,” says Marc Fowler, Human Interest’s director of retirement education.
The 401(k) provider Paychex also proactively reaches out to companies that may have state mandates, providing information via email and system pop-ups about what is available, deadlines and penalties of not complying, if applicable, according to Scott Buffington, Paychex’s general manager of retirement.
“What we really find is we can add tremendous value by explaining those tax credits available to them from the SECURE [Setting Every Community Up for Retirement Enhancement] Act,” Buffington says. “The average employer really doesn’t know.”
Overall, Magno says state mandates are a catalyst for a conversation, not competition. They have created a reason for small business owners to engage on the topic of retirement plan options.
Advisers’ Roles
Advisers can add value as businesses grapple with their decisions, though the specifics of how that value is realized will vary.
“We … position ourselves in the marketplace as being a fairly independent arbiter and educator on the pros and cons of one versus the other,” Moody says of his firm.
The major benefit to the state IRA programs is that they are essentially free to the employer, do not require or permit employer contributions, and require very little ongoing compliance and administration. But with an employer-sponsored plan, advisers are encouraged to be creative in the design and differentiate.
“It’s really just helping a business owner understand those two options and their respective trade-offs,” Moody says. “At that point, the decision is usually pretty easy for them to make, as long as they’re kind of ‘eyes wide open.’”
If a business opts for a 401(k), the adviser can take a more hands-on approach than if the employer went the state-run route. For instance, Fowler says advisers can offer personalized tax and business benefits that state plans cannot.
“They can provide a level of education and service with their expertise that others can’t match,” Fowler says.
Overall, state mandates are a large net-positive for retirement plan advisers, Moody says, since data show that the rate of businesses offering a retirement plan has increased in the wake of them.
“The reality is that every large plan, at some point in its existence, started as a small plan, and so many of these will continue to grow into what would be considered a more attractive plan from an advisory perspective,” Moody says.
Whether small plans become more economically viable for advisers to serve depends on how the adviser structures the investment lineup, service model, and fees for startup and small plans, according to DeAndrea.
“When designed efficiently, these plans can be profitable, but success requires a streamlined and automated service model,” he says.
