Retirement Revolution: Virginia’s New Retirement Plan Rule

by Kristen Duffeler

On or before July 1, 2023, thousands of Virginia employers should have received a notice notifying them of a new law implementing a state-sponsored program called RetirePath and mandating certain actions for the establishment of a retirement program.  RetirePath is a state-facilitated retirement savings program with automatic enrollment, designed to encourage and increase employee retirement savings. A failure to comply with this new law could lead to penalties for employers of up to $200 per employee per year.

Which Employers Does the Law Impact?

Under the law, covered employers are those who (i) had 25 or more eligible employees in 2023; (ii) have been operating for more than two years; and (iii) do not already offer a qualified retirement plan, such as a 401(k) or Simple IRA. Self-employed Virginians are also eligible to participate.  Eligible employees are those who are at least 18, work an average of at least 30 hours per week, and receive wages in Virginia.  Seasonal employees will be eligible if they work at least 90 days per year and otherwise meet the foregoing requirements.

Compliance Options

Covered employers have three options to comply with the new law.  They may either (i) implement a qualified retirement plan; (ii) register with RetirePath Virginia not later than February 15, 2024; or (iii) pay a penalty of $200 per employee per year.

Choosing option 1 may present certain federal income tax benefits pursuant to the SECURE Act 2.0, which can provide tax credits to certain businesses implementing new qualified retirement plans.  These credits may last up to 5 years depending on the circumstances of your business. If you choose option 1 and implement a new qualified retirement plan (or if you already have one in place), you must register your exemption with the state.

If you choose option 2, registration can be accomplished here.  For employers with more than one company, there is a process allowing you to register all of your companies under one account.   Registering employers will need to have their employer identification number (EIN) and an employee roster handy, as well as the access code provided in the “invitation” to register.  If you did not receive an access code, or have misplaced it, you can get a new one sent to your email by entering your EIN.  After enrollment, employers must submit payroll records each pay period, and must register new eligible employees within 90 days of their first paycheck.

RetirePath Basics

Using RetirePath, rather than a traditional qualified retirement plan, allows employers to offer a retirement plan without employer fees or fiduciary responsibilities.  However, unlike other plans, RetirePath does not permit employer contributions, and may have lower contribution caps for employees.

From an employee perspective, enrollment is automatic for eligible employees once you as an employer are enrolled; however, employees have the right to opt out at any time.  By default, contributions are contributed to a Roth individual retirement account by can employees have the option to switch their contributions to a traditional IRA.  RetirePath will communicate with employees directly regarding their enrollment and contribution options, using the information that you provide during registration.

If you need help determining whether you are subject to the new law, would like assistance with registration or with certifying your exemption, or otherwise have questions about the new law and its impacts on your business, we are always here to help!