After years of delay on a state retirement plan for businesses and nonprofits, Connecticut is finally bringing a program forward to benefit as many as 600,000 workers who lack access to employer-sponsored plans.
Under a law passed in 2016, Connecticut employers will be required to offer a retirement plan if they have at least five employees earning $5,000 or more annually, whether through the private sector or the new MyCTSavings plan. Those failing to do so could face penalties, which the new Connecticut Retirement Security Authority has yet to establish.
State Comptroller Natalie Braswell estimates as many as 30,000 businesses in Connecticut will have to add a retirement plan to comply with the law.
There is no fee for employers. Those with 100 or more employees have until June 30 to sign up, while deadlines for smaller companies have not yet been set.
Employers choosing MyCTSavings will see their workers enrolled automatically, with 3 percent of each paycheck set aside for savings in a Roth Individual Retirement Account, up to $6,000 annually or $7,000 for those 50 or older. Contributions are taxed at the time they are deducted, allowing retirees to withdraw savings in the future without any additional tax obligation.
“This makes it easy, this makes it simple, this makes it automatic — it’s a payroll deduction,” Gov. Ned Lamont said Thursday during a press conference in Hartford. “Over 30 years, with 5, 6 or 7 percent appreciation, that compounds — you’ll have a pretty good nest egg to go alongside your Social Security.”
Workers can opt out at the time of enrollment or any point afterward, and can adjust their contributions to fit their budget and retirement outlook. Participants have the option of rolling accumulated savings into other retirement plans, including when they switch jobs or move elsewhere.
To sign up for MyCTSavings, employers must provide bank account numbers and information on payroll processing firms handling paycheck administration for their workers. The Connecticut Retirement Security Authority has begun notifying employers by postal mail and email of the requirements.
At the time of the original proposal in 2016, several employer groups opposed the legislation, including the Connecticut Business & Industry Association and a separate coalition of some 85 trade associations and chambers of commerce. The groups argued the private sector already had plenty of options for small businesses to add retirements plans. Advocates countered that thousands of those businesses choose not to establish plans, contributing to a retirement crisis for their workers that spills into the state budget as older citizens seek help for basic needs.
“Some will ask why is the state involved in this — what’s the public policy interest,” said Rep. Jason Rojas, D-East Hartford, majority leader in the Connecticut House of Representatives. “We know that when people retire and don’t have adequate savings to live out their life post-work, the state is going to bear a cost in that either in additional medical costs, or housing costs or social services.”
Despite the urgency, progress stalled for several years before Kevin Lembo pushed through MyCTSavings in his final stretch as state comptroller before stepping down in December for health reasons.
Braswell, who was appointed as Lembo’s replacement, said federal law prevents the state from offering a 401(k) stock savings plan under the MyCTSavings umbrella.
The Connecticut Retirement Security Board originally hired BNY Mellon to administer the program. In January, BNY Mellon sold off its Sumday retirement plan administration division to New York City-based Vestwell, which since its 2016 launch, has picked up administration of similar retirement savings plans in Maryland, Oregon and Washington. Braswell said BNY Mellon remains involved in the Connecticut plan.
Under a pilot program last fall with a handful of Connecticut employers, 40 chose to remain enrolled in MyCTSavings, with a dozen opting out.
“It has been a very easy process — not difficult at all,” said Axel Collazo, assistant manager for Tolland’s Ace Transportation, which participated in the pilot. “I have about seven or eight employees who are part of the program, and they are happy with the program.”
According to a Pew Trusts survey, many employees who opted out of the Illinois plan cited an inability to save for current expenses on their income.
“This program is going to have an impact on women more than anyone,” said Nora Duncan, state director of AARP. “Over one in four women age 65 and up rely solely on Social Security.”
For information, a MyCTSavings call center is operating weekdays from 11 a.m. to 6 p.m. and can be reached at 833-811-7435.
Alex.Soule@scni.com; 203-842-2545; @casoulman