According to the Boston College of Retirement Research, half of the people in the U.S. won't have enough funds saved to keep their standard of living during retirement. Additionally, over a third of workers have less than $1,000 in retirement savings.
While the 2008 financial crisis helped contribute to this shortfall, other factors such as wage stagnation, income inequality, and a gap in small business retirement plan options have also added to the dilemma. To help counter this retirement crisis, several states have created their own retirement programs tailored to private employees, with a special eye on assisting the self-employed and those within smaller organizations who aren't currently offered a company-sponsored retirement plan.
Oregon is part of this growing list of states with its innovative OregonSaves initiative.
When did OregonSaves start?
The OregonSaves pilot program first launched July 1, 2017, with notifications sent to companies with 100 or more employees. They were asked to either:
- Certify that they offer employees a qualified retirement plan or
- Register with OregonSaves by November 1st
The first-of-its-kind automated, state-administered IRA retirement plan for private individuals officially began on October 15, 2017 requiring companies with 50 or more employees to comply.
As of May 2021, the program has registered nearly 17,000 participants at an average monthly contribution rate of 5.6%. California, Illinois, Massachusetts, and Washington soon followed with similar plans of their own, and a handful of other states are nearing launch.
By late 2022, every company in Oregon with at least 1 employee will be required to comply.
What is OregonSaves?
OregonSaves is a state-run retirement program that offers a Roth IRA savings plan for Oregon residents and workers employed at in-state businesses. It's available to all self-employed individuals or private-sector employees who don't have company-sponsored retirement plans at their workplace.
The unique plan is meant to help small businesses and workers alike. It combines automatic enrollment with a payroll deduction IRA - or Auto IRA for short.
Any employees who participate in the program must simply have earned income. This includes retirees who have recently gone back to work.
What do employers need to know about OregonSaves?
If your business does not offer a qualifying retirement savings plan, you must register for OregonSaves. Qualifying plans include a 401(k), Simplified Employee Pension plan, SIMPLE IRA, governmental deferred compensation plan, qualified annuity, or tax-sheltered annuity plan.
If you have one of these plans, registration is not required but you must still certify your exemption.
If you don't offer any of these options, you'll need either your Federal Employer Identification Number or Tax Identification Number (EIN/TIN) to register. The program also reaches out to businesses to notify them of their upcoming registration date, and you'll need the verification code from that notification.
The state-mandated registration deadlines are based on the number of employees at your company:
- 50 or more employees – Register by November 15, 2017
- 20-49 employees – Register by December 15, 2018
- 10-19 employees – Register by May 15, 2019
- 5-9 employees – Register by November 15, 2019
- 4 or fewer employees – Targeted for late 2022
You can register even if your deadline has passed by contacting the OregonSaves client services team.
NOTE: Because the Governor declared a state of emergency during COVID-19, some registration dates and requirements have yet to be defined.
How is OregonSaves Funded?
The program is free to employers and funded entirely by employee contributions, at a rate of about 1% ($1 per $100 contribution) annually. This covers investment fund fees, program administration by expert IRA specialists, customer and data service staff, and Oregon Retirement Savings Board costs. OregonSaves currently holds about $113 million in assets.
Is the Program Mandatory?
If you are an employer in Oregon and you do not offer your employees a qualified retirement savings plan, the program is mandatory.
Employers must enroll new employees within 60 days of their hire date. Current employees must be enrolled within 60 days of your registration with OregonSaves. Employees do have the option of opting out of the program by calling the service team at 844-661-6777 or filling out an Employee Opt-Out Form.
What Special Paperwork is Needed for OregonSaves?
Tax Form 5498 must be filed annually with the IRS by employers to report employees' IRA retirement contributions. A copy must also be furnished to all staff members by May 31st each year. However, no information needs to be reported on employees' W-2s, and they do not need to send Form 5498 or any other form to the IRS when they file taxes.
What payroll information needs to be sent to OregonSaves?
At the close of every pay period, employee contribution data needs to be provided to OregonSaves. Your Oregon payroll company should have the ability to set up a retirement plan feed or API integration that allows this data to be sent to OregonSaves automatically once payroll is finalized.
Are there any other requirements for participating in OregonSaves?
Here are just a few more key requirements to make note of about OregonSaves:
- Employers are not allowed to make matching contributions.
- Out-of-state employees are also eligible for the program if their employment is based in the state.
- Seasonal employees and H2-A Visa holders are eligible for the program if they work more than 60 days.
- Work-study students and those not holding a Social Security or individual tax id number are not eligible for the program.
- Employees can participate in both your company retirement plan and OregonSaves if they choose to self-enroll.
- Payroll deduction IRAs do not count as employer-sponsored retirement plans.
- If you offer a retirement plan to certain individuals at your company, such as those who meet your age criteria, you can certify for an exemption.
- Once employees are enrolled, they have 30 days to opt out or adjust their savings rates and investment options.
- Facilitation of the program includes: registering, account setup, enrolling employees, educating employees on the program, making payroll deductions, and managing contributions
- Payroll representatives can be added to assist with managing contribution amounts, automatic deductions, and program compliance.
What kind of IRA plan does OregonSaves offer?
The Roth Auto IRA offered by OregonSaves differs from Traditional IRAs in that all contributions are after-tax withholdings. This means that you won't owe taxes on the funds when you retire, which can be a big stress-reliever for retirees on a budget. There are also no age limitations for contributions to a Roth, meaning you can keep saving after age 70.5 as long as you're still earning income.
Employees who use OregonSaves and meet income requirements of no more than $140,000 for a single tax filer and $208,000 if married and filing jointly are able to contribute up to $6,000 per year at any age, and $7,000 a year at age 50 or older.
While the direct funds you contribute can be withdrawn at any time without taxes or penalties, a Roth IRA encourages employees to keep saving by taxing and penalizing withdrawals on interest, unless:
- A five-year holding period has passed and
- You've reached age 59.5 or
- You've become disabled or
- You use the funds for first-time homebuyer costs (up to $10,000) or
- Your beneficiaries use the funds following your passing
Highlights of the OregonSaves program
Here are five more key features of the OregonSaves program:
- The default contribution rate is 5% of your gross pay, and this goes up by 1% every year until it caps out at 10%.
- You can adjust the contribution rate at any time as you see fit, and can even add funds using your personal bank account.
- The first $1000 in savings is automatically invested in the State Street Liquid Reserves (SSIXX) Capital Preservation Fund for 90 days, then moved to either a target date fund or the investments of your choice.
- Employees and self-employed individuals who are Oregon residents aged 18 and over can sign up with their Social Security number, address, and date of birth, or be automatically enrolled by your employer after 30 days.
- Employees can opt out and opt back into the program at any time, there is no mandatory wait period to join, and everyone is 100% vested starting on day one.
What are the Penalties for Noncompliance with OregonSaves?
Fines and Fees
While there was a two-year grace period on penalties for failing to comply with OregonSaves, in 2019 that all changed. SB164, which outlines the penalties for failing to comply with the program's regulations, was signed into law by Governor Kate Brown and officially went into effect on January 1, 2020.
Under its provisions, if you don't offer a retirement savings plan or don't properly facilitate the OregonSaves program, you could incur fines of $100 per employee, up to a maximum of $5,000 annually.
What's more, expensive employer-sponsored retirement litigation has soared in recent years. According to a Boston College report, a key focus of these lawsuits is regulatory and financial compliance. One example is Brown University's recent settlement of a huge class-action lawsuit for $3.5 million over its failure to properly automate recordkeeping. Anthem will also pay out $24 million beginning in 2019 for similar Employee Retirement Income Security Act (ERISA) violations.
GNSA is here to help you manage your payroll with ease, efficiency, and accuracy using our PeoplePro cloud-based automatic deduction features. Rather than sorting through the multi-step checklist needed for you to correctly administer OregonSaves, you can count on our experienced team of in-state Benefits Administration experts to quickly and accurately upload your employee deductions - on time, every time.
We keep you in compliance with Payment Conveyance Services (PCS), and will even guide you through the best retirement plan options to help attract and keep amazing talent in your organization now and for years to come. Contact our Portland payroll support office today to learn more.