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The state would help more Vermonters save for retirement with new bill

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New legislation, which would create a new program called VT Saves, still needs to be signed into law by Gov. Scott. But his spokesman says he generally favors the concept.

State lawmakers unanimously passed a bill that would boost the number of Vermonters with access to a retirement fund.

The legislation, which would create a new program called VT Saves, still needs to be signed into law by Gov. Scott. But his spokesman said the governor generally favors the concept, and barring any surprises going through the final bill, expects him to sign it.

Under the bill, Vermonters 18 and older who don’t have access to a retirement savings program through their workplace — a 401K, 403B or a pension plan, for example — would be automatically enrolled in a Roth IRA account overseen by the state treasurer’s office.

“Unfortunately, the reality is that so many Americans are not prepared for retirement, and that’s the same for Vermonters,” said State Treasurer Mike Pieciak. “We’re an older state. We have a lot of individuals that work multiple jobs; and we have a lot of individuals that don’t have access to a workplace retirement plan.”

"The reality is that so many Americans are not prepared for retirement, and that’s the same for Vermonters... We have a lot of individuals that work multiple jobs; and we have a lot of individuals that don’t have access to a workplace retirement plan."
Mike Pieciak, Vermont state treasurer

In fact, according to state data, 45% of employers in Vermont don’t offer retirement benefits, which can make it hard for their employees to save.

These workers are often younger Vermonters, women and people of color. Pieciak says the state estimates that there are between 88,000 and 100,000 people who could benefit from the VT Saves program.

How it would work

Under the proposed legislation, employers with five or more employees who don’t offer retirement benefits would need to enroll in the new program or face fines.

Proponents say the program won’t cost employers anything, and the enrollment process will be phased in. Employers with 25 or more employees will need to sign up first, by July 1, 2025. Employers with 15 to 24 employees will need to sign up by Jan. 1, 2026, and employers with five to 14 workers by July 1, 2026.

“If you’re under five employees or you're self-employed, our intent is to draft rules that allow you to participate," Pieciak said. "So it's not a requirement, but it is an option."

He added: "And one of the things that an independent contractor or sole proprietor might like about the program is that it will be offered at a relatively low cost to what you might be able to get elsewhere."

Once a business signs up for VT Saves, their workers would be automatically enrolled in a Roth IRA — an independent retirement account — that will be overseen by the state treasurer’s office.

With a Roth IRA, employees pay taxes on the money before it goes into retirement savings. State officials say that would make it easier to administer, and they say workers would be able to tap into their money more easily and without tax penalties later.

(This is compared to a traditional IRA where contributions are tax-deductible, but withdrawals in retirement are taxable).

That’s important, because VT Saves is meant not only to help people save for retirement, but help people cover emergencies that come up. Data shows nearly 60% of Americans can’t handle emergency expenses without borrowing money. And one in four people surveyed say they’d have to use a credit card to cover a $1,000 emergency.

More from Vermont Public: 'We Get By, That's About It': 40% Of Surveyed Vermonters Can't Cover A Surprise Expense

Vermonters would be able to opt out of VT Saves at any time. But if they don’t opt out, 5% of their take home pay would be automatically deducted each pay period and put into their retirement account. Under the plan, a worker’s payroll deduction would be automatically increased by 1% a year to a maximum of 8%. Participants, however, could change the amount they save at any time to whatever works best for them.

In the bill, lawmakers have budgeted $750,000 to get the program up and running, which would pay for a director and a staff person who would handle education and outreach. These funds would also cover start-up logistics with a third-party retirement fund vendor.

The legislation requires the state treasurer to send an annual report to participants each year, detailing the status of their accounts. Participants would also be able to access their accounts online. Money collected by the program would be held in a separate trust fund overseen by the state treasurer. None of the funds could be used by the state for other purposes, or transferred to the General Fund.

Once the program gets up and running in 2025, participants, not employers, would pay small fees that will cover ongoing administration costs — just as they do in private retirement accounts. Legislators set a cap on those expenses at $30 a year per person.

While taxpayers would cover the start-up costs of the program, proponents say workers who utilize VT Saves would be better off financially, and would be less dependent on taxpayer-funded assistance when they’re older.

Looking to other states

Six states have retirement savings programs that are up and running. Six more have passed legislation and are in the process of setting their programs up.

Christine Cheng is the director of Illinois Secure Choiceplan — which launched in 2018 — and says they have more than 121,000 participants with $115 million in assets.

But when they started the program, she admits there were a lot of concerns about how it would work.

“For instance, that this was going to crowd out providers in the private market; that this was going to cause maybe some existing employers to drop their plans in favor of picking up the state program, or it would, you know, discourage people adopting new plans from the private market; that this would be too much of a burden for employers, perhaps that employees, particularly those with low wages, wouldn't be able to save through this program,” she said. “And really, all of those things have been dispelled over time.”

Cheng says in Illinois, Oregon and California, which have been running programs the longest, nearly one-third of workers do opt out. But the other two-thirds are saving. And she says Vermont can learn a lot about what has worked and not worked from the existing programs.

“This industry is extremely collaborative. We just had a monthly meeting with a number of other states which happens every month; we're sharing ideas; we're sharing lessons learned; we're sharing mistakes to avoid, pitfalls to avoid," Cheng said.

One thing Vermont can take away, she added, is that this is the right thing to do.

“You don't want people to reach the end of a working career and really not have enough to subsist on," Cheng said. "That's not a good outcome for the individual worker or for the state, when those retirees are tapping more into public assistance programs.”

"You don't want people to reach the end of a working career and really not have enough to subsist on. That's not a good outcome for the individual worker or for the state."
Christine Cheng, Illinois Secure Choice

Vermont State Treasurer Mike Pieciak agrees. He says data shows that 63% of savers without an employer plan have less than $10,000. Meanwhile 70% of savers with an employer plan have more than $100,000. He says it’s important to make saving easier for all Vermonters.

“The employer can really be the hero here in setting the program up and getting people in a position to retire with dignity," Pieciak said.

He says his office has been working with a number of states that have launched similar programs, and he’s been impressed by what they've encountered.

“You know, the state of Colorado told us that, in their pilot programs and their oversight of ramping this up in their first phase, they didn't have a business that took more than 15 minutes to sign up for the program," Pieciak said. "So that's our goal, is to make it as efficient as possible.”

Have questions, comments or tips? Send us a message or get in touch with reporter Nina Keck:

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One in five Vermonters is considered elderly. But what does being elderly even mean — and what do Vermonters need to know as they age? I’m looking into how aging in Vermont impacts living essentials such as jobs, health care and housing. And also how aging impacts the stuff of life: marriage, loss, dating and sex.