Connecticut Gov. Dannel Malloy (D) on May 27 signed into law the Connecticut Retirement Security Program Act (H.B. 5591), which establishes a state-run retirement plan. That came after a sometimes bumpy road to get the bill to his desk. Those machinations included a deadlocked Senate vote that required the intervention of the Lt. Governor, a marathon 6-1/2 debate in the state House of Representatives and some additional modifications to the bill passed by those two bodies before Malloy would affix his signature.
Among the revisions made was adding a provision that will require having multiple third-party providers, rather than one competitively chosen firm, administer the program.
Connecticut Comptroller Kevin Lembo (D) said in a press release said that “this program will meet a critical need for today's generation — ensuring that retirement savings opportunities are more readily attainable in the workplace for all workers who deserve financial security after a lifetime of work. There is an entire generation of employees, many of them lifelong hardworking middle class people, who are headed to retirement financially unequipped, in part due to lack of access to a workplace-based retirement savings option … Retirement security is not simply a serious issue for those individuals and families who are financially forced to delay retirement indefinitely — but for our entire state economy.”
Lembo and Connecticut Treasurer Denise L. Nappier (D) chaired the Connecticut Retirement Security Board, which was responsible for researching and laying the groundwork for creating the Connecticut Retirement Security Program. Under that program, on Jan. 1, 2017, a quasi-public/private Connecticut Retirement Security Authority will be formed which will oversee the Connecticut retirement security plan, which will begin operating in 2018.
Connecticut Provisions
These state laws couple a retirement plan offer requirement with the creation of a state run auto-IRA program that covered employers can use to meet that requirement. In Connecticut, the legislation applies to any employer that has been existence for at least two years and has five or more employees.
Covered employers who already offer a 401(a) plan, a 403(b) plan, a SEP, a SIMPLE plan, or “any other retirement arrangement approved” by the Connecticut Retirement Security Authority created by the legislation are totally exempt from the law, so long as those plans remain active and open to new participants.
Starting Jan. 1, 2018, all other covered employers will be required to automatically enroll their employees (defined as workers 19 years of age or older that have been employed for at least 120 days) into the state program. Covered employers that do not comply with the law could be subject to a civil action from the impacted employees or the Connecticut Labor Commissioner.
Participants in the state program will be automatically enrolled at a contribution rate of 3% of pay with those contributions deposited into a Roth IRA and invested in an age-appropriate target date fund. A unique feature of the state program in Connecticut are the rules regarding distributions. As participants in the state program reach their “normal retirement age” (defined as 59½ since individuals can withdraw any and all money from an IRA without a tax penalty after that time), 50% of the accumulated account balance will be converted into a “lifetime income investment.” It will be interesting to see how participants will react to this automatic annuitization provision, as they become aware of it.
Next Up?
Connecticut is now the fourth state to require employers in the private sector over a certain size to offer a retirement plan for their employees. Illinois, Oregon and Maryland already have enacted such measures.
The push to enact state initiatives addressing retirement plan coverage in the private workforce shows no sign of abating. The next state likely to see an auto-IRA law enacted is California. S.B. 1234 is now working its way through the legislative process having cleared through two committees in the State Senate where it now awaits action in the full Senate. The ARA GAC team will keep you updated as the California legislation nears and crosses the finish line in the coming weeks and months.
Andrew Remo is the American Retirement Association’s Director of Congressional Affairs.
Among the revisions made was adding a provision that will require having multiple third-party providers, rather than one competitively chosen firm, administer the program.
Connecticut Comptroller Kevin Lembo (D) said in a press release said that “this program will meet a critical need for today's generation — ensuring that retirement savings opportunities are more readily attainable in the workplace for all workers who deserve financial security after a lifetime of work. There is an entire generation of employees, many of them lifelong hardworking middle class people, who are headed to retirement financially unequipped, in part due to lack of access to a workplace-based retirement savings option … Retirement security is not simply a serious issue for those individuals and families who are financially forced to delay retirement indefinitely — but for our entire state economy.”
Lembo and Connecticut Treasurer Denise L. Nappier (D) chaired the Connecticut Retirement Security Board, which was responsible for researching and laying the groundwork for creating the Connecticut Retirement Security Program. Under that program, on Jan. 1, 2017, a quasi-public/private Connecticut Retirement Security Authority will be formed which will oversee the Connecticut retirement security plan, which will begin operating in 2018.
Connecticut Provisions
These state laws couple a retirement plan offer requirement with the creation of a state run auto-IRA program that covered employers can use to meet that requirement. In Connecticut, the legislation applies to any employer that has been existence for at least two years and has five or more employees.
Covered employers who already offer a 401(a) plan, a 403(b) plan, a SEP, a SIMPLE plan, or “any other retirement arrangement approved” by the Connecticut Retirement Security Authority created by the legislation are totally exempt from the law, so long as those plans remain active and open to new participants.
Starting Jan. 1, 2018, all other covered employers will be required to automatically enroll their employees (defined as workers 19 years of age or older that have been employed for at least 120 days) into the state program. Covered employers that do not comply with the law could be subject to a civil action from the impacted employees or the Connecticut Labor Commissioner.
Participants in the state program will be automatically enrolled at a contribution rate of 3% of pay with those contributions deposited into a Roth IRA and invested in an age-appropriate target date fund. A unique feature of the state program in Connecticut are the rules regarding distributions. As participants in the state program reach their “normal retirement age” (defined as 59½ since individuals can withdraw any and all money from an IRA without a tax penalty after that time), 50% of the accumulated account balance will be converted into a “lifetime income investment.” It will be interesting to see how participants will react to this automatic annuitization provision, as they become aware of it.
Next Up?
Connecticut is now the fourth state to require employers in the private sector over a certain size to offer a retirement plan for their employees. Illinois, Oregon and Maryland already have enacted such measures.
The push to enact state initiatives addressing retirement plan coverage in the private workforce shows no sign of abating. The next state likely to see an auto-IRA law enacted is California. S.B. 1234 is now working its way through the legislative process having cleared through two committees in the State Senate where it now awaits action in the full Senate. The ARA GAC team will keep you updated as the California legislation nears and crosses the finish line in the coming weeks and months.
Andrew Remo is the American Retirement Association’s Director of Congressional Affairs.
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