Delaware Retirement Mandate: EARNS Rules for Employers
Delaware EARNS makes employers without a retirement plan register or certify exemption. Deadlines, penalties, auto-IRA mechanics, and the 401(k) option.
The first Delaware employer I helped through this had already thrown the letter away. It arrived with a code printed on it, no logo he recognized, and language about retirement savings, so he read it as a sales approach from a financial services firm and tossed it. It was the state, the code was the only easy way to tell Delaware he was exempt, and the deadline printed on it had passed months earlier.
That is the shape of this mandate in practice. It is not a benefits decision you sit down and make. It is a compliance obligation that arrives in the mail, applies whether or not you open the envelope, and has a dollar penalty attached to ignoring it.
By the end of this guide you will know who has to register, how the staged deadlines actually work, what noncompliance costs and when the state can start charging it, how the savings mechanics run without a dollar or a decision from you, and the honest case for sponsoring a 401(k) instead.
I build people and records tooling for businesses without an HR department at FirstHR. FirstHR is an onboarding and HR platform, not a payroll provider or a retirement plan provider, and this is general information rather than tax or legal advice.
What Delaware EARNS Is
Delaware EARNS is the state-facilitated retirement savings program that satisfies the mandate. EARNS stands for Expanding Access for Retirement and Necessary Saving, and it is a payroll deduction arrangement that funds each employee's own Roth individual retirement account (IRA) rather than an employer-sponsored plan.
That board is the Plans Management Board. It has governed the program since January 1, 2026, taking over the duties of the original EARNS Program Board, according to the Office of the State Treasurer.
The founding statute is explicit that the program is meant to sit alongside private plans rather than replace them. Section 3801 describes EARNS as a public-private partnership designed to encourage, not replace or compete with, employer-sponsored retirement plans (Delaware Code Title 19, Chapter 38). That framing matters, because it explains why sponsoring your own plan takes you out of the mandate altogether.
Delaware is one of a growing group of states running this model. According to Georgetown University's Center for Retirement Initiatives, 22 states had enacted programs for private-sector workers as of September 30, 2026, and 17 of them use the same auto-IRA design.
Which Employers Must Register
You are covered if you employ five or more covered employees in Delaware, have been in business in the state for at least six months, and do not maintain a qualifying retirement plan. All three conditions have to be true at once, and the employee count looks backward as well as forward.
The statutory definition in Section 3802 is tighter than the plain-English version. A covered employer employs, and during the previous calendar year employed, at least five covered employees, and has been in business in Delaware for at least six months in the immediately preceding calendar year.
The Delaware Office of the State Treasurer states the same test on its program page as five or more W-2 employees in Delaware, full-time or part-time, with the business operational for at least six months (Office of the State Treasurer).
| Test | What the law says | What trips employers up |
|---|---|---|
| Employee count | At least five covered employees, counted in the previous calendar year as well as now | Part-time staff count. So does anyone whose wages are allocable to Delaware |
| Time in business | At least six months in the immediately preceding calendar year | The program phrases this as being in business since July 1 of the previous year |
| Existing plan | No specified tax-favored retirement plan maintained | A plan you sponsor exempts you, but if a notice arrives anyway, you certify the exemption |
| Employer type | Private businesses and nonprofits; government employers are outside the definition | Nonprofits are covered, which surprises small nonprofit boards |
| Who is not a covered employee | Government employees, Railway Labor Act employees, Taft-Hartley plan participants, anyone under 18 | Under-18 staff drop out of the count entirely |
| Employee eligibility | At least 18 and earning taxable wages from a Delaware employer | Tenure matters too: employees go on the roster once they have been employed for 120 days |
The nonprofit point deserves a line of its own. Chapter 38 names nonprofit entities inside the definition of a covered employer, so a small charity with a handful of staff and no plan is under the mandate in the same way a for-profit business is.
An employee's length of service plays no part in the coverage count, but it does decide when that person goes on the roster. Under the program regulation, a registered employer submits every covered employee employed for at least 120 days, then keeps registering new hires as they reach that mark (Delaware Administrative Code, Title 1, Regulation 1701).
The Deadlines and How They Reach You
Delaware has not run this on one statewide date. It has run a series of staged deadlines instead, each tied to when a particular business was identified as covered and each announced by a mailed notice with an access code.
The practical consequence is that you cannot work out your own deadline by reading the statute. Chapter 38 says covered employers shall register when and as required by the board, which pushes the timing into program administration rather than into law. Your date is whatever the notice addressed to your business said.
If you cannot find the notice, that is a solvable problem rather than a dead end. The program will resend the access code to your email address, and both registration and exemption certification run off the same code paired with your federal Employer Identification Number (EIN). What you cannot do is wait for a friendlier reminder.
What Missing One Costs
Administrative penalties reach $250 per employee per year, with a maximum total of $5,000 per year. That ceiling comes straight from Section 3805 of Title 19, and the board has exclusive authority to enforce the chapter.
The path to a penalty is more forgiving than the number suggests. The board first issues a notice setting out the nature and extent of the alleged noncompliance, giving instructions for compliance, and specifying the potential penalties. Only if the employer fails to come into compliance within 90 days of that notice may the board initiate enforcement proceedings.
There is a separate exposure that no cure period covers. The statute preserves employer liability for failing to remit employee contributions, which is money you already withheld from somebody's pay. Treat those transfers with the same seriousness as tax deposits: the money is the employee's, and it has to arrive on time.
How the Auto-IRA Works
Every meaningful setting in this program is decided by the state board or by the employee. Nothing on this list is a choice you make, which is why the mandate is administratively light even though it is legally binding.
The Roth default is the part that catches employers off guard when an employee asks about it. Contributions come out after tax, so a saver sees the deduction hit take-home pay in full rather than reducing taxable wages the way a traditional 401(k) deferral does. That is worth understanding before you explain a new line on the pay stub, even though the program handles the education itself.
The federal contribution ceiling is the other constraint people miss. Because these are IRAs, they inherit IRA limits. For 2026 the IRS set the annual IRA contribution limit at $7,500, with a $1,100 catch-up at age 50 and over (IRS Notice 2025-67, announced November 13, 2025).
A second limit hits higher earners. Under the same notice, the Roth income phase-out for 2026 starts at $153,000 of modified adjusted gross income for single filers and $242,000 for joint filers.
Your Payroll Role
Your obligations under Section 3804 come down to four verbs: register, offer the choice, provide the program materials, and remit contributions on time. The section also covers any other duty the board requires to facilitate enrollment and administration, but the program handles everything else itself.
Notice what is absent. You do not enroll people into their accounts, answer investment questions, manage portfolios, process distributions, or handle account changes. The program materials list each of those explicitly as things employers are not responsible for, and that list is the best short answer to a nervous owner asking how much work this will be.
What does need a record is the remittance trail, because the one duty that carries real liability is also the one nobody can reconstruct from memory six months later.
| A | B | C | D | E | F | G | H | |
|---|---|---|---|---|---|---|---|---|
| 1 | Pay date | Pay period end | Participating employees | Total withheld | Date submitted to the program | Confirmation or reference | Submitted by | Notes |
| 2 | Example | Withheld after taxes; treat the transfer the way you treat a tax deposit | ||||||
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No Money, No Fiduciary Duty
Two hard boundaries define this program, and both of them are in the employer's favor. You cannot put money in, and you cannot be held responsible for how the money performs.
These two boundaries make the choice between EARNS and a real plan genuine rather than a formality. A sponsored plan brings fiduciary duty, plan documents, and in most cases a Form 5500 filing obligation, the annual plan report filed with the federal government. The state program brings none of that and buys you none of the advantages either.
Saying you offer retirement benefits therefore says very little if all you do is facilitate EARNS. You are providing access to a savings mechanism that any individual could open independently. It is useful for people who would otherwise save nothing, but it is not the same as a plan you fund.
Dwight SchruteSales3 people
Darryl PhilbinWarehouse1 person
Kelly KapoorCustomer Service1 personCertifying Exemption
Sponsoring a qualifying plan exempts you. If a notice reaches you anyway, you certify the exemption using the same access code and EIN, because doing nothing looks identical to noncompliance from the outside.
Section 3802 defines a specified tax-favored retirement plan as a plan qualified under or described in sections 401(a), 401(k), 403(b), 408(k) or 408(p) of the Internal Revenue Code, or an automatic enrollment payroll deduction IRA covering all covered employees and meeting the board's other conditions.
In everyday terms, a qualifying plan means a 401(k), a pension or profit sharing plan, a 403(b), a SEP IRA, or a SIMPLE IRA.
Whether you have to act depends on the notice. The administrator screens its mailings against Form 5500 data to cut down the notices that reach employers with a plan, and a plan sponsor who never receives one is not required to take any action (Regulation 1701, section 3). If one arrives anyway, the screening missed your plan.
Whichever of the two applies to you, write the determination down once: the record below holds the three tests, the conclusion they produce, and the confirmation number for the action you actually took.
EARNS or Your Own 401(k)
The honest comparison is not which is better but which problem you are solving. If the problem is a compliance obligation you want gone at zero cost, the state program solves it. If the problem is that you or your senior people want to save serious money, only a plan solves it.
| Dimension | Delaware EARNS | Your own 401(k) |
|---|---|---|
| Employee contribution limit | IRA limits: $7,500 for 2026, plus $1,100 catch-up at 50 and over | $24,500 in elective deferrals for 2026, plus a catch-up |
| Income phase-out | Roth IRA phase-out begins at $153,000 single and $242,000 joint for 2026 | No income limit on making elective deferrals |
| Employer contributions | Not permitted by statute | Permitted, and deductible |
| Fiduciary responsibility | None for the employer | Yes, including investment selection and monitoring |
| Cost to the employer | Free to facilitate | Setup and recordkeeping fees, plus any contributions |
| Federal tax credits | Not applicable | Startup and auto-enrollment credits available for new plans |
| Annual filings and testing | None for the employer | Nondiscrimination testing and generally a Form 5500 |
| Employee ownership of the account | Yes, the Roth IRA is theirs and portable | Yes, subject to any vesting on employer money |
Row one and row two are where most owner-operated businesses make their decision. A Roth IRA limit of $7,500 is roughly a third of the 401(k) deferral limit, and the income phase-out can shut an owner out of contributing to the state program entirely while the mandate still applies to the business. That combination is common in professional services firms.
The lists below sort the reasons to stay with the state program (pros) from the reasons to look at your own plan (cons).
What Sponsoring a Plan Costs
A new 401(k) costs less than most small employers assume, because federal credits absorb a meaningful share of the setup and administration in the early years. That does not make it free, and the ongoing obligations are real.
What you take on in exchange is a plan document, a recordkeeper, fiduciary responsibility for investment selection, and annual compliance work. The IRS overview of 401(k) plans sets out the qualification and operational rules a sponsor has to meet, including the annual nondiscrimination tests that verify deferrals and matching contributions do not favor highly compensated employees (401(k) plan overview).
Two design questions decide most small business outcomes. The first is whether you need a safe harbor design to escape annual testing, which depends on how much the owners want to defer relative to everybody else.
The second is how much of the newer flexibility from recent federal retirement legislation applies to your situation, since several of the provisions were written specifically for employers making a first attempt at this. Neither question exists under the state program, which is precisely the trade.
Where Employers Get This Wrong
Five patterns trip employers up, and the first is the one that starts the whole problem.
Treating the notice as junk mail is first. The access code is the key to both registration and exemption, and the envelope does not look like a government demand. Tell whoever opens your mail what to watch for.
Ignoring a notice because you already have a plan is second. The plan exempts you legally, but a notice means the program's screening did not match it, and until you certify, the program has no record that the plan exists.
Leaving part-time staff out of the count is third. The threshold counts covered employees regardless of hours, so a business that feels small by full-time headcount can still be over the line.
Forgetting that nonprofits are covered is fourth. Chapter 38 names nonprofit entities inside the definition, and small nonprofit boards frequently assume the opposite.
Letting remittances slip is fifth and is the only one that carries liability no cure period fixes. Money withheld from an employee's paycheck and not transferred is a different category of problem from a late registration.
The first four share one fix: when the notice arrives, find the access code, work out whether you register or certify an exemption, and record what you did.
Nick Anisimov, FirstHR founder
Frequently Asked Questions
What is the Delaware retirement mandate?
It is a state law that makes private employers without a retirement plan of their own offer their workers Delaware EARNS, a state-facilitated Roth IRA program funded by payroll deduction and created under Title 19, Chapter 38 of the Delaware Code. You are a covered employer if you run a business or nonprofit in Delaware, have at least five covered employees now and had at least five during the previous calendar year, and operated in the state for six months or more of that year. Employers that already maintain a qualifying tax-favored plan are excluded. If a notice reaches one of them anyway, the right response is to certify the exemption instead of ignoring the letter.
Does the employer have to contribute to Delaware EARNS?
No, and the law does not allow it. Under Section 3804 of Title 19, neither employers nor nonparticipants may put money into program accounts, so an employer match is ruled out by statute rather than by choice. Every dollar comes from employee payroll deductions into the saver’s own Roth IRA, and the program materials describe facilitation as free to employers. Company money for retirement savings requires sponsoring your own plan, which is the trade-off the mandate leaves open. That same section also says employers carry no fiduciary duty for the program’s design, its materials, or the vendors the board picks, so no matching decision and no investment decision is left for you to make. Your whole financial role is passing along money that already belongs to the employee.
What is the penalty for not registering for Delaware EARNS?
Administrative penalties run up to $250 per employee per year, with a cap of $5,000 per year in total (Section 3805 of Title 19). The state does not jump straight to a fine. The program’s governing board, which has been the Plans Management Board since January 1, 2026, starts by sending a notice that describes the noncompliance and explains how to fix it. Only if the employer is still out of compliance 90 days after that notice may the board open enforcement proceedings, and the statute bars proceedings against an employer until one year after its first compliance date. The board alone enforces the chapter, must set up a process for employee complaints, and receives any employer-compliance complaints that reach other state agencies. One exposure has no cure period at all: money withheld from a paycheck and never remitted.
What is the default contribution rate for Delaware EARNS?
The default is 5 percent of gross pay, withheld after tax because the account is a Roth IRA. A saver is also stepped up by 1 percent every January, beginning once they have been enrolled for at least six months and stopping when the rate reaches 10 percent. None of this is fixed for the employee: they can skip any year’s increase, set their own rate anywhere from 1 percent to 100 percent of pay within federal IRA limits, or opt out of the program entirely. The 5 percent figure is the board’s choice, and the statute lets the board pick a default anywhere between 3 percent and 6 percent.
Can employees opt out of Delaware EARNS?
Yes, at any time and with no explanation required. Employee participation is voluntary, even though the employer’s part, registering and facilitating, is not. Once you have put someone on the roster, the program contacts them directly and allows thirty days to opt out or customize their account before automatic enrollment starts. An employee who opts out inside that window never has a deduction taken. One who opts out later triggers a notice from the program telling you to stop deductions, and can withdraw what has already gone in. Someone who has left the program can rejoin down the road. The savings rate is the employee’s decision too, as is whether to accept the automatic January increase in a given year.
Which retirement plans exempt an employer from Delaware EARNS?
A 401(k), a profit sharing or pension plan, a 403(b) at a nonprofit, a SEP IRA, or a SIMPLE IRA each exempts the employer, because the statute treats them as specified tax-favored retirement plans. Section 3802 defines that term by pointing to Internal Revenue Code sections 401(a), 401(k), 403(b), 408(k) or 408(p). A payroll deduction IRA that automatically enrolls every covered employee and meets the board’s other conditions counts as well. Sponsoring one of these takes you out of the mandate. Under the program regulation, a sponsor that never receives a notice has nothing to file, while one that does should certify the exemption using its access code. Employers with fewer than five covered employees are asked to certify too, and the program will resend a lost access code by email. The administrator checks Form 5500 filings before mailing, so a notice sent to a business with a plan means that check missed it, and certifying corrects the record.
Is a 401(k) better than the state program?
It is a different product rather than a better version of the same one, and the numbers decide it. The state program pushes money into a Roth IRA, which for 2026 caps annual contributions at $7,500 plus a $1,100 catch-up at age 50, and phases out entirely at higher incomes. A 401(k) allows $24,500 in employee deferrals for 2026, permits employer contributions, and carries federal tax credits for new plans. It also brings plan documents, testing, and annual filings. Owners who want to save meaningfully usually need the plan; employers who want the obligation gone usually do not. The income phase-out is most often the deciding factor. It begins at $153,000 of modified adjusted gross income for single filers and $242,000 for joint filers, so a high-earning owner may be unable to contribute to the state program at all, even though the business must still comply with the mandate.
Who counts toward the five employee threshold in Delaware?
Covered employees are individuals employed by a covered employer with wages allocable to Delaware, whether full-time or part-time, which is why part-time staff cannot be quietly left out of the count. The statute excludes several groups: employees of federal, state, county or municipal government and their agencies, employees covered under the federal Railway Labor Act, employees on whose behalf the employer contributes to a Taft-Hartley multiemployer pension plan, and anyone under the age of 18. The count also looks backward, at the previous calendar year, not only at today’s roster. The Office of the State Treasurer puts it more simply: a business with five or more W-2 employees in Delaware, whether full-time or part-time, that has operated for six months or longer and offers no qualified retirement plan is covered.
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