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Virginia Takes Aim at State-run Retirement Plan

State Auto-IRA Plans

Another state legislature is moving forward with a state-run retirement savings program for private sector employees. 

The Virginia House of Delegates on Jan. 26 voted 56-44 to approve House Bill 2174, establishing the “VirginiaSaves” retirement savings program to allow private sector employees whose employers do not otherwise offer qualified retirement plans to save for retirement. 

Sponsored by Delegate Luke Torian (D-HD 52), chairman of the House Appropriations Committee, the program would be implemented as an automatic enrollment payroll deduction individual retirement account (IRA) housed in the Virginia College Savings Plan (Virginia529). 

Employers with five or more employees that do not already offer a retirement plan and have been in operation for at least two years prior to program implementation would be required to participate. Eligible employers would include self-employed individuals, sole proprietors, or nongovernmental business, industry, trade, profession, or other enterprise in Virginia, whether conducted on a for-profit or nonprofit basis. 

Excluded employers would be those that currently provide a qualified retirement plan, including plans under Code Sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b). 

Eligible employees would include individuals age 18 or older who are currently employed by an eligible employer, receiving wages and meet the federal requirements to be eligible to participate in a qualified plan. Employees could choose to opt-out of the plan and benefits would be portable between eligible employers.

The legislation would also establish an 11-member Board to administer the program and develop requirements, procedures and guidelines for the program, including default contribution rates, procedures for enrollment and withdrawal, and procedures for noncompliance. In addition, moneys in the program shall be invested in a manner deemed appropriate by the Board.

In addition, eligible employers would not be considered fiduciaries and would not have any liability for a participating employee’s decision to participate or for the investment decisions of participating employees. 

The bill also specifies that the program shall be established and enrollment of eligible employers shall begin no later than July 1, 2023. 

“Approximately 45% of Virginia’s workforce does not have access to a retirement savings plan at work. VirginiaSaves will afford workers a retirement savings vehicle at no cost and no liability to private employers. This is an opportunity for all Virginia workers to build long-term savings not tied to a single employer,” Torian said upon passage of his bill. 

The bill’s “impact statement” contends that the average Virginia household with less than $75,000 in annual income could close the retirement savings gap anticipated by 2035 by contributing an additional $1,930 annually over each working year, according to a study by Econsult Solutions. In addition, the fiscal impact of under-saving is estimated at an additional cost of $11.8 billion to Virginia taxpayers over the next 15 years.

The Virginia Senate still needs to approve the bill, but Gov. Ralph Northam (D) has indicated that he supports the legislation. 

In the absence of a federal mandate, state legislatures continue to move forward with their own efforts to implement state-run retirement plans for private sector employees who do not have access to a plan through their employer. According to data by the Georgetown University Center for Retirement Initiatives, a dozen states and one city have already enacted programs for private sector workers and another 20 states and cities have considered (or are considering) retirement savings plans for small business employees.

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