Establishing VT Saves (S.135) - April 25, 2023

Chairman McCarthy introduced Senator Brock to the House Government Operations Committee on Tuesday, saying that he “loves this bill” as it solves a problem, does not cost much to start up, or to continuing operating, and does not raise taxes. It “actually gives something back to Vermonters,” he claimed. He continued that often they “pass things, we’re the first in the nation to do it. And then we pay the price because we don’t know how to do it,” he quipped.

NOTE: Perhaps this thinking could be applied to other areas.

Only 5% of Americans, including Vermonters, are saving for retirement, Brock noted. More than half of small employers do not offer retirement savings plans, which is where many people set aside retirement savings. When an employer plan is offered, over 70% of employees participate. Vermonters not covered by a plan are more likely to be lower income, young, less educated, more likely to be BIPOC, and more likely to be females.

The bill proposes a Roth IRA, into which after-tax dollars would be contributed by employes. This means that capital withdrawals in retirement are tax-free. Brock mentioned that most people have less than $1,000 set aside for emergencies; the dollars put into this plan would “always be available” upon request.

This program would have an automatic enrollment mechanism for participating employers, but employees could still choose to opt out or adjust the default 5% savings rate to something that better fits their needs.

Those depending on Social Security for retirement will “find it is insufficient,” noted Brock. Other states with similar programs, like Oregon and California, have seen an average annual contribution of $2,000 per employee.

Representative Higley recalled leaving the service all he had was a life insurance policy. He wondered what kind of “educational efforts” would be made as part of this program. Brock pointed him to the State Treasurer, saying that he might have some ideas.

Representative Morgan asked why employer matched funds were not required here. The answer was not clear, but it seemed like there would be issues under the Federal ERISA laws.

Michael Pieciak (Vermont State Treasurer) shared a presentation with the Committee.  

He pointed to Colorado as an example of a state that has had “great success.” That state had enrolled 120,000 in a single day. He expected Vermont to have something closer to 65,000 employees sign up at launch. He thinks there may be several different funds set up with differing retirement date targets.

Representative Birong asked about participation rates, noting that other states like Illinois and Oregon have seen over 70-75% of employees remain in the program over time. Pieciak agreed that it could get even higher than that.

McCarthy asked about demographics of the youngest workers and if they started on this plan, could they join others later in their careers? Brock indicated that these plans can exist in parallel with other plans. It was also noted that Roth IRA contribution caps are separate than 401(k) caps.

Legislative Counsel provided a walk-through of the bill, but the major concepts had already been covered by Brock. Some part-time and seasonal workers would be eligible for the plan and some non-profits would also be able to take advantage of it. Hopefully it goes without saying, but the state would be prohibited from ever transferring assets from the fund into any state fund. The Treasurer would contract with a vendor to manage the fund.

McCarthy noted that if the Committee wanted to get the bill out this year they would need to start taking testimony soon. The money committees would also need to review the bill. The bill contains a one-time appropriation of $750K that would fund three positions the Treasurer anticipates needing.



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