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The state of Washington has become the 16th state to implement a state-mandated auto-IRA program aimed at increasing retirement savings for private-sector workers. This new program, dubbed “Washington Saves,” requires employers that don’t already offer a qualified retirement plan to automatically enroll their employees in the state-facilitated Roth IRA program.

The driving force behind these state-run auto-IRA initiatives is the stark retirement readiness gap affecting millions of Americans. With Social Security replacement rates declining and many private companies not offering retirement plans, a significant portion of the workforce faces the risk of inadequate retirement savings. State policymakers view these auto-IRA programs as a way to help workers build a nest egg through payroll-deducted contributions to a tax-advantaged account.

How Washington Saves Works

While employers must facilitate the program for their workers, participation is voluntary for employees – they can opt-out if they choose not to participate. For those who don’t opt-out, here are some of the key program features:

More info on their website

Washington Saves Key Features

Automatic Enrollment: Employees will be automatically enrolled in the state-facilitated Roth IRA plan. This behavioral “nudge” towards saving aims to overcome inertia.

Default Contribution Rate: The default contribution rate starts at 3% of pay, with an automatic escalation provision that could increase the rate annually until reaching a cap of 7%.

Portability: Workers can take their Roth IRA with them from job to job and even roll it into another retirement account down the road if desired.

Investment Choice: Employees will have a limited selection of investment options to choose from within the state program. Specifics are still being determined.

Employer Eligibility

Businesses located in Washington for at least 2 years that had employees working a combined 10,400 hours in the prior year and don’t offer a qualified plan will be required to participate. This is a unique eligibility trigger based on cumulative hours worked rather than just employee headcount.

Penalties For Non-Compliance: While details are still emerging, employers that fail to comply with program rules would face potential penalties. This incentivizes them to properly execute their responsibilities.

Implementation Timeline

The Washington Saves program has a multi-year runway, with an anticipated launch date of January 1, 2027. This lead time allows the state to thoroughly build out the program infrastructure, select the record keeper and investment menu, and conduct employer outreach and education efforts.

Employer Considerations

For employers already offering a 401(k) or other qualified retirement plan, no action is required regarding Washington Saves. However, companies in the state that don’t sponsor a plan will need to prepare to carry out their facilitation duties. This would involve payroll adjustments, employee notifications and onboarding processes aligned with the program rules.

An alternative some companies may consider is implementing their own 401(k) plan to avoid the administrative responsibilities of participating in the state-run program. While establishing a company-sponsored 401(k) may involve more upfront effort, it offers advantages like:

• A single, consistent set of federal rules and regulations rather than having to comply with varying state mandates.
• An expanded investment menu beyond the limited options in state auto-IRAs.
• Ability to include features like employer matching contributions to incentivize participation.
• Complete plan design control personalized to the company’s workforce.
• There are now substantial tax credits available to small employers starting their first plan. (see our tax credit calculator to see how much you can save)

As states like Washington push forward with their retirement policy initiatives, employers will need to stay informed on compliance obligations. Those interested in learning more about implementing a company-sponsored 401(k) plan instead can contact us here and we will help you get started.