Connecticut is not alone in developing new options to help private-sector workers who lack a retirement plan, according to a recent report from the Pew Charitable Trusts.
At least 24 other states have introduced legislation, studied state-sponsored retirement savings programs, or enacted programs to reduce poverty among retirees.
“Many states are considering new options for increasing retirement savings, and early indications are that it’s feasible for them to take on this challenge,” said John Scott, director of Pew’s retirement savings project. “Interested policymakers must explore ways to maximize program effectiveness, minimize administrative and financial costs for employers, and manage states’ legal and financial risks. But these priorities can conflict and require consideration of difficult trade-offs, making the task of crafting proposals tougher.”
These “trade-offs” have proven particularly controversial in Connecticut. While the Democrat-controlled legislature already has authorized a state-administered retirement program for private-sector workers that’s expected to be ready by 2018, some Republican legislators continue to warn that a state-run plan that requires businesses to participate could be costly and legally messy.
“With life expectancy on the rise, workers’ efforts to prepare for retirement face threats from inadequate investment returns, large or unexpected expenses, and inflation,” the Pew report states. “These risks affect all Americans, but those who have saved for retirement have a real advantage.”
But there is no one-size-fits-all solution.
The Pew analysis identified three general approaches that states are considering or pursuing to increase retirement savings among private-sector workers.
Some states, like Connecticut, are pursuing a state-run program set up under the federal Employee Retirement Income Security Act of 1974 (ERISA), the law that regulates pensions and sets a number of minimum standards.
“ERISA provides consumer protections for plan enrollees but can impose costly regulatory requirements on employers and increase a state’s administrative burden,” the report states.
Two-thirds of small businesses nationally cite cost as their chief obstacle to offering a retirement program to their workers.
“I am proud that Connecticut is among the states leading the way for retirement security,” said state Comptroller Kevin P. Lembo, who was directed — along with state Treasurer Denise L. Nappier — to oversee development of the Connecticut plan. “… The program will reflect the seriousness of our purpose, and fulfill a significant unmet need in the market.”
A state study board created by the General Assembly has completed a market feasibility study and implementation plan. The program is set to begin by Jan. 1, 2018.
“Over 600,000 private-sector workers in Connecticut lack access to retirement plans through their employer, and are headed towards retirement financially unprepared,” Lembo added. “Retirement security is not only a serious issue for those individuals and families who are forced to delay retirement indefinitely – but for our entire state economy.”
Massachusetts offers a program under ERISA. The Connecting Organizations to Retirement or CORE program, a state program enacted in 2012, involves a voluntary retirement plan for workers in nonprofit organizations with 20 or fewer employees.
The second option involves state plans outside of ERISA, such as Illinois’ Secure Choice program, which helps workers without retirement plans make payroll contributions to individual retirement account plans.
Under the third option, states can help businesses voluntarily set up their own retirement savings plans. New Jersey and Washington have set up marketplace websites to assist small employers with this.
Some of the leading Republicans in Connecticut’s state Senate have argued that government’s best role is to steer workers without retirement plans toward investment planning services rather than requiring businesses to participate in a state-administered program.
Sen. Toni Boucher of Wilton joined Senate Minority Leader Len Fasano of North Haven and Sen. L. Scott Frantz of Greenwich last March in proposing a state-sponsored marketplace to promote private-sector retirement plans.
“Retirement planning is one area in which there are an abundance of top-notch providers, yet Democrats are proposing the state run a single, mandated plan for private-sector workers,” Boucher said at the time.