VT Saves is the latest in a growing number of states to sign a state-mandated retirement plan into law. (And we have more information on which states have mandatory retirement plans active or in development.) Also known as Vermont Saves, it’s on the way because there are many in the state who are currently self-employed or work for a small business — and lack access to a qualified retirement plan.
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Fast facts about VT Saves
- VT Saves will go into effect July 1, 2025
- Employers with five or more employees will be required to enroll in the program
- There is no cost for employers
- Employees have the option to change the contribution level
- Eligible employers who fail to enroll their employees face penalties
Once VT Saves goes into effect, Vermont employers with five or more employees on the payroll will need to register their employees to participate in the program. Once enrolled, Vermont workers will gain access to a portable retirement plan that follows them should they decide to take a role with another employer.
But how does an employer know if VT Saves applies to them? In this guide, we will explain what the plan entails, if exemptions exist, and what businesses must do to stay compliant.
What is VT Saves (also known as Vermont Saves)?
Simply put, VT Saves is a retirement savings program for all Vermont citizens who currently do not have access to a retirement plan through an employer. Vermont Governor Phil Scott signed S.135 into law on June 1, 2023, creating VT Saves.
Passed unanimously by the Vermont House and Senate, the bill is slated to go into effect in January 2025, with enrollment phased in according to the number of employees a business has. VT Saves is free for employers to offer and requires little in the way of management since the state treasurer’s office handles employee contributions.
So, how does an individual save when they are opted in? Once the program is active, employees will automatically be enrolled in a Roth Individual Retirement Account, or IRA. The contribution level is initially set at 5%, with a 1% annual increase that automatically tops out at 8%. That said, employees have the option to set a higher or lower contribution level or opt out of the program entirely.
Why are more states adopting retirement mandates?
As of January 2024, 16 states have mandatory retirement savings plans in place, while an additional three states have begun a voluntary program. In addition, most other states have legislative efforts in the works to pass a retirement savings program for employees without access to a qualified plan through their employer.
While larger businesses typically offer a retirement savings plan, part-time employees — or those who work for a business with less than 100 employees — often have no access to a retirement savings plan. This is particularly concerning as more Americans are approaching retirement age without having enough savings to live on once they leave the workforce.
This lack of savings creates challenges for many states, including Vermont, as more state resources are used to assist retirees. Today, more than 45% of Vermont employers do not offer retirement benefits, with that percentage jumping up to 55% for small businesses with less than 20 employees. In Vermont, if an employer does not offer a qualified retirement plan, it’s estimated that on average less than 5% of its employees are saving for the future.
By passing VT Saves, Vermont employees will soon have access to a retirement account that will go with them, regardless of where they’re employed.
Understanding what the VT Saves plan is
VT Saves will automatically enroll all employees in a Roth IRA account that will be overseen by the Vermont state treasurer’s office. Enrollment in the program will begin in 2025 and phased in as follows:
- Beginning July 1, 2025, employers with 25 or more employees will start to offer the program to all covered employees
- Beginning on January 1, 2026, employers with 15 to 24 employees will start to offer the program to all covered employees
- Beginning July 1, 2026, employers with five to 14 employees will start to offer the program to all covered employees
An employer will have to enroll all covered employees, which include full-time, part-time, seasonal, or temporary employees. Per legislation, employers are prohibited from contributing to their employee’s Roth IRA account.
What does Vermont Saves have to do with the Green Mountain Secure Retirement Plan?
VT Saves is not Vermont’s first attempt at introducing a way for Vermont employees to save. In 2017, the Vermont legislature authorized the Green Mountain Secure Retirement (GMSR) Plan, which was designed to establish a multiple employee retirement plan. However, the program was never implemented and was subsequently repealed to make way for the introduction of VT Saves.
Which employers must offer VT Saves?
Any Vermont employer with five or more employees must participate in VT Saves. However, if an employer already has one of the following retirement plans in place, they do not need to enroll in VT Saves:
- 401(k)
- 401(a) plan
- 403(a) qualified annuity plan
- 403(b) tax-sheltered annuity plan
- 408(k) Simplified Employee Pension plan
- 408(p) SIMPLE IRA plan
- 457(b) Government deferred compensation plan
Employees can rest easy knowing there’s not much to add to their to-do list when it comes to the plan setup because they will automatically be enrolled when their employer registers. That said, employees may opt out if they wish to pass on participating — or they can change their contribution level if they choose.
Are there penalties for noncompliance?
If employers are wondering what can happen if deadlines come and go without providing employees with access to a retirement savings program vehicle (whether VT Saves or a private plan), remember that we are simply sharing the facts. The rules say that there will be penalties assessed for employers who fail to enroll an employee without reasonable cause. Penalties are as follows:
- Prior to October 1, 2025, the maximum penalty is $10 per covered employee
- Beginning October 1, 2025, and ending on September 30, 2026, the maximum penalty is $20 per employee
- After October 1, 2026, the maximum penalty per employee is $75
More resources for Vermont employers
Virtually all Vermont employers should be familiar with VT Saves
The ability to save for retirement can benefit both employees and employers who offer the plan. On the one hand, employees gain peace of mind knowing that they can begin saving as they approach retirement age. For employers, making a plan available can help lure top-quality job seekers and be a difference maker when it comes to retaining longstanding employees. Whether it is a state program such as VT Saves or one from a private provider, it’s the type of perk that all parties can benefit from.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.