In 2023, the Pew Charitable Trust surveyed the state’s small business owners and found that 72% supported the idea of a statewide retirement savings program. In March 2024, Washington and 15 other states signed into effect a law that requires employers to offer a state-mandated retirement plan for the workplace by July 1, 2027. The new law is anticipated to affect up to 1.2 million workers in the state or approximately 43% of the private-sector workforce. Here’s what you need to know about Washington Saves—and how it may impact your organization.
What Kept Washington Businesses from Offering Retirement Plans?
Most people know that they need savings to augment social security to have a comfortable retirement. People working for large corporates may have 401K or 403B retirement plans, which offer a way for employees to invest their earnings now for pre-tax savings.
Yet for those who are self-employed or working for small businesses, there are considerable hurdles to saving for retirement. Small business owners stated that opening and operating a private retirement fund for their employees was cost-prohibitive, according to the previously cited Pew Study. Additionally, many business owners felt it would be too difficult to run such a program.
Washington Saves Offers Automatic Withdrawals into Retirement Savings
Business owners throughout Washington voiced their concerns, and the state responded. The new Washington Saves program makes it easy for small business owners to offer employees automatic paycheck withdrawals to fund their Roth IRAs. The withdrawals are pre-tax, and deposit money into an individual’s Roth IRA. Roth IRAs are owned by individuals, and if individuals change jobs, the Roth IRA remains the same. It does not have to be rolled over into a new retirement account when changing jobs. This makes it portable in a sense and certainly convenient for those who may change jobs frequently.
Additionally, the employer does not need to manage the account. The account is set up and managed by the individual. Individuals choose how much to contribute to their retirement account. According to Pew, if each Washington state citizen contributed just $95 a month or approximately $1,150 per year, they could greatly improve their comfort during retirement and alleviate some of the burden on state taxpayers.
Do Similar Programs Exist and Do They Really Help People Save for Retirement?
Other states have successfully launched similar retirement savings incentives. For example, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Vermont, and Virginia all feature similar programs. Among these states, workers participating in the programs have already amassed over $1 billion in retirement savings. This is spread over approximately 800,000 workers in seven states who have been participating in the program to date. Clearly, people are eager for ways to save for retirement, and by making it easy for both employers and employees to participate, states have made it a win-win for all.
Retirement Plans Improve Small Business Competitiveness
Why focus on retirement plan opportunities for small businesses? Competition is fierce for the best employees, and people may be hesitant to leave a large corporation to join a small business or nonprofit, especially if smaller organizations do not offer retirement programs.
By making it easy for workers to save for retirement regardless of where they work, Washington has helped remove barriers to hiring workers for many small business owners. It improves their competitiveness by offering better benefits to employees. More importantly, Washington’s residents will, in the long run, be better off with greater retirement savings.
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