Washington has new state-run auto-IRA program, for employers without a 401(k)
The Washington Saves program, which will take effect in 2027, was signed into law late last week, and will require certain employers that do not offer a retirement plan to enroll employees into the state-run auto-IRA program.
Washington has become the latest state to enact a state-run auto-IRA program. Gov. Jay Inslee signed the legislation known as Washington Saves into law late last week.
“Washington Saves will be a cornerstone for wealth building and the long-term financial health for generations of Washingtonians to come,” state treasurer Mike Pellicciotti said.
Around 1.2 million workers in Washington, or approximately 43% of the state’s private sector workforce, do not have access to a company-based retirement plan, according to a 2022 report from the AARP Public Policy Institute. Nearly three-fourths of small-business owners in the state favored the legislation, a Pew Charitable Trust survey found.
American Retirement Association CEO Brian Graff supports the bill and others like it.
“Washington is now the 16th state to enact legislation expanding retirement plan coverage,” he said. “We worked closely with the state legislature throughout the process and appreciate their enactment of a proposal that complements retirement plan offerings from the private sector.”
Washington Saves requires covered employers to allow employees an opportunity to contribute to an IRA through an automatic payroll deduction. The default contribution rate is not less than 3% and not more than 7% of wages. The program also includes automatic escalation that may not exceed 1% per year or cause the maximum contribution rate to exceed 10% of wages. Accounts are portable.
Covered employers are businesses that:
- are located in Washington for at least two years;
- had employees working a combined minimum of 10,400 hours during the previous calendar year; and
- do not already offer employees a qualified retirement plan.
They will be required to enroll employees who have had continuous employment for one year or more.
Employees will have a say in how their account funds are invested and may opt out if they wish. The measure also allows former participants to continue contributing to their accounts. A 15-member governing board will design, develop, implement, maintain and oversee Washington Saves. The program will launch by Jan. 1, 2027, with phased implementation.
Congressional supporters are hopeful that a national auto-IRA can be implemented. In February, Rep. Richard Neal, D-Mass., reintroduced the Automatic IRA Act of 2024, which would require businesses with 10 or more employees not currently offering a retirement plan to automatically enroll their workers in IRAs or 401(k)-type plans.
Related: House introduces new federal auto-IRA bill for employers without a 401(k) plan
“My plan here and the goal is to enhance retirement savings for people at the lower end of the economic spectrum and/or those who are in a workplace where a retirement plan is not offered,” Neal told Pensions & Investments.