State-Backed Savings Plan Nears Launch

By Natalie Missakian

Connecticut workers who don’t have a pension or 401(k) will soon have a low-cost way to save for retirement out of their paychecks, thanks to a new state law.

A state-facilitated retirement savings program, starting on Jan. 1, 2018, will require companies with five or more employees to offer a private retirement savings option or participate in the state plan.

The Connecticut Retirement Security Program is the state’s response to a growing savings crisis spurred by an aging population and fewer company pensions. It is aimed at the roughly 600,000 private-sector workers statewide who lack access to a retirement savings option at their job.

“If folks enter retirement unprepared or underprepared, there’s a high likelihood that they will have to turn back to the government for assistance for everything from health care to housing,” said state Comptroller Kevin Lembo (D), cochair of the state board that crafted the legislation.

The Connecticut Business & Industry Association, the state’s largest business lobby, strongly opposed the measure, calling it an example of government overreach into the private sector. But Lembo said financial services companies were not offering attractive savings plans to many workers.

“While there may have been cries that this was unfair competition on the part of the public sector, this was nobody’s market,” Lembo said. The program is aimed at lower-income workers, who are less likely to open their own IRAs because of high fees.

Connecticut joins six other states that have passed similar laws. AARP Connecticut strongly lobbied for the program and will spend the next year informing residents about its benefits, said John Erlingheuser, associate state director for advocacy.

“We have one of the strongest programs of the states that have done this,” he said. Laws in other states vary on how many employees a business must have in order to be required to participate in the savings plan.

Lembo said the first step will be the appointment, by Jan. 1, of the quasi-public Connecticut Retirement Security Authority, which will oversee the program. Funds will be managed by private investment firms, and employers are not required to contribute.

Employees can opt out
Under the plan, workers can either choose a Roth IRA from a list of approved vendors or opt out. A default contribution of 3 percent would be deducted from each paycheck, though workers could contribute more or less. The program is expected to pay for itself through employees’ fees.

Matthew Feiner, owner of the Devil’s Gear Bike Shop in New Haven, called the legislation a “dream come true” in an op-ed for the website CTNewsJunkie.com.

“Businesses like mine run the risk of losing our team members to larger employers who can dedicate staff to navigate the complicated retirement system and administer the benefits,” Feiner wrote.

Michelle Morin, co-owner of Country Kids Childcare & Early Learning Center in Putnam, said she supports the concept but worries about administrative costs: “We’d love to be able to offer it, but it’s still going to put a burden on small businesses.”

Genevieve Ballinger, legislative liaison for the comptroller’s office, said the only administrative cost should be adding a payroll-deduction line to pay stubs. She said that should be free for businesses that use payroll provider services, but there may be a small charge for those doing payroll manually.

AARP Connecticut is providing speakers for community groups interested in the program. Groups can contact Erica Michalowski at emichalowski@aarp.org or 860-548-3163.

Natalie Missakian is a writer living in Cheshire, CT.