The signing of HB 2174 into law by Gov. Ralph Northam in April 2021 established VirginiaSaves that will give many of these individuals an opportunity to participate.
Virginia joins Maine this year in creating a state-mandated, employer-sponsored retirement program (Roth IRA). Oregon, California and Illinois have implemented programs, while others are at various stages of rolling out similar programs.
Details on Virginia’s State-Mandated Retirement Program
The United States has a growing retirement problem that must be addressed, with a report showing households with individuals nearing retirement having a median retirement account balance of $14,5001. Nearly 800,000 employees could benefit from participation in VirginiaSaves, according to AARP.
Although some details of the plan are still being worked out, it is expected that the program will be rolled out in phases similar to how other states with mandated programs have approached implementation. This means larger businesses could be required to register first. Enrollment is scheduled to begin no later than July 1, 2023 for eligible employers, but an exact timetable has not been set.
Administration and development of the program lies with the Virginia College Savings Plan board, which also runs the state’s 529 program.
What Employers Should Know About VirginiaSaves
Participation is mandatory for businesses who:
- Have been in operation for at least two years
- Had 25 or more employees in the previous calendar year
- Do not already offer a qualified retirement plan to employees
A qualified retirement plan includes a 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b).
The law also stipulates that employers eligible to participate includes self-employed individuals, sole proprietors, non-governmental businesses or other enterprises, whether for-profit or not-for-profit.
Employers will automatically enroll eligible employees — anyone at least 18 years of age who receives wages — but employees can opt out. Part-time employees (those who work fewer than 30 hours a week) are not eligible after the Virginia Senate defeated an amendment by Gov. Northam to include part-timers in the program.
Employers cannot contribute to the program such as matching funds.
What are Compliance Obligations for Employers Under VirginiaSaves?
Similar to some of the currently active state-mandated programs, employer involvement is minimal with VirginiaSaves, but there are certain requirements necessary to stay compliant. Businesses must:
- Register by the deadline (when provided) or offer a qualified option that satisfies the mandate
- Set up payroll deduction for employees (the percentage of wages allocated per pay period has yet to be determined)
- Hold an annual open enrollment period
While the Virginia College Savings Plan board develops policies to implement and run the VirginiaSaves program, eligible businesses could begin looking at what best fits the needs of their employees. Businesses don’t have to wait for VirginiaSaves registration deadlines to be announced either and, instead, could consider establishing a retirement plan such as a 401(k) or even a Pooled Employer Plan to satisfy the mandate.
*Feasibility Study of Retirement Savings Programs for Virginia (HJR 103), 2018
1National Institute of Retirement Savings, “The Continuing Retirement Savings Crisis”