The Employer’s Guide to RetirePath Virginia

RetirePath has been available for the last two years, although the state law that established it was actually enacted four years ago. Virginia established it because at the time, about 1.2 million workers in the state (or 45% of them) didn’t have access to a retirement plan through their employers. In its first year, approximately 1,000 Virginian employers signed up for RetirePath, resulting in 10,000 private-sector workers saving nearly $5 million.

What is Virginia’s RetirePath?

RetirePath is a Virginia state-facilitated retirement savings program. It’s an automatic enrollment individual retirement account (an auto-IRA), managed by Commonwealth Savers (formerly Virginia529) with an advisory committee and administered by Vestwell State Savings, LLC.

When eligible employers register for the program, their employees can voluntarily participate in the auto-IRA program that is funded with contributions from their paychecks. It’s mandated for Virginia non-profit or for-profit businesses that don’t offer an employer-sponsored retirement plan when they are at least two years old and have 25 or more eligible employees. 

How does RetirePath Virginia work?

Employers receive reminders to register from RetirePath. Once they submit employee information as part of the process, RetirePath will also communicate with the employee. 

Employees will receive notifications that they’ll be automatically enrolled in a Roth IRA (the default IRA account type). Someone could also opt to save for retirement with a Traditional IRA instead. They’ll have a 30-day period to make that decision or to opt out altogether, if they prefer not to participate. Here are some of the main differences between a Roth IRA and a Traditional IRA:

Eligibility requirements for employees

There is only a short list of criteria for employees:

• 18 years old or older

• Employed in the state of Virginia with taxable income for at least 30 hours for any portion of a week, over the course of the previous 12 months.

• Temporary or seasonal employees who have worked less than 90 days in the year can participate, but employers aren’t mandated to enroll them

Enrollment and contribution options for employees

The default contribution rate is 5% of gross pay. It automatically increases by 1% each year in January, up to a maximum of 10%. 

During the 30-day enrollment period, employees can make these choices:

• Elect a higher or lower amount

• Opt out of the program entirely 

• Not act, and be automatically enrolled at the default rate

After the 30-day enrollment period, employees can:

• Elect not to participate in the program

• Change the contribution rate, as long as it’s not less than 1% and does not exceed the contribution limits set by the Internal Revenue Service (IRS)

Understanding the investment options

Contributions first go into the Capital Preservation Fund for 30 days, and if another election isn’t selected, the savings will then be automatically moved into one of the Target Date Retirement Funds, according to the saver’s age. Those funds are diversified portfolios that become more conservative as someone nears retirement.

There are fees associated with each investment option, and the Annualized Asset-Based Fee is calculated by adding the Underlying Investment Fund Fee and the 0.20% Program Administration Fee:

For a $1,000 initial contribution with a 5% annually compounded rate of return (assuming fees are similar to what they are now), this table hypothetically shows how much it could cost from one to 10 years (excluding state and federal taxes):

v

Investment 

1 year

3 years

5 years

10 years

Capital Preservation Fund$30$91$152$306Target Retirement Date Fund$30$90$150$303Bond Index Fund$30$89$148$298US Stock Index Fund$29$88$147$296International Stock Index Fund$29$89$148$297

What employers need to know about RetirePath VA

Eligibility requirements and deadlines for employers

RetirePath Virginia is as easy to set up as it is to qualify for. Employer eligibility includes the following:

• Be no less than two years in business and registered in Virginia

• Have at least 25 employees who have worked for at least 30 hours for any portion of a week during the previous calendar year

• Doesn’t already offer a tax-qualified retirement plan

Virginia employers who meet the criteria are expected to register online. If you haven’t already done that, then you need to do it or certify an applicable exemption as soon as possible. There is also a quiz you can take to determine if you are an eligible Virginia business required to facilitate RetirePath.

Employer responsibilities with RetirePath

While there aren’t fiduciary responsibilities for employers (i.e., no liability for decisions and outcomes made in connection with it), there are some key actions Virginia employers will need to take to ensure they’re compliant with the program. 

Overall, it is intended to be easy for employers to facilitate, including small businesses, which often have fewer resources available. RetirePath VA even provides educational webinars and recordings for business owners. 

Keep in mind that employers can’t and should not do the following:

• Help employees choose investments or process change requests

• Manage investment options or process distributions

• Enroll employees or send communications about enrollment 

This list of what to do and what not to do provides a quick overview of the obligations: 

Non-compliance penalties

If your RetirePath-eligible business has 25 or more employees, and you haven’t claimed an exemption for offering a qualified retirement plan, you must register to administer RetirePath VA. Failing to enroll employees can result in an annual penalty of up to $200 per employee.

How to register your business for RetirePath Virginia

Although initial registration deadlines were in 2024, new companies that are eligible should register as soon as possible and request an access code if they haven’t received one yet. Registration is easy and fast:

• Go to www.retirepathva.com to set up an employer account. 

• You’ll need your access code and your employer identification number (EIN). 

• Add your roster of employees, including their details such as Social Security numbers, full names, physical and mailing addresses, birthdates, phone numbers, and email addresses.
  

  • RetirePath will send messages about opting in or opting out within 30 days. 

  • If they opt in, then contributions can be made and managed through the program.

  • If they fail to make a selection, they’ll be automatically enrolled in a Roth IRA with the default contribution selection of 5% of their gross pay after taxes have been deducted.

• You can invite someone to help with payroll or administration, including managing your employee list for the program and remitting their contributions. To support employers with efficiencies, RetirePath integrates with payroll providers, such as Gusto.

Benefits of RetirePath Virginia

Readily available ways to save for retirement can mean the difference between actually having a nest egg and not having one when you need to stop working. Financial security provides the peace of mind and comfort people need for their twilight years. But the means for that aren’t acquired overnight, and according to Pew, many small businesses—more than 40 percent—don’t even offer retirement benefits.

The good news for small businesses and their employees: Gusto’s own research reveals that not only does offering retirement benefits tend to increase employee retention and satisfaction, but that state auto-IRAs, specifically, increase employee participation in retirement by 20 percent. 

Do businesses have to use RetirePath?

RetirePath Virginia isn’t mandatory for otherwise eligible companies that already provide an employer-sponsored retirement savings plan, such as:

• 401(k) plan or other 401(a) plan

• 403(a)—qualified annuity plan

• 403(b)—tax-sheltered annuity plan

• 408(k)—Simplified Employee Pension (SEP) plan

• 408(p)—Savings Incentive Match Plan for Employees (a SIMPLE IRA plan)

• 457(b)—Governmental tax-deferred compensation plan

Retirement benefits made easy with Gusto

Gusto can be added as your preferred payroll provider for the RetirePath retirement program. But you can also consider what a 401(k) plan has to offer instead. The advantages and flexibility of that type of plan may be the kind of retirement savings benefit your employees could find most attractive. 

In fact, there has been an increase in 401(k) adoption amongst the smallest employers in Colorado and Oregon, which have auto-IRA mandates like Virginia. Here are some of the upsides of offering a 401(k):

• Reduced cost with tax credits: Eligible businesses may be able to claim up to $16,500 in tax credits for the first 3 years of their 401(k)—potentially covering 100% of plan costs. 

• Flexible and affordable plan options: Gusto’s growing list of 401(k) partners means plenty of plans to choose from at low price points to fit your budget.

• Integrated to make life easier: Gusto payroll syncs with your 401(k) plan to make automatic deductions. Employees manage their own Gusto accounts, with access to their pay stubs, W-2s, 401(k) accounts, and contribution details. 

• Great benefits help you build a great team: Because 401(k) plans have higher contribution limits, employees can save more money with an employer-sponsored 401(k) than with state-mandated IRAs. The impact: Employer-sponsored 401(k) offerings increase employee retention, according to a Gusto analysis.

To help you determine which retirement program is the best fit for your business, here is a comparison between the features of a 401(k) and RetirePath Virginia: 

If you have an existing Gusto account, learn more about our 401(k) partners here.

You can also create an account with Gusto to enroll in a 401(k) plan for your employees’ retirement security. Gusto’s platform makes it simple.