House Majority Leader Joe Aresimowicz (D-Berlin, Southington) joined senior citizens, elected officials, and advocates at the Berlin Senior Center to celebrate the passage of legislation creating a retirement savings program for the estimated 600,000 Connecticut residents who do not have a retirement savings plan available to them through their employer.
The legislation creates a program in which employees would make voluntary contributions into a professionally-managed retirement fund. All workers will be provided the chance to enroll in a retirement savings program. Employers would not bear any fiduciary responsibility and would not be required to pay administrative fees. The program is designed to be self-sustaining and low-risk.
“There are currently almost 600,000 workers in Connecticut who do not have access to an employer-sponsored retirement plan, which is why we made it a priority to push forward a Connecticut-based solution to the retirement savings crisis,” Aresimowicz said in a press release from House Democrats. “By providing a retirement savings option to those 600,000 so they have the necessary funds in the bank when they can no longer work, we will help them enjoy their senior years, while also saving money for future taxpayers.”
The law was the product of the Connecticut Retirement Security Board (CRSB). The CRSB, created in 2014 by the Connecticut General Assembly, was charged with providing legislators with recommendations about the efficacy of a workplace savings plan for workers in the state without access to such a program. They submitted its evidence-based recommendations to the Legislature, which were overwhelmingly in favor of creating a voluntary retirement savings program for private sector workers in the state who are currently without access to a workplace savings plan.
The new law will include the formation of a quasi-public/private Connecticut Retirement Security Authority starting on January 1, 2017. The authority will have oversight of the Connecticut retirement security plan which will begin operation in 2018. The plan will require all Connecticut businesses of five or more employees with no pension or 401(k) plan option to participate in the retirement security program.
It will be voluntary for employees, who will be automatically enrolled but have the ability to opt out, and employers will not be required to match contributions. The default employee contribution rate for people who do not opt out will be 3 percent of their pay, which will go into a private Roth IRA account that they select from the available vendors. Employees will be able to increase or decrease the contribution rate. The vendor/vendors for the Roth IRA’s will be chosen by an RFP conducted by the authority. Fees charged to individuals by the vendor/vendors selected are capped at 75 basis points. The authority will have the option in the future add a traditional IRA plan to the employee choices. The retirement security program will be funded by the fees from contributions of the employees participating
In the U.S., there is a $7 trillion retirement savings deficit among older Americans according to data from The Center for Retirement Research at Boston College. Further, AARP Public Policy Institute studies show that people are 15 times more likely to save for retirement if they can do so through a payroll deduction program at work.