Hawaii's state-sponsored retirement program

What should Financial Advisors do?

The first step is to notify your plan sponsors of the upcoming legislation and make it clear that the state-sponsored plan is not an auto-enroll plan and their current plan is still good.

Proactively communicate what the legislation means and encourage employers to have a better 401(k) plan in place to give them and their employees greater flexibility, more options, and better contribution capabilities. 

Key Points to share:

• If their 401(k) plan isn’t in place they may have to contribute to the State’s program
• Hawaii Saves retirement program will NOT be an Auto-IRA
• It is expected to be up and running by July 1st, 2024

What should employers do?

Talk to their financial advisor or TPA about their plans and make sure they are providing the best option for employees and are setting their company up for success. 

They should take advantage of the benefits of having knowledgeable advisors and administrators who can help design, implement and administer a plan that will meet their specific needs.
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What is the Hawaii Savings Retirement Act program?

This program is designed to fill the gap if an employer hasn’t implemented a retirement program for their employees. The State’s program isn’t as flexible or comprehensive as a private plan offered on the open market. Companies who aren’t familiar with other retirement options may find themselves enrolling with the state-sponsored program.

The new program is for employees without an employer-sponsored retirement plan and contributes a portion of their income to a state-run retirement account, with the state providing matching contributions for low- and moderate-income workers. The program is modeled after similar programs that have been implemented in other states.

• Full details: https://www.capitol.hawaii.gov/sessions/session2022/bills/SB3289_CD1_.htm
• Dept of Labor link

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Employers - What is required?

• Employers will need to provide covered employees with written notice that they may opt in to the program
• Withhold covered employees’ contribution amount from their salary or wages
• Transmit covered employees’ payroll deduction contributions to the program on the earliest date the amount withheld can reasonably be segregated from covered employees’ assets, but no later than the 15th day of the calendar month following that in which the covered employees’ contribution amounts are withheld.
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Who qualifies for the Hawaii Savings Retirement Act and what benefits are available to them?

Private-sector "covered employees" in Hawaii who do not have access to employer-sponsored retirement plans.
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What is a qualifying "covered employer"

A covered employer is one who has been in business in the state for more than two years and has one or more employees. Covered employer does not include the state, federal government, or a person who has maintained a tax-qualified retirement plan for its employees in the preceding two years.
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What is a qualifying "covered employee?"

A covered employee means an individual who is a resident of the State, is 18 years of age or older, and receives wages from a covered employer. Covered employee does not include an individual covered under the federal Railway Labor Act or on whose behalf the employer makes contributions to the Taft-Hartley multiemployer pension fund.
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What are the contribution limits and rules of the Hawaii Savings Retirement Act?

Employees in the Hawaii Savings Retirement Act can deduct up to $2,500 of their retirement contributions from their taxable income each year. Retirees over the age of 65 can deduct up to $3,000 of their retirement income from their taxable income each year.

The default contribution amount will be 5% of each employee’s wages or salary with the ability to contribute less or more “as long as the amount does not exceed the applicable contribution dollar limits under the Internal Revenue Code.”

Drawbacks to the Hawaii Savings Retirement Act that advisors and employers should be aware of.

There are several drawbacks to a state-sponsored plan, which is why we highly recommend setting up a private 401(k) plan through a financial advisor or directly with The Ryding Company. The key drawbacks to the state-run plan could include:

• Lower annual contribution limit with restrictions based on income
• Less flexibility for unique circumstances
• Plans that aren't as comprehensive as plans offered on the private market
• Lower service levels
• Plans may not take advantage of more complex benefits

The plan will likely not be as comprehensive or as flexible as other options on the market. Retirement plans in the private market could offer better contribution options, higher service levels, and custom plan designs above and beyond what a state-sponsored plan can provide. 

Instead of a cookie-cutter retirement plan, advisors and employers should be shopping for the best plan options on the market. The wide range of plans offered by The Ryding Company can be designed to the specific needs of the plan sponsor..

If you are interested in exploring flexible and custom retirement plan options, see our Services page.

This information is provided as general guidance and may be affected by changes in law or regulation. It is not intended as accounting or legal advice. If you have questions please reach out to our team.

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