Many of us in the private sector do not have access to traditional pensions during retirement. Our main source of retirement savings is the ability to put away money into employer-sponsored plans. The most familiar option is a 401(k).
According to the U.S. Bureau of Labor Statistics, 67% of private industry workers had access to employer-provided retirement plans in March 2020. Without access to a work-related plan your savings options are limited. Examples of alternatives are contributing to a Traditional or Roth IRAs. However, the amount an individual can put away is limited.
One of the dilemmas our team at EBW faces is how to get our clients to save more for retirement and which savings strategy to utilize. The Federal Reservedetermined that 26% of working adults have no form of retirement savings.
Virginia and Maryland have joined states like California, Oregon and Connecticut by enacting legislation that provides access to state-sponsored retirement plans. Even the Federal government has debated a nation-wide requirement. All of this is a step forward to closing the retirement savings gap.
Virginia- RetirePath Virginia
Implementation timeline- July 2023
Requirement- If an employer does not provide access to a sponsored retirement plan they must give the employee access to the state plan. Payroll-deduction must be set up.
Employer size requirement- Only applicable to companies with 25 employees or more.
Implementation timeline- September 2022
Requirement- Employer must provide automatic enrollment in a payroll-deduction IRA if no other employer-sponsored plan is offered.
Employer size requirement- No business size limitation.
Federal legislation- The Federal government also is discussing Secure Act 2.0 which, proposes to automatically enroll employees into a work-related retirement plan.
If you are a small-business owner, a deep understanding of these upcoming changes is necessary to make the best choice. The pros and cons of choosing a state-sponsored plan versus a customized solution in the private arena need to be weighed. When companies are struggling to retain high quality employees, offering a flexible retirement plan with multiple investment options will help keep your organization in front of competitors.
As an employee, you could provide feedback to your employer on which, options work best. For most of us, without access to pensions we will rely more and more on our personal retirement savings. Implementation and strategy will be key to determining what our retirement may look like.
Whether you are a small-business owner or employee learning about this for the first time, our team at EBW can help decipher your options and solidify a plan of action.
Stay tuned for more content regarding these upcoming changes.