The Vermont Treasurer’s Office announced Wednesday that a program aimed at expanding retirement account options for small employers is now open for enrollment. 

Vermont Saves is a retirement savings program that operates like an employer-sponsored individual retirement account with automatic payroll contributions similar to a 401(k).

State Treasurer Mike Pieciak said an estimated 80,000 to 100,000 Vermont workers don’t have access to a retirement account through their employer. The program, created by law in 2023, is intended to expand access to workplace-based retirement accounts, especially for small employers.

Organizations with at least five employees that do not already offer retirement options must enroll in Vermont Saves by February, according to a press release from the Treasurer’s Office. The program also allows other Vermonters, such as self-employed workers, to sign up independent of a workplace. 

“Research shows that you’re 15 times more likely to save for retirement if you have a workplace-based retirement plan,” Pieciak said in an interview. “Even though it might seem like, to some, a relatively small financial barrier or knowledge barrier to go to a bank and get a Roth IRA, it’s enough of a barrier that it keeps a tremendous amount of people out of the retirement savings systems that we have in this country.”

There are some eligibility requirements: Participants must be 18 years of age or older and have at least 500 hours of taxable wages from a Vermont employer. Participants who enroll separately from their employer must also provide bank account information, according to David Kunin, a spokesperson for the Treasurer’s Office.

Asked if those requirements might exclude certain Vermonters, such as undocumented workers, Pieciak said there may be some workers without retirement accounts who remain ineligible. But, he said, the “vast majority are people that simply work for a small nonprofit or small business that can’t afford to offer a workplace retirement program,” typically because of the administrative costs. 

Vermont has joined Colorado, Delaware and Maine in creating an interstate consortium called the Partnership for a Dignified Retirement to save on administrative costs, according to the press release. 

Here are a few things to know about the program. More details are available on the frequently asked questions section of its website.

How would this program differ from other types of retirement accounts? 

Conventional employer-based retirement programs, such as 401(k) accounts, allow employees to automatically move a percentage of their pre- or post-tax income into an investment account, which could include stocks, bonds or other investment options, according to the U.S. Internal Revenue Service. Employers can also choose to contribute to the account. 

By contrast, a Roth IRA allows a person to contribute post-tax income to an account separate from their employer, operated by a bank or other financial institution. Those have lower contribution limits than 401(k) accounts, according to the IRS. 

Pieciak said the Vermont Saves accounts are essentially Roth IRAs, except they allow for automatic payroll deductions on post-tax income. 

Vermonters might also choose to enroll in the Vermont Saves program because of the low fees compared to other IRA providers, or because they have more trust in a state-based system, according to Becky Wasserman, director of economic empowerment at the Treasurer’s Office. 

How does the program work through employers?

The Vermont Saves program is free for employers, according to the program’s website. They must register their organization and coordinate how to send contributions through their payroll provider. 

The program defaults to an automatic deduction of 5% of wages for first-time enrollees, rising to 8% over the course of several years, Wasserman said. However, employees can choose to deduct a higher or lower percentage of their income, up to the federally mandated IRA contribution limits. 

Pieciak said those defaults were picked to “balance” how much someone needs to save to have a sustainable income in retirement with “having money today to put food on the table.” He acknowledged that participants in Vermont Saves are likely to be lower wage earners than the Vermont average. 

“It’s an amount that will have an impact on them and their future retirement, but it’s hopefully not an amount that they can’t live without in terms of their daily life in the here and now,” he said. 

If someone leaves their employer, the Vermont Saves account remains with them like a bank-based IRA would, Pieciak said. They can also take their original contribution amounts out of the account before retirement, but any investment returns would be taxed.

What are the investment options? 

Vestwell State Savings, a nationwide savings platform, is the program’s administrator, but the investments themselves are managed by two companies: State Street and BlackRock. 

The program offers four types of investments: a capital preservation fund, a bond index, an international equity fund and a “target retirement date” fund, which automatically adjusts the mix of investments based on when someone plans to retire. 

Most IRA accounts offer more granular control over investments, but Pieciak said the state wanted to avoid making people “paralyzed” by having too many options. “It sort of becomes complex and hard for someone to make the decision about what’s most appropriate to them,” he said.