Virginia lawmakers sent a bill to Gov. Ralph Northam Wednesday to create a state-sponsored retirement savings program for private-sector employees who lack access to such a plan at work, making it the 13th state to adopt a program.
Gov. Northam, a Democrat, is expected to sign the bill into law. It could provide more than half of the 1.2 million Virginia residents without a retirement savings plan at work with the option to save through payroll deductions, according to AARP, an advocacy group for older Americans and a supporter of state-run retirement savings programs. AARP says 44% of Virginia’s private-sector employees work for a company that doesn’t provide a retirement plan.
Under the Virginia plan, to be called VirginiaSaves, employers that have 25 or more full-time employees—defined as working at least 30 hours a week—and that have been in business at least two years and don’t offer a retirement savings plan would be required to automatically enroll employees in an individual retirement account, or IRA, at a percentage of pay that has yet to be determined. Employees would be able to opt out or change their savings rate.
Employers aren’t required to contribute to the accounts and aren’t considered fiduciaries, the bill says.
The measure to authorize a state-run program in Virginia passed the state’s legislature earlier this year. But the scope of the program remained unclear until yesterday, when the Senate defeated an amendment from Gov. Northam to extend eligibility to many part-time workers.
“It is disappointing that the program is limited to employers with 25 or more employees and excludes part-time employees, as this leaves out almost 500,000 individuals working for many small businesses,” said Natalie Snider, state advocacy director at AARP in Virginia.
Virginia is the latest state to approve a program that requires many businesses without retirement savings plans to automatically enroll workers in the state program. The city of Seattle has also adopted such a program. A handful of other states, including Vermont and New York, have opted for programs in which participation for both employers and employees would be voluntary. States including Oklahoma are considering proposals for similar programs.
Most of the state programs are under development. OregonSaves, which began enrolling workers in 2017, has amassed just over $100 million in workers’ IRAs, according to
executive director of the Oregon Treasury Savings Network.
Programs in California and Illinois have each amassed about $55 million each since starting in 2019 and 2018, respectively, according to Georgetown University’s Center for Retirement Initiatives. So far, about one-third of eligible employees in those states have chosen not to participate, according to Georgetown’s Center.
“These programs have demonstrated strong growth even through the Covid-19 pandemic,” said Angela Antonelli, executive director of the Georgetown Center.
AARP data indicate about 55 million full- and part-time private-sector workers lack access to retirement-plan coverage at work. Legislators who support the programs argue they will save taxpayers’ money by reducing retirees’ reliance on public programs such as Medicaid.
The nonprofit Employee Benefit Research Institute pegged the nation’s retirement-savings shortfall at $3.68 trillion as of Jan. 1, 2020.
The measure in Virginia calls for the Virginia College Savings Plan, an agency that runs the state’s 529 college savings program, to develop and administer the retirement savings program. Enrollment is slated to begin in 2023.
A proposal backed by Massachusetts Rep. Richard Neal, the Democratic chairman of the House Ways and Means Committee, advocates creating a similar program nationally.
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