Despite misleading claims by opponents, including CBIA, the Connecticut Retirement Security Program (CRSP) is not a state-run retirement plan. In fact it is a private sector solution to a growing retirement savings crisis. Employees who invest in these voluntary and privately-run portable Roth IRA plans face no more risk than any other IRA investor, which includes me and, I am sure, many CBIA staff and business owners.
Let’s be clear about the responsibilities of businesses in Connecticut under the new law. It does not apply to a business that already offers a pension, 401K or other retirement savings vehicle. Businesses with five or more employees that don’t have a retirement savings option must offer the employee the opportunity to participate in the new program or any other qualified retirement savings option they choose.
It is disingenuous to claim that employers will be responsible for “selling” participation to their employees. The law states no such thing. Employers are only required to distribute provided materials about the retirement savings option to their employees. They must transmit employee savings contributions to the vendor selected by the employee. This will be no different than any other payroll withholding a business is already responsible for, such as Social Security, FICA, healthcare, etc.
Employers who did not offer retirement plans in the workplace due to a lack of adequate resources to manage such plans, or a lack of ability to access a plan that does not eat up the employee savings in exorbitant fees, now have the ability to do so. The truth is that there will be little if any cost to a business for any aspect of this program and the ability to offer a savings program is likely to make small businesses more competitive, not less.
Employees will have the ability to opt out of this voluntary program. If they choose to participate, they can select the percentage of their pay that they want save. The default rate is 3 percent, however employees can increase or decrease that amount based on the limits in effect under federal rules established for all Roth IRA accounts.
AARP is hosting events to promote the CRSP, reaching out to all age groups and all income levels. We have had tremendous feedback from participants and small business owners alike. Alternatively, CBIA refuses to acknowledge the facts about what the program actually does and the positive impact it will have for Connecticut businesses and residents.
I encourage everyone to join us and get to know the facts:
- The plan is built on statistics from the Boston College Center for Retirement Research that shows Americans face a $7 trillion retirement savings deficit. That is the difference between what people have saved and what they need to save for retirement. We know that less than 5 percent of people walk into a bank and open an IRA account, yet that number increases by 15 times if offered the ability to save through automatic payroll deduction.
- It is important to reiterate that employees who participate in the CRSP will be investing in Roth IRA accounts that they will own, are portable and are privately managed by a financial service company. Individuals will benefit from all of the advantages under state and federal tax rules that exist with Roth IRA accounts. Why is this? It is simple, they are investing into an account that is no different from one in any bank or investment company — with one major exception — they can invest into it easily and seamlessly through a payroll deduction.
- The CRSP requires that participants choose from multiple vendors. Private financial service vendors selected to participate in the program will offer the best products and services appropriate for participants. The 600,000 workers that will benefit from the CRSP are likely saving little or nothing today, as they are likely making less than $50,000 a year.
- State law prohibits the governing authority from using taxpayer dollars to fund the program’s startup costs. They may borrow up to $1 million from the state’s general fund to cover these costs. This money is going to be collected from the fees paid to the financial service vendors that offer the products. In order to protect the employee investors, those fees are capped at 75 basis points after year four.
- Pubic support in surveys and at our public outreach events for the CRSP has been high. In fact, in Oregon, which has a very similar program in effect for over a year now, 82 percent of people surveyed in July supported the Oregon Saves law.
- The CRSP is completely legal. Many states already have or are working on implementing programs similar to the CRSP. Participants in Oregon Saves have built up over $5 million in savings in just over a year. A vehement objection to something that builds a more financially secure workforce and does not burden business is difficult to comprehend.
The CRSP is a conservative approach to solve an impending retirement savings disaster. It will help the state’s fiscal problems by helping to make residents better prepared for retirement through a partnership with private investors and businesses in Connecticut. If we can get residents to save at least $1,000 a year over 10 years, the state can save over $90 million in social services programs. This is the right solution at the right time.
Nora Duncan is the Director of the AARP Connecticut.