If you have employees in Vermont or New York and you don't currently offer a retirement plan, the state now expects you to do something about it — and the deadline has already passed for many employers.
In the first half of 2026, two state auto-IRA programs hit their key enforcement dates within weeks of each other. Vermont Saves moved to cover employers with as few as five employees by July 1, 2026, while New York's Secure Choice Savings Program rolled out in three waves ending July 15, 2026. If you missed the notice in your payroll inbox, you are not alone: surveys consistently find that more than half of small business owners don't realize their state has a mandate at all — until a penalty notice arrives.
This guide breaks down what Vermont Saves and New York Secure Choice actually require, what "no cost to the employer" really means for your payroll workflow, and how to stay compliant without turning your books into a mess.
What State Auto-IRAs Are and Why They Exist Now
About 56 million private-sector workers in the U.S. have no way to save for retirement at work. To close that gap, states have built auto-IRA programs — state-run Roth IRA arrangements where the employer is required only to facilitate payroll deductions. You don't sponsor a plan, you don't match contributions, and you don't act as a fiduciary.
How it works in practice:
- You register on the state portal or certify that you already offer a qualified plan (401(k), 403(b), SEP IRA, SIMPLE IRA).
- Eligible employees are automatically enrolled at a default contribution rate. They can opt out, change the rate, or rejoin at any time.
- You withhold the elected percentage from their paycheck and remit it to the state's program administrator. That's your core ongoing duty.
By the end of 2026, 19 states plus New York City, Seattle, and Philadelphia will have similar rules in effect. Vermont and New York are simply the two that hit small employers the hardest in the July 2026 wave.
Vermont Saves: Who's Covered and When
Vermont Saves — branded as VTSaves — was signed into law as Senate Bill 135 and is administered by the Office of the Vermont State Treasurer. Vestwell runs the day-to-day accounts. It launched a pilot in October 2024 and opened to all eligible employers on December 1, 2024.
Employer threshold
Any Vermont employer that has had five or more employees at any time in the calendar year and does not offer a qualified retirement plan must register. In 2026 the program is expanding further: amendments adopted in early 2026 extend the mandate to employers with as few as two employees later in the year, so even micro-businesses should track their headcount.
If you already offer a 401(k), SEP, SIMPLE, or other qualified plan to your Vermont workers, you are exempt — but you still need to certify that exemption on the VTSaves portal.
Phased deadlines
The state phased deadlines by employer size:
- 25 or more employees: January 1, 2026
- 5 to 14 employees: July 1, 2026
- Smaller employers: rolling dates into late 2026 as the two-employee expansion takes effect
More than 1,000 Vermont employers had enrolled by early 2025, according to the Treasurer's office, but many 5-to-14-employee businesses hit their first deadline this July.
How contributions work
- Account type: Roth IRA by default. Employees can elect a traditional IRA instead, but they are responsible for confirming their own IRA eligibility and contribution limits with the IRS.
- Default rate: 5% of gross pay, deductible after payroll taxes are calculated.
- Auto-escalation: The rate increases by 1 percentage point each January, up to 8%, unless the employee opts out of the increase or chooses a different rate.
- Investments: If the employee makes no choice, money goes into an age-based target-date fund. A menu of other options is available.
- Access: Because it's a Roth IRA, employees can withdraw their principal contributions at any time without tax or penalty under Roth rules. Earnings are subject to the usual Roth withdrawal rules.
Employers do not contribute. There is no employer match and no employer fee to participate.
Penalties in Vermont
Vermont set a modest initial penalty to get employers registered, then scheduled a step-up. Through September 30, 2026, the maximum penalty is $20 per eligible employee. On or after October 1, 2026, that rises to $75 per eligible employee. Penalties accrue for failure to register or facilitate deductions, not for whether your employees choose to save.
New York Secure Choice: Three Waves Ending July 2026
New York Secure Choice, created by Article 43 of the General Business Law and signed from voluntary to mandatory in 2021, is the state's version for private-sector workers without a workplace plan. After several years of delays, the program went fully operational in early 2026.
Who must participate
You are covered if you are a private-sector employer — including nonprofits — that:
- Has had 10 or more employees in New York at all times during the previous calendar year,
- Has been in business at least two years, and
- Does not offer a qualified retirement plan.
Fewer than 10 employees or less than two years in business? You are exempt for now, but you still must go to the Secure Choice portal and certify your exemption using your access code and EIN. Ignoring the notice does not make it go away — the state tracks non-responders separately from non-enrollers.
Deadlines by size
New York's rollout was explicitly staggered:
- 30 or more employees: Register or certify by March 18, 2026
- 15 to 29 employees: May 15, 2026
- 10 to 14 employees: July 15, 2026
That July date is the one that just swept in the smallest covered employers. If you are in this band and haven't registered, you are already past due.
How contributions work
- Account type: Roth IRA with automatic enrollment. Employees can opt out or adjust at any time.
- Default rate: 3% of gross wages. Employees can raise, lower, or zero it out, subject to federal IRA limits ($7,000 for 2026, $8,000 if age 50+).
- Enrollment timing: New hires must be enrolled within 30 days of hire if they are eligible and haven't opted out.
- Employer role: Facilitate payroll deductions, remit them to the program, distribute the state's program information to employees, and keep records. You don't pick investments or give advice.
Penalties in New York
The penalty structure has been a moving target, which is part of why some owners assumed enforcement wasn't real. Current guidance from program administrators and compliance advisors is clear: after warnings, penalties are $250 per eligible employee per year for non-compliance, rising above $1,000 per employee for subsequent years of continued failure in some proposed schedules. Even if you disagree with the final numbers, the enforcement mechanism is active — the portal cross-checks certified-exempt and registered employers against state tax payroll records.
For context, California's similar program uses graduated fines starting at $250 per employee, rising to $500 after 90 days of continued non-compliance, and Illinois mirrors that approach. Expect New York's final framework to land in the same range.
What "No Cost to the Employer" Actually Means
"Free" is true for plan fees, but not for your time. Here's what to budget:
One-time setup:
- Register at VTSaves.vermont.gov or NYSecureChoice.com, or certify your exemption if you already offer a plan.
- Provide basic payroll information: EIN, employee roster, pay frequency. Both programs offer direct integrations with Gusto, QuickBooks Payroll, ADP, and other providers — using the integration avoids manual upload errors.
- Distribute the state's employee information packet. You can hand it out or email it; don't rewrite it.
Ongoing payroll work:
- Add an after-tax Roth deduction code to your payroll system. This is not a pre-tax 401(k) deduction — it should not reduce federal or state taxable wages.
- Withhold the default or elected percentage each pay period and remit it on the state's schedule, typically alongside your regular payroll cycle. Late remittances are treated like late deposits of employee money, so timeliness matters even though it's not ERISA.
- Handle opt-outs, rate changes, and new-hire enrollments within the required window. Employees can change their rate at any time through the state portal; you apply what the portal tells you to withhold.
What you should not do:
- Don't offer investment advice or steer employees toward staying in or opting out. Hand them the official materials and let them decide.
- Don't treat the withheld amounts as your money. They are employee wages being directed to an IRA. Hold them only as long as your payroll provider requires before transmittal.
The Bookkeeping: How to Keep Your Books Clean
This is where many small employers stumble, because payroll software makes the deduction look like any other withholding but your general ledger needs to tell the story correctly.
1. It's a liability, not an expense
When you withhold 5% for Vermont Saves or 3% for New York Secure Choice, you are not incurring a new cost. You already incurred the wage expense when you ran payroll.
- At payroll: Debit Wages Expense for the full gross, credit Cash for the net check, credit Payroll Liabilities: State Auto-IRA Payable for the withheld amount (alongside your other withholdings).
- At remittance: Debit Payroll Liabilities: State Auto-IRA Payable, credit Cash when you transmit to Vestwell or the New York program administrator.
If you book the remittance as an expense, you will double-count wages and understate profit.
2. Keep it out of your retirement expense accounts
Don't post these deductions to "Retirement Plan Expense" or "Employer 401(k) Match." Those accounts should reflect only money you actually contribute as the employer. Auto-IRA withholdings are employee-funded by definition. A separate liability account — for example, Liabilities:Payroll:VTSaves and Liabilities:Payroll:NYSecureChoice — keeps reconciliation straightforward and keeps your P&L honest.
3. Reconcile like any other withholding
Your payroll provider should show the deduction on each pay stub and in the payroll journal. Each month, reconcile the liability account: beginning balance plus total withheld minus total remitted should equal the ending balance, which should be zero or a small timing difference if a pay date straddles month-end. If the balance grows, you are withholding but not remitting.
In plain-text accounting, that pattern is satisfying to capture — a single liability account that tells you instantly whether every pay period's deductions actually left the business.
4. Watch the IRA eligibility edge cases
Because these are IRAs, not employer plans, income limits and contribution caps still apply. An employee earning above the Roth IRA phase-out or who already maxed out IRA contributions elsewhere could make an excess contribution through the auto-IRA without realizing it. You are not required to police eligibility, but flagging the state's disclosure language about IRA limits during onboarding is a kindness that prevents a springtime correction headache.
5. Separate tracking if you operate in both states
If you have employees in Vermont and New York, maintain two liability accounts. The contribution rates differ, the portals differ, and remittance confirmations come from different administrators. Commingling them guarantees a reconciliation puzzle at year-end.
Should You Just Start a 401(k) Instead?
An auto-IRA mandate has a deliberate escape hatch: offer a qualified plan and you are exempt. For many small employers, the decision comes down to cost, recruitment, and whether you want to contribute yourself.
Stick with the state auto-IRA if:
- You have thin margins, high turnover, or a workforce that might not value a 401(k) yet, and you want zero employer cost and minimal fiduciary exposure.
- You want the lightest administrative lift while you are still stabilizing the business.
Consider a private plan if:
- You want to attract or retain employees with a match, or you want to maximize tax-advantaged savings for yourself as the owner. A Solo 401(k), SEP, or SIMPLE IRA may let you contribute far more than the $7,000/$8,000 IRA limit.
- You want to control the investment lineup, vesting, or eligibility rules.
- You prefer a single plan covering employees in multiple states, rather than certifying exemptions state by state.
A SIMPLE IRA is the most common stepping stone for Maine-Street-sized employers who outgrow the auto-IRA: low startup cost, modest paperwork, and you can set it up through most payroll providers. If you go this route before your state deadline, register your exemption as soon as the plan is active — the exemption is not retroactive to the day you started shopping.
Note that related federal incentives have also shifted: SECURE 2.0 offers tax credits to small employers that start a new qualified plan, which can offset much of the first-year cost. Run the math with your accountant before assuming "free IRA" beats "subsidized 401(k)."
A Compliance Checklist You Can Run This Week
Whether you are a Vermont shop with six employees or a Brooklyn studio with twelve, the same five steps apply:
- Confirm whether you are covered. Do you have enough employees in the state, have you been in business long enough, and do you offer a qualified plan? If you are unsure about headcount, count anyone who received wages in the state during the calendar year — part-time and seasonal workers count in both states.
- Register or certify by your deadline. Already past it? Register now. Late compliance is still compliance, and it stops the penalty clock faster than waiting for a notice.
- Configure your payroll deduction correctly. Use an after-tax Roth code at 5% for Vermont or 3% for New York as the starting default, enable auto-escalation for Vermont if your provider supports it, and test one paycheck before the next full run.
- Deliver the employee notice and honor choices. Employees have 30 days after being given program information to opt out before deductions start. Apply opt-outs and rate changes exactly as the state portal reflects them — don't override them in payroll.
- Build the remittance and reconciliation habit. Transmit deductions on schedule, keep confirmations, and reconcile the liability account monthly. Treat unremitted withholdings with the same urgency as unremitted tax withholding.
Don't Wait for the Penalty Notice to Open Your Mail
Vermont and New York both had slow, then sudden, rollouts. The pilot years and delayed deadlines trained employers to think "we'll get to it later," and then July 2026 made "later" past due for the smallest businesses — exactly the group with the least spare capacity to absorb a per-employee penalty.
The good news is the fix is narrow: register or certify, wire up one deduction code in payroll, and remit cleanly. Put it on the same monthly close checklist as bank reconciliation and sales tax — not as a separate project you'll get to "next quarter."
Small mandates have a way of becoming expensive precisely because they feel small enough to ignore.
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