Hawaii Establishes a Retirement Savings Account Program

On July 12, 2022, Gov. Ige signed SB 3289 into law, establishing the Hawaii Retirement Savings Account Program. The program will be a state-facilitated payroll-deduction retirement savings plan for private sector employees in Hawaii who do not have access to employer-sponsored retirement plans. The new law also creates a new board within the Department of Budget and Finance. The board, once appointed, will determine the program’s time frames, including effective dates of employee contributions and enrollment.

Any employer who is in business in Hawaii, has at least one employee working in that state and did not maintain a tax-qualified retirement plan for employees during the preceding two years will be required to provide a notice to employees. The notice, for which we expect a model from the board, will inform employees of their right to opt into the program. If an employee enrolls, the employer will be required to withhold the contribution amount from the employee’s salary or wages. The employer will then be required to transmit the contributions to the state program on the earliest date that the amount can reasonably be segregated from the employer's assets, but no later than the fifteenth day of the calendar month following the month in which the employee's contribution amounts were withheld. Failure to comply could result in a penalty of no less than $500 for each violation or failure (up to a maximum of $5,000 per calendar year).

The default election amount will be 5% of the employee’s salary or wages. The employee may elect to contribute a higher or lower percentage as long as the amount does not exceed IRS limits. The program shall establish for each enrolled employee a Roth IRA, into which the contributions deducted from an employee's payroll shall be deposited. The board may decide to add a traditional IRA as an option. Employer contributions will not be permitted. However, there is a special fund from which the board may decide to contribute $500 for the first 50,000 covered employees who participate in the program for twelve consecutive months after initial enrollment.

This is just the latest requirement for employers with at least one employee in Hawaii. The state already has a statutory disability requirement as well as unique requirements related to medical coverage. For additional information on these requirements, please ask your advisor for details. In regard to the new retirement savings program, employers should be aware of the new requirement and continue to watch for updates in Compliance Corner.

SB 3289 »