A state House proposal to increase retirement savings access for over one million Virginians passed the Senate Friday, though not before the body excluded hundreds of thousands of workers from that expansion.
The bill, from Del. Luke Torian (D-Prince William), would set up an “auto-IRA” program in the state. That would automatically enroll workers whose employers don't offer retirement accounts to have money put aside from each paycheck into a state-run retirement program.
Employees would have the option to not participate in the program, but it would be mandatory for most employers who don’t offer their own savings plans.
According to a 2020 report from Virginia529, which has been tasked with administering the program, 45% of workers in the state don’t have access to retirement savings through their employer, something experts call the “access gap.” The report also found those 1.2 million people were more likely to be Black, Hispanic or Asian and that women were less likely to have access to retirement programs.
For those without employer-sponsored retirement to access retirement savings, they have to go seek it out themselves. Angel Antonelli, director of the Center for Retirement Initiatives at Georgetown University, says that’s not something most people do.
“If they have access to a way to save for retirement through their employer, they are significantly, they are 15 times more likely to save,” she said. “If a worker doesn’t have that access, they do not just go on their own and go down and open an IRA on their own.”
In 2016, a Virginia Retirement System survey found that 31% of non-retired respondents had no retirement savings or pension. But it’s not only young workers far from retirement who lack savings. Of those older than 60, 27% had no money put aside for retirement.
“To be able to get a significant proportion of those workers now covered and saving will allow them, on average, to put away somewhere between $1,500 to $2,200 in annual contributions,” Antonelli said.
Antonelli says she knows that might not sound like much but putting away small amounts consistently, and the interest they accrue, can really add up. A new report from the CRI shows a Virginia worker making $35,000 can retire with $270,000 after 40 years, enough to buoy income in retirement by over $14,000 each year.
But she says the program wouldn’t only provide benefits to the individual savers, noting the program could help increase GDP and alleviate burden on governmental programs.
“As our population gets older, they will be spending proportionately more money,” she said. “To the extent that we can have an even larger population of older citizens that have sufficient retirement income, they’re spending money. They’re putting money into our economy and helping our economy grow.”
Not everyone is as excited for the new program however, including some lawmakers. During a Tuesday committee meeting, Sen. Stephen Newman (R-Bedford), questioned the feasibility of the program. He speculated that Virginia529’s website was incapable of handling the program, something CEO Mary Morris denied.
Yet Newman insisted on paring back the program by limiting which employers had to participate. He suggested the program only be mandatory for employers with at least 25 workers, up from five in the original bill.
The Senate acquiesced to that proposal but narrowly rejected a series of amendments from Sen. David Sutterlein (R-Roanoke) who hoped to make the program optional for employers. While the Senate debated the amendments, Newman said he supported the sentiment of the bill but argued it should be phased in, with the employee threshold falling over time.
“I think that we should move to where Del. Torian’s bill is but not on the timeline we’re on,” he said. “They should do it first with a voluntary basis, and then we should come back down here and talk about the proper phasing for the rest.”
According to the CRI, putting the threshold at five employees would cover roughly 1.1 million Virginians, leaving 172,000 excluded. Under Newman’s proposal that number balloons, with over 600,000 unable to access the program.
“The threshold matters significantly. And if the point, again, is to cover as many workers as possible and give them that opportunity to save for retirement, raising that threshold would significantly reduce the ability to achieve that objective,” Antonelli said.
Further complicating the matter: Who should qualify as an employee? At the last moment, lawmakers proposed and approved an amendment that would exempt part-time employees from counting toward the employee threshold. That means companies with more than 25 employees, but less than 25 working 30 hours per week, would not have to participate in the program.
Newman’s criticism aligns with that of some business groups, including the National Federation for Independent Businesses. During Tuesday’s meeting, NFIB Virginia State Director Nicole Riley said 80% of businesses surveyed disapproved of the proposal, citing administrative costs.
“Our biggest concerns are the administrative burden that would be placed particularly on your smallest employers particularly in rural areas, where they actually may not be really set up to do automatic payroll deduction,” Riley said.
Antonelli, however, says the experience in states that have implemented similar programs is not nearly as bleak.
“If anything, surveys within Oregon and other states show support for the program has only grown stronger over time,” she said. “Those employers that have been surveyed have said very clearly that it is essentially no burden on them.”
Having passed both the Senate and the House, lawmakers from both chambers will have to work out their differences, either by the House accepting the Senate amendments or through a closed-door conference of a small number of legislators.
