Vermont Retirement Mandate: VT Saves Rules for Employers
The Vermont retirement mandate makes employers without a plan register for VT Saves. Deadlines, penalties, auto-IRA mechanics, and the 401(k) option.
The first thing most Vermont employers learn about this mandate is that a letter with an access code in it was not marketing. It came from the state, it had a statutory deadline attached, and the pile it got filed in was the wrong pile. If you have anyone on payroll in Vermont, that letter is the first thing I would go looking for.
According to the Georgetown University Center for Retirement Initiatives (2026), 17 states have now enacted an automatic-enrollment individual retirement account (IRA) program. Rather than persuading small employers to sponsor retirement plans, Vermont built one and made facilitating it compulsory for businesses that offer nothing else. The program is called VT Saves, or Vermont Saves, and the obligation it creates is narrow but real.
What follows is the employer side of it: who has to register, what the dates were, what the penalties actually cost, how the auto-IRA mechanics land in your payroll cycle, and how to weigh sponsoring a 401(k) instead.
I build the people and records tooling for businesses without a dedicated HR department at FirstHR, and FirstHR is an onboarding and HR platform rather than a payroll provider or a retirement plan provider. This is general information, not tax, legal, or investment advice.
What VT Saves Is
VT Saves is a state-sponsored automatic-enrollment Roth IRA program that eligible Vermont employers are required by law to facilitate if they offer no qualifying retirement plan of their own. It is sponsored by the Office of the Vermont State Treasurer and run day to day by a contracted program administrator.
The distinction that matters most is ownership. A 401(k) is your plan, with your name on the fiduciary duties. A Vermont Saves account belongs to the employee from the first dollar and follows them to their next job without a rollover. You are a conduit for a payroll deduction, not a plan sponsor, and every state auto-IRA program rests on that same framing.
Who Has to Register
Three conditions have to be true at once: two or more employees, at least two years in business, and no qualified retirement plan already in place (Vermont Saves employer program details). Meet all three and registration is mandatory. Miss any one and you are outside the program, though you may still need to certify that fact.
The threshold is the part that catches people. VT Saves originally covered employers with five or more employees, and in February 2026 the program amended its rules to cover employers with two or more, according to the Georgetown University Center for Retirement Initiatives (2026).
That amendment brought Vermont's smallest businesses into scope for the first time. It also reopened the question for firms that had already certified an exemption under the old rule, because nothing about the business has to change for the answer to flip.
On the employee side, coverage is broad. A saver is eligible at age 18 or older with taxable wages from a Vermont employer, with no minimum hours requirement, according to the program's own eligibility rules (Vermont Saves saver program details). Part-time staff and seasonal workers are not automatically outside it, which surprises employers who assume a benefits rule tracks full-time status.
The Registration Dates
Vermont did not run a long size-tiered rollout. It set one registration deadline for the original group of covered employers, then a second deadline for businesses that became covered later, including those brought in by the lower threshold (Office of the Vermont State Treasurer, June 2026).
The original and the later registration dates have both passed, and so has any individual deadline the program gave a business it notified before January 1, 2026. There is no future wave left to wait for.
| Which employers | Registration deadline | Status |
|---|---|---|
| The original covered group, then defined as five or more employees | March 1, 2025 | Passed |
| Any business the program notified before January 1, 2026 | Carried its own notified deadline | Passed |
| New businesses, including those covered once the threshold fell to two | June 30, 2026 | Passed |
| A new covered employee after you have registered | Enrolled no later than 120 days after the date of hire | Rolling obligation |
The last row is the one employers tend to forget once they think they are done. Registration is a single event, but the roster obligation is continuous: every new covered hire has to be enrolled, and the clock on that runs from the date of hire rather than from your next convenient payroll review.
That makes this a records problem as much as a benefits problem. If your new-hire process already captures start dates, work state, and pay details in one place, the program feed is a small extra step. If it lives across a spreadsheet, an email thread, and somebody's memory, the 120 day clock is the one that runs out first.
What Missing It Costs
Missing the mandate can cost up to $75 per covered employee, effective October 1, 2026, for each calendar year or part of a year in which that employee was neither enrolled in the program nor opted out. It applies when an employer fails to enroll a covered employee without reasonable cause, and the maximum has escalated on a schedule written into the statute.
Seventy-five dollars sounds survivable until you multiply it the way the statute does: by every covered employee and by every year or part-year the failure continues. A small workforce left unregistered across two calendar years produces a number that no longer reads like a filing fee.
The structural point is that paying does not close the matter. The penalty keeps accruing while the employee stays outside the program. Registering or certifying an exemption is what actually stops the count.
How the Auto-IRA Works
Automatic enrollment means employees participate unless they act, which is the entire design premise. The mechanics below are set by the program, not by you, and knowing them saves you from answering questions you are not supposed to answer.
Because the account is a Roth IRA rather than a 401(k), federal IRA rules cap it. For 2026 the IRA contribution limit is $7,500, with an additional catch-up of $1,100 for savers age 50 and older, and the Roth income phase-out begins at $153,000 for single filers and $242,000 for married couples filing jointly (Internal Revenue Service, November 2025).
The modest ceiling and the income phase-out push some employers toward sponsoring a plan instead. A well-paid owner cannot defer much through this program, and one above the Roth income limits has to switch the account to the program's Traditional IRA option or stop contributing. The default rate and the escalation schedule are published on the program's own contributions page.
Your Role in Payroll
The employer job is narrow and repetitive: register, add people, deduct, remit, maintain. Nothing in it requires a benefits background, and most of it is the kind of task that goes wrong through neglect rather than difficulty.
None of that is heavy. It is, however, recurring, and recurring small obligations are exactly what falls over in a business where the person running payroll is also the person doing three other jobs. Building it into your Vermont payroll routine beats treating it as a project.
Two records carry the whole of it. A roster tab that turns every hire date into a due date, so the 120 day clock is visible rather than remembered, and a remittance tab that shows which pay dates have actually been submitted and funded.
| A | B | C | D | E | F | G | H | I | J | K | L | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Employee | Hire date | Wages allocable to Vermont? | Enrollment due (hire date plus 120 days) | Date added to the program | Opt-out window ends | Status (enrolled / opted out / pending) | Contribution rate | Rate last changed | Termination date | Marked terminated in the program | Notes |
| 2 | [Employee 1] | |||||||||||
| 3 | [Employee 2] | |||||||||||
| 4 | [Employee 3] | |||||||||||
| 5 | [Employee 4] | |||||||||||
| 6 | [Employee 5] |
What You Are Not On the Hook For
Four things you might reasonably expect to owe under a retirement benefit, and do not owe here. This list is the reason the state program is administratively cheap, and also the reason it is limited.
Employers often overestimate their exposure on the second item. Fiduciary responsibility is one of the plan burdens many small employers told the U.S. Government Accountability Office (2012) they feel overwhelmed by.
Under 3 V.S.A. section 536, a covered employer is not considered a fiduciary in relation to the program. If fiduciary risk is what has kept you wary of offering any retirement benefit, that obstacle does not exist here.
The flip side is that facilitating VT Saves buys you no goodwill with employees. They receive nothing from the company, and when people compare offers, a payroll deduction into their own IRA does not read as a benefit the way an employer contribution does. Keep that in mind before you decide the mandate has settled your benefits question for you.
Dwight SchruteSales3 people
Darryl PhilbinWarehouse1 person
Kelly KapoorCustomer Service1 personCertifying an Exemption
If you already sponsor a qualified retirement plan you are exempt from the mandate, but the exemption does not apply on its own. You certify it using the same access code and EIN you would have used to register.
The plans that qualify are the standard employer-sponsored vehicles: a 401(k), including a safe harbor design, a 403(b), a SEP IRA, or a SIMPLE IRA. What does not qualify is an intention, a quote from a provider, or a plan you closed two years ago and have not thought about since.
Certification also has a shelf life in practice. A business whose plan lapses moves back into the mandate, and the drop in the coverage threshold reopened the question for employers who had reasoned their way out of it while the line sat at five. Treat the certification as something you re-check when your plan or your headcount changes, not as a permanent release.
Which means the useful artifact is not the certification itself, it is the note of how you reached it: the headcount you counted, the plan you relied on, the date you confirmed the plan was still live, and the events that send you back through the test.
VT Saves or Your Own 401(k)?
The honest answer is that these are not the same product and the comparison is not close on capability. The state program clears a legal obligation at no employer cost. A 401(k) is a compensation decision with real money and real administration behind it.
| Dimension | VT Saves | Your own 401(k) |
|---|---|---|
| Account type | Employee-owned Roth IRA | Employer-sponsored qualified plan |
| Employer contribution | Not permitted | Optional, or required under a safe harbor design |
| Fiduciary responsibility | None for the employer | Yes, sits with the plan sponsor |
| 2026 employee contribution ceiling | $7,500, plus $1,100 catch-up at 50 and older | $24,500 of elective deferrals, plus $8,000 catch-up at 50 and older ($11,250 at 60 to 63) |
| Income limits on participation | Roth phase-out from $153,000 single, $242,000 joint; none on the Traditional IRA option | No income cap on elective deferrals |
| Employer cost | $0 to facilitate; saver pays account fees | Setup, recordkeeping, and any employer contribution |
| Federal filings and testing | None for the employer | Annual reporting and nondiscrimination testing may apply |
| Effect on the mandate | Satisfies it by participation | Satisfies it by exemption |
Read that table as a ladder rather than a menu. Almost every employer that eventually sponsors a plan does so because one specific row became binding: usually the contribution ceiling, sometimes the income phase-out, occasionally the desire to actually give employees something. Until one of those rows bites, the state program is doing the job at a cost of zero.
The counterweight is that a plan brings obligations the state program does not. Annual reporting through Form 5500 and the ERISA duties (ERISA is the federal law that governs private retirement plans) that come with sponsorship are real work, and in a business with no benefits staff both land on the owner.
The third obligation is nondiscrimination testing, which can limit what owners defer in exactly the businesses most motivated to start a plan. That is an unwelcome discovery to make in year one, so it belongs in the decision rather than in the first plan audit.
When a 401(k) Wins
Sponsor a plan when you want to put company money into retirement accounts, when the people who most want to save cannot save enough inside an IRA, or when you are competing for staff against employers that contribute.
Those credits took their current form in the retirement legislation of 2019 and 2022 that reshaped small-employer plan economics, and they are the reason the cost comparison in the table above is less lopsided than it looks on the first read.
Where Employers Get This Wrong
Five patterns, and the first one is the most common by a wide margin among the small employers I see.
Relying on the old five-employee threshold is the big one. The coverage line is now two employees, so a business that correctly concluded it was exempt under the previous line can be wrong now without anything about the business having changed.
Certifying an exemption for a plan that no longer exists is second. The certification asks whether you offer a qualified plan, present tense. A plan you terminated does not carry the exemption forward.
Treating the access code letter as vendor mail is third. It is a state notice with a deadline, and the penalty clock in 3 V.S.A. section 535 does not care whether the envelope was opened.
Missing the 120 day new-hire window is fourth. Registration is one-time and the roster obligation is permanent, so compliance quietly decays in businesses that hire steadily and update records occasionally.
And assuming the mandate settles your benefits strategy is fifth. It satisfies a law. It does not give employees anything from you, and it will not close the gap when a candidate compares your offer with one that includes a match.
Nick Anisimov, FirstHR founder
Frequently Asked Questions
Who has to register for VT Saves?
A Vermont employer is covered when three things are all true: it has two or more employees, it has been in business for at least two years, and it offers no qualified retirement plan. The Vermont Saves employer eligibility page lists the requirements in exactly that form. The employee count started at five and now sits at two, so the smallest Vermont employers were pulled in for the first time, and some that ruled themselves out under the old line may now be covered. An earlier exemption does not carry forward on its own. Employers that already sponsor a qualified plan still have to file an exemption certification instead of ignoring the notices they receive.
What are the VT Saves deadlines?
Both deadlines have passed: March 1, 2025 for the original covered group, which was employers with five or more employees at the time, and June 30, 2026 for new businesses, among them those brought in when the threshold fell to two employees. The program also tells any business it notified before January 1, 2026 that its deadline has already passed. So a covered Vermont employer that has not registered is late, not early. One obligation never ends, though: after you register, every covered employee you hire later must be enrolled within 120 days of the hire date. Vermont used only these dates instead of a long rollout staged by company size, as several other states did.
What is the penalty for not complying with the Vermont retirement mandate?
The maximum penalty is $75 per covered employee, effective October 1, 2026, under 3 V.S.A. section 535; it was $20 from October 1, 2025 through September 30, 2026 and $10 before that. It is assessed when an employer fails, without reasonable cause, to enroll a covered employee, and it applies for each calendar year or part of a year that the employee was neither in the program nor opted out. Since the amount multiplies by headcount and by years, a small oversight grows quietly. The statute also protects diligent employers: no penalty applies where the employer did not know of the failure despite reasonable diligence, or where it used reasonable diligence and fixed the problem within 90 days of the day it knew, or should have known, about it. The Treasurer may also waive all or part of a penalty for a failure due to reasonable cause rather than willful neglect.
Does the employer contribute to VT Saves?
No, and the program does not permit an employer match at all. Vermont Saves is funded entirely by employee payroll deductions into each employee’s own Roth IRA. The employer facilitates the deduction and remits the money, which is the whole of the financial role. This is the sharpest difference between the state program and a 401(k), where an employer contribution is either the point of the plan or at least a live option. If you want to put company money into employee retirement accounts, the state program cannot be the vehicle for it and you need a plan of your own.
Is an employer a fiduciary under VT Saves?
No. Vermont law is explicit: 3 V.S.A. section 536 says a covered employer shall not be considered a fiduciary in relation to the program. The Office of the Vermont State Treasurer chooses the investment options and a contracted administrator handles daily operations, so an employer has no fiduciary duty for investment decisions or results for any participating employee. The program also keeps these tasks off your desk: enrolling employees into their accounts, answering questions about the portfolios, helping anyone pick investments, and handling investment changes and distributions. Dropping that exposure is what makes a state auto-IRA lighter to run than a plan you sponsor, and it explains the trade-off too, because the same distance that shields you from liability leaves you unable to design anything, a match included.
What is the default contribution rate for VT Saves?
The default savings rate is 5 percent of gross pay, taken after tax because the account is a Roth IRA. Unless an employee declines, the rate then rises by one percentage point every January for anyone enrolled at least six months, until it reaches 8 percent. Employees stay in control: they can refuse the yearly increase, pick any rate from 1 percent to 100 percent within federal IRA limits, change it whenever they like, or opt out altogether. For 2026 the federal IRA contribution limit is $7,500, or $8,600 for savers age 50 and older, and Roth eligibility phases out at higher incomes.
Should I use VT Saves or start a 401(k)?
Facilitate the state program if you want the mandate satisfied at zero employer cost and no fiduciary exposure. Sponsor a 401(k) if you want to contribute company money, if owners and senior staff need to defer more than an IRA allows, or if higher earners are running into Roth IRA income limits. The contribution ceilings are far apart: for 2026 the IRS set 401(k) elective deferrals at $24,500 against an IRA limit of $7,500. A qualifying plan also exempts you from the mandate, so the choice is not between complying and not complying, it is between two ways of complying. Federal startup credits can offset a meaningful share of the first three years of plan costs, which narrows the cost gap more than most owners expect.
Does VT Saves apply to remote employees living in Vermont?
Generally yes, because these programs follow where the work is performed rather than where the business is incorporated. Vermont defines a covered employee by reference to wages allocable to the State, so an employee who lives and works in Vermont and earns taxable Vermont wages is covered even if your company has never had an office there. Program eligibility for savers is set at age 18 or older with taxable wages from a Vermont employer, with no minimum hours requirement, so part-time and seasonal remote staff count too. The practical consequence is that a single remote hire can create a registration obligation in a state you do not otherwise operate in. If you hire across state lines, check every state where somebody actually works rather than only your headquarters state.
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