Virginia's Retirement Plan Mandate Expands to Businesses with 5+ Employees: What Employers Need to Know
Virginia small business owners have a new reason to review their retirement benefits strategy.
Recent legislation has expanded Virginia's state-sponsored retirement savings mandate, lowering the employee threshold from 25 employees to just 5 employees. As a result, thousands of additional businesses across the Commonwealth will soon be required to either offer a qualified retirement plan or participate in the state's retirement savings program, RetirePath Virginia.
While this change creates new compliance requirements for many employers, it also presents an opportunity to establish a retirement plan that benefits both employees and business owners—often at a much lower cost than many realize thanks to valuable federal tax credits.
What Is RetirePath Virginia?
RetirePath Virginia is a state-facilitated retirement savings program designed for employees who do not have access to a workplace retirement plan. The program allows employees to save for retirement through automatic payroll deductions into an Individual Retirement Account (IRA).
Employers are responsible for facilitating payroll deductions and employee enrollment but are not required to make employer contributions.
The program was originally created for businesses with 25 or more employees that did not offer a retirement plan. The new legislation significantly expands the program's reach by reducing the employee threshold to five employees.
Who Is Impacted?
Your business may be subject to the mandate if you:
- Have five or more employees
- Have been in business for at least two years
- Do not currently offer a qualified retirement plan such as a 401(k), SIMPLE IRA, or SEP IRA
The law also broadens eligibility by including part-time employees in the employee count, meaning many businesses that were previously exempt may now be affected.
If your business meets these criteria, it's important to begin evaluating your options now.
Your Two Options
Businesses that fall under the mandate generally have two paths forward:
Option 1: Participate in RetirePath Virginia
The state-sponsored program provides a straightforward compliance solution. Employees contribute through payroll deductions into their own retirement accounts, and the state oversees the investment options and administration.
For some employers, this may be an adequate solution to satisfy the mandate.
Option 2: Establish Your Own Retirement Plan
Many business owners choose to implement a private retirement plan instead.
Qualified plans such as a 401(k), SIMPLE IRA, or SEP IRA not only satisfy the state's requirements but also provide additional benefits, including:
- Employer matching contributions
- Greater retirement savings opportunities
- Enhanced employee recruitment and retention
- Flexibility in plan design
- Potential tax advantages for both the business and employees
- Additional retirement savings opportunities for business owners
For many growing businesses, a customized retirement plan can become a valuable employee benefit and an important component of long-term business planning.
SECURE Act Tax Credits Can Significantly Reduce the Cost
One of the biggest misconceptions among small business owners is that retirement plans are expensive to implement and maintain.
The SECURE Act and SECURE 2.0 legislation dramatically expanded the tax incentives available to businesses that establish new retirement plans, making many plans far more affordable than employers expect.
Startup Cost Tax Credit
Businesses with up to 100 employees may qualify for a tax credit covering up to 100% of eligible retirement plan startup costs, with a maximum credit of $5,000 annually for the first three years.
Eligible expenses may include:
- Plan setup fees
- Administrative costs
- Employee education expenses
- Recordkeeping services
Employer Contribution Tax Credit
SECURE 2.0 introduced an additional tax credit designed to encourage employers to contribute to employee retirement accounts.
For businesses with up to 50 employees, the credit can equal:
- 100% of eligible employer contributions in Years 1 and 2
- 75% in Year 3
- 50% in Year 4
- 25% in Year 5
The credit generally applies to up to $1,000 of employer contributions per eligible employee each year.
Automatic Enrollment Tax Credit
Employers that add automatic enrollment to a new or existing retirement plan may also qualify for an additional tax credit of up to $500 annually for three years.
A Potentially Significant Opportunity
When combined, these tax credits can offset a substantial portion of the cost of implementing a retirement plan.
For many Virginia businesses that are now becoming subject to the retirement mandate, establishing a private retirement plan may be more affordable than expected while providing greater flexibility and value than the state-sponsored alternative.
Why This Matters Beyond Compliance
Although the Virginia mandate is creating new requirements for employers, retirement benefits continue to play an increasingly important role in attracting and retaining employees.
Workers are looking for employers that support their long-term financial well-being, and retirement plans remain one of the most valued workplace benefits.
By taking a proactive approach, business owners can turn a compliance requirement into a strategic advantage that helps strengthen employee satisfaction, retention, and overall financial wellness.
Next Steps for Virginia Business Owners
If your business has five or more employees and does not currently offer a retirement plan, now is an ideal time to review your options.
Whether you are considering participating in RetirePath Virginia or implementing a customized 401(k), SIMPLE IRA, or SEP IRA, understanding the available tax credits and plan designs can help you make an informed decision.
At Wealth Cycle Advisors, we work with business owners to evaluate retirement plan options, identify available tax incentives, and implement solutions that support both compliance requirements and long-term business goals.
Ready to Explore Your Options?
Contact Wealth Cycle Advisors to discuss whether a 401(k), SIMPLE IRA, SEP IRA, or another retirement plan may be the right fit for your business. We can help you evaluate your options, understand available tax credits, and build a retirement plan strategy that benefits both your employees and your organization.