retirement-security-photoThere has been a lot of debate about the recent passage of PA 16-29, an act creating the Connecticut Retirement Security. It is understandable and expected for some to support the bill and others to oppose, however, those opinions should be formed on fact:

  • Why we need this: Workers are 15 times more likely to save if they have access to a workplace retirement plan.
  • Who is impacted: There are over 600,000 Connecticut workers with no pension, 401K or other options to save for retirement at the workplace.
  • Savings for taxpayers: The state will ultimately save money by helping people plan for self-sufficiency in retirement and avoid a reliance on public assistance
  • Cost to employers?: PA 16-29 creates a plug and play option for businesses that reduces administrative, financial and legal burdens. There will be little or no expense to employers, who are only responsible for running payroll deduction.
  • No cost to state: There would be no expense to the state. The private institution that wins the bid to invest the funds would front the money for startup and operations to be paid back with the fees from the employee private accounts.

Unfortunately, Connecticut residents are being given misinformation by opponents of the bill. We need to address the inaccuracies in order for residents to form an educated opinion.

  • MYTH: The legislation creates a state-run retirement savings plan for private sector employees.
  • FACT: It is not a pension and it is not state-run. This public private partnership will create a plan to be managed by a financial firm. Similar to the retirement options offered by many larger companies, the IRA saving accounts will be owned by the employee and it will travel with employee from job to job. Companies choosing to select a plan other than with the vendor selected by the state can do so. The state will not be on the hook for gains, losses, or benefits.
  • MYTH: The state will be able to take, or borrow, from the employee retirement savings accounts.
  • FACT: The state is prohibited by state and federal law from taking or borrowing money from these accounts. These retirement accounts are held in a separate trust for the exclusive purpose of providing retirement income for employees.
  • MYTH: This is not something residents are worried about.
  • FACT: A recent survey shows three in four Connecticut Registered Voters age 35-64 are concerned that some residents have not saved enough for retirement and could end up being reliant on public assistance. Many are anxious about their own retirement, and wish they had more money saved.
  • MYTH: Everyone has an option to save already.
  • FACT: Workers are 15 times more likely to save for retirement when they have a workplace payroll deduction option. Fewer than 5% of people open an IRA on their own if they don’t have a way to save at work. Savings rates jump to more than 70% when there is an employer sponsored retirement savings plan available and more than 90% when automatic enrollment is used.
  • MYTH: A better course of action is a strong focus on financial literacy for all ages and public awareness of retirement savings options.
  • FACT: The truth is that over the last decade access to retirement plans has declined, 401(k) balances have stagnated, and healthcare costs have risen. Although education is necessary, it is certainly not sufficient to solve this problem. Studies have shown that, even with more education, people are 15 times more likely to save for retirement with an employer based payroll deduction savings account.
  • MYTH: The government is forcing workers to put money they’ve earned into a retirement fund.
  • FACT: Participation is voluntary and anyone can choose to opt-out. In addition, companies can choose to contract with any financial services provider they choose.
  • MYTH: This is a partisan issue.
  • FACT: Across a spectrum of political views, three in five Connecticut voters support a retirement savings plan that would help residents build their own private retirement savings. Across political views again, eight in ten voters agree that elected officials should support a state retirement savings plan so small business workers have an opportunity to save for retirement and small businesses can remain competitive. Red states and blue states are working on this, including Utah, Georgia and South Carolina.
  • MYTH: This bill isn’t business friendly. We should go with a marketplace instead.
  • FACT: PA 16-29 creates a plug and play option for businesses that reduces their administrative, financial and legal burdens. In contrast, the Washington marketplace scheme, which has been discussed by some opponents, does not address the regulatory and administrative burden of operating a retirement plan. In order to use the marketplace, small businesses would still need to choose a plan, choose a provider, hire lawyers and third party administrators, potentially operate under ERISA (Employee Retirement Income Security Act), and contribute employer dollars.
  • MYTH: ERISA prevents us from doing this.
  • FACT: ERISA concerns were dismissed by U.S. Labor Secretary Perez and President Obama. This bill falls squarely within the DOL safe harbor, and has been vetted over a period of several years. Despite all of this, some may argue that ERISA is still an issue. They assume that legislators will hear that acronym and run for the hills. It’s vital to remember that ERISA is not something big and scary. ERISA is a federal law aimed at protecting consumers.