Benefits April 2, 2024

Washington State Auto-IRA Law Signed

Washington Saves is scheduled to debut in 2027, with the state joining 18 others that have created retirement programs for private sector workers, while Rhode Island lawmakers debate creating their own program.

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Washington and Rhode Island are on different coasts, but both states are working to address the issue of access to retirement plans for private sector workers whose employers do not offer plans.

Washington Governor Jay Inslee last week signed legislation creating a state-facilitated program, Washington Saves, to provide coverage for those private sector employees. The program will launch by January 1, 2027, according to the announcement.

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Washington Saves creates an automatic-enrollment individual retirement account program. Enrolled participants will make retirement contributions to an IRA through payroll deduction from their pay, similar to a 401(k) plan.

“Washington Saves will be a cornerstone for wealth building and the long-term financial health for generations of Washingtonians to come,” said Washington State Treasurer Mike Pellicciotti in a statement.

The program will enroll workers at a default contribution rate of between 3% and 7% of wages. A 15-member governing board will design, develop, implement, maintain and oversee Washington Saves.

Additional details include:

  • The program uses automatic escalation, restricting yearly contribution rate increases to 1% per year up to 10% of wages;
  • Covered Washington employers are businesses located in the state for at least two years where employees work a combined minimum of 10,400 hours during the previous calendar year that do not already offer employees a qualified retirement plan;
  • State employers that meet criteria will be required to enroll employees who have had continuous employment for one year or more; and
  • Employees may opt out of the program.

The Washington House of Representatives passed the bill authorizing Washington Saves on March 1, and the Washington State Senate followed suite on March 7.

Washington Saves is intended to help 1.2 million workers save for retirement, according to a fact sheet from the Pew Charitable Trusts.

Washington became the 19th U.S. state to enact legislation expanding retirement coverage. State-facilitated retirement savings programs have accumulated more than $1.26 billion in retirement assets, as of the latest data available from the Georgetown University Center for Retirement Initiatives.

Rhode Island Retirement Program

In Rhode Island, the Rhode Island House of Representatives’ finance committee held a hearing March 28 and received testimony on two state bills—H.B. 7127 and S.B 2045—that would create the Rhode Island Secure Choice Retirement Savings Program.

Rhode Island’s retirement program would be structured as an auto-IRA, allowing workers to contribute via payroll deduction but also to opt out or change their contributions at any time. The program would be administered by the by the office of the general treasurer.

More than half of Rhode Island’s private sector workforce (51.2%)—172,000 workers—do not have access to retirement savings through their employer, according to a fact sheet from Pew.

The bill in the Rhode Island House of Representatives is sponsored by State Representative Evan Shanley, who has sponsored similar legislation for the last several years.

Ask the Experts April 2, 2024

Does Our Plan Fall Under SECURE 2.0’s Automatic Enrollment Requirement?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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Q: We are a private 501(c)(3) tax-exempt organization that terminated a 401(k) plan that we had maintained for many years, replacing it with a new 403(b) plan, effective January 1, 2023. The SECURE 2.0 Act of 2022 passed shortly before our plan’s effective date, and we do not meet any of the exceptions to the automatic enrollment requirement that will become effective on January 1, 2025 (e.g., we’re not a church, not a government and have more than 10 employees). However, in order for our plan to be effective on January 1, 2023, we had to have a plan document in place prior to that, so we adopted a written plan in November 2022. Would that get us off the hook in terms of the automatic enrollment requirement, even though we did not commence contributions to the plan until January 2023?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Until recently, the answer to your question was unclear, given the language of the existing SECURE 2.0 provision. However, on December 20, 2023, the IRS released Notice 2024-02, which clarifies that “a qualified [cash or deferral arrangement] or section 403(b) plan that is established before December 29, 2022, is called a pre-enactment qualified CODA or pre-enactment section 403(b) plan.” The very first Q&A expressly addresses the automatic enrollment requirement, excerpted as follows:

“Q. A-1: When is a qualified CODA established for purposes of determining whether the qualified CODA is excepted under section 414A(c)(2)(A)(i) of the Code from the requirements related to automatic enrollment (that is, whether the qualified CODA is a pre-enactment qualified CODA)?

A. A-1: For purposes of section 414A(c)(2)(A)(i), a qualified CODA is established on the date plan terms providing for the CODA are adopted initially. This is the case even if the plan terms providing for the CODA are effective after the adoption date. For example, if an employer adopted a plan that included a qualified CODA on October 3, 2022, with an effective date of January 1, 2023, then the qualified CODA would have been established on October 3, 2022 (that is, before December 29, 2022), even though the qualified CODA was not effective until after December 29, 2022.”

Thus, your 403(b) plan would be is considered to have been established in November 2022 for purposes of the SECURE 2.0 automatic enrollment provision. Accordingly, your plan will NOT have to meet the requirements for an eligible automatic contribution arrangement, or EACA, in 2025, since it was established before December 29, 2022, the effective date of SECURE 2.0.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.

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