Washington Saves retirement program: what employers need to know

In an effort to help employees save for the future, many states are now requiring employers to offer retirement savings benefits. As of March 2024, 20 states have enacted state-mandated retirement programs. New York and Connecticut passed retirement savings legislation last year, and now Washington has joined the list by passing SB 6069.

Washington Saves is an auto-IRA program employers can offer their employees to meet Washington's new retirement savings mandate. The program allows workers who don't already have a retirement plan to contribute to their retirement savings via an automatic payroll deduction.

Below, we'll dive into some of the most important things Washington business owners need to know about the program, including:

Why Washington?

There are several reasons lawmakers in Washington are concerned about retirement plan access. 43% of Washington's private-sector employees currently do not have access to a retirement savings program through their employer, and Social Security income replacement rates are steadily declining.

This has concerned state legislators, particularly because much of Washington's population is rapidly approaching retirement age. Without an opportunity to increase individual savings, the state could spend an additional 3.9 billion on social services by 2040. The Washington retirement savings mandate was passed to prevent this extra spending, and Washington Saves was established to meet the mandate and offer more Washingtonians the opportunity to save money for their future.

How does the Washington Saves Program work?

Washington Saves is a state-facilitated Roth IRA plan. Employees who opt-in will have a portion of their paycheck automatically transferred to their IRA account each pay period. The default rate employees can contribute starts at 3%, which they can choose to increase by 1% annually until it reaches a maximum of 7%. The annual contribution limit for an IRA is $7,000.

Employees can take their Washington Saves Roth IRA with them when they get a new job, and they can roll it over into another retirement account later on. The program currently has a limited number of investment options available, the specifics of which are still being determined by the state.

Notably, a Roth IRA differs from other popular retirement accounts, like a 401(k). One of the most significant differences between Roth IRAs and 401(k) plans is when you're taxed on the money you contribute. With an IRA, you're taxed before your money goes into the account, which means that when you withdraw it later on, you won't have to pay any additional taxes, so long as you meet certain criteria. 401(k) plans are funded with pre-tax income so you aren't taxed on that money until you start making withdrawals.

Another big difference between the two retirement accounts is how much you can save. 401(k) plans have higher contribution limits, which means you can save more with a 401(k) each year than you can with an IRA.

For employers, there's less flexibility with an IRA because you can't match or contribute to your employees' savings like you can with a 401(k).

Is Washington Saves retirement program mandatory?

Yes, Washington Saves is a mandatory program for employers that have been located in Washington State for at least two years and do not currently offer a retirement plan. Enrolling in the program is fully optional for employees.

Employers are responsible for notifying employees of the program and providing information on enrollment options, investment selections, withdrawals, rollovers, and distributions. While the program is free for employers, they are responsible for handling payroll deductions and all related administrative tasks.

What deadlines do I need to know?

Currently, there are no deadlines for the Washington Saves program. A governing board that will develop and oversee the program will begin meeting in 2025, and the board's final implementation plans are due December 1, 2026.

What alternatives can I consider?

To meet Washington's retirement mandate, employers can choose a qualified private retirement benefit, like a 401(k) plan. Employers can switch to a 401(k) plan to replace the Washington Saves program at any time.

There are many benefits to a 401(k) plan, including:

As an employer in Washington, you can meet the mandate with the Washington Saves program or by offering a company-sponsored retirement benefit, like a Guideline 401(k).

Guideline helps employers choose a plan that meets the state mandate and your business's goals, offers integrations with payroll providers so there's no need to maintain deductions or manually re-enter payroll data, and gives your team access to live support, guided employee onboarding, a mobile app, and more.