Virginia to Launch Retirement Savings Program
LaJuanna Russell is a big believer in saving for retirement, but she worries that others—especially younger workers and African Americans—don’t have adequate information and opportunities to save.
That’s why she took the extra step of setting up a 401(k) plan for the 85 employees at her Northern Virginia consulting firm. It was harder than she expected. “There are lots of requirements in terms of time and money,” Russell says.
That’s about to change. RetirePath Virginia, a state-facilitated retirement savings program, launches on July 1—giving a new savings option to the more than 1.2 million private-sector Virginia workers who currently don’t have access to an employer-based plan.
Under the 2021 law creating RetirePath—which AARP Virginia fought for—businesses that don’t already offer a retirement plan and that have 25 or more eligible employees will be required to enroll those workers and set up an initial 5 percent payroll deduction. About 700,000 Virginia workers fall into that category, according to AARP research. Workers can opt out or change the deduction.
Smaller businesses or those less than two years old are not required to participate. Virginians who are self-employed or who work for a nonparticipating business can enroll independently. Virginia529, an independent state agency, will oversee RetirePath.
Adults who work 30 hours or more per week are eligible for RetirePath. Employers do not match contributions, and the administrative costs will be covered by account fees. RetirePath savers will pay about 30 cents for every $100 in the account, along with an annual $27 fee.
Boosting retirement savings
As of February 2023, at least eight states have active state-facilitated retirement savings programs for private-sector workers, according to Georgetown University research.
Jared Calfee, AARP Virginia advocacy director, says the lack of adequate retirement savings is a “huge problem,” and RetirePath will help address that.
When workers can save through their employer and enrollment is automatic, participation in retirement accounts goes up dramatically, Calfee says. And that’s good for state taxpayers, he says, because more retirement savings means less reliance on food and housing assistance programs for older adults in need.
In four states that have similar retirement programs, a majority of eligible employees participate, according to Georgetown University data.
Less than 15 percent of Americans save for retirement outside work, according to a Virginia legislative report. The average Social Security benefit for retired workers nationally is $1,827 per month, often not enough to cover daily living expenses.
Some businesses are not enthusiastic about having to participate. The National Federation of Independent Business in Virginia says it’s a “one-size-fits-all mandate.”
But Kim Olson, senior officer at the Pew Charitable Trusts retirement savings project, says many workers don’t get around to sifting through the bewildering array of choices. Automatic enrollment, she says, is the secret to success because it gets past inertia.
“All Americans want to build a secure retirement,” says Olson, who as a state employee in Oregon helped advance legislation to establish its first-in-the-nation state-facilitated retirement savings program.
Russell, the small-business owner, says RetirePath will help workers cut through the complicated task of setting up their own IRAs and allay the fears of small-business owners about plan requirements and costs. “If it’s easy, they’ll go for it,” she says.
Tamara Lytle is a writer living in Vienna, Virginia.
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