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Washington State Gov. Jay Inslee (Photo: Inslee)

Regulation and Compliance > State Regulation

Washington Governor Signs Auto-IRA Bill

By John Manganaro

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Gov. Jay Inslee of Washington signed a bill Thursday that will facilitate access to automatic enrollment individual retirement accounts for workers in the state’s private sector who otherwise lack access to employer-based retirement plans.

Adoption of the legislation, known as SB 6069, adds Washington to the growing pool of states that require at least some employers to provide access to tax-advantaged workplace retirement savings for both full- and part-time workers.

Washington’s “auto-IRA” strategy, based on the language in the legislation, follows in the recent footsteps of states such as Minnesota and Nevada. Rather than requiring employers to create traditional 401(k) plans or pensions, the state will create a central Washington Saves program, to which employees can make payroll contributions.

Related: Here Are the State Tax Bills for Wealthy Clients to Watch in 2024

Washington’s program, like those in many states, includes features to help participants invest in diversified retirement portfolios.

Under the text of the legislation, the default contribution rate is to be “not less than 3%, nor more than 7%, of wages.” The program also includes 1% annual automatic escalation to a cap of 10% of wages, and the accounts are portable.

Covered employers are businesses located in Washington state for at least two years that had employees working a combined minimum of 10,400 hours during the previous calendar year. They will be required to enroll employees who have had continuous employment for at least one year.

State lawmakers who support these programs say they represent an important tool to help close the retirement savings gap that has resulted from a longstanding lack of access to 401(k) plans in key segments of the labor market — from the service economy to small businesses. Their arguments are backed by research from organizations such as the Pew Charitable Trusts, which in January published an analysis of the potential impact of Washington Saves.

According to Pew, the Washington Saves program could help as many as 1.2 million workers begin to save and invest for retirement, and although the program will come with added administrative costs, the alternative of higher future dependence on state safety net programs would be even more painful.

Specifically, Pew estimates that if retirement savings stay at current levels, the eventual cost to Washington state taxpayers will be $3.9 billion by 2040.

As Pew’s research shows, even though some of these state programs are relatively new, there are over 800,000 savers in the seven states with currently active programs. These savers have already amassed $1 billion in assets, with workers saving $168 per month on average.

Pictured: Gov. Jay Inslee

John Manganaro

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