Many forward-thinking states (including California, Illinois, Oregon, Colorado, and counting) will soon require small employers (those with 5 to 25 full-time employees) to offer their staff either a 401(k) or a state-mandated secure saving program; also known as an “SSP.” All but the very smallest businesses, those employing four people or less, will be required to provide a 401(k) or SSP. The SSPs envisioned by most states will be a Roth IRA, funded by an employee’s after-tax dollars. Alternatively, small employers can avoid the SSP by setting up a low-cost 401(k) plan. The 401(k) has many advantages over SSPs for employees, including tax deductions, 401(k) loans, and a broad spectrum of investment options.

State-Mandated Secure Saving Programs (SSP) and 401(k): A Comparison for Small Businesses

SSP Roll-Out

The SSP roll-out will be staggered, ultimately affecting every business with five or more employees. Companies that offer 401(k) plans will be exempt from the SSP program. States will provide grants to small businesses to help them defray the costs of setting up either a 401(k) or SSP. Employers found non-compliant with state SSP mandates will be fined $100 per eligible employee per year.