State Retirement Plan Mandate Delayed

Issues & Policies

Many employers were concerned with the compliance requirements for Connecticut’s employee retirement plan mandate that was to take effect January 1, 2018.
The good news is that, despite claims from certain payroll providers trying to get your company to buy plans, employers do not have to comply with the mandate just yet.
And sources in the Connecticut Department of Labor now concede the mandate’s effective date could be rolled back to September 2018—or later.
During the 2016 legislative session, Democratic lawmakers, without one Republican vote, enacted a new state-run retirement plan, requiring every business in the state with five or more employees to participate.
The mandate required those businesses enroll any full- or part-time employee not eligible to participate in an employer-sponsored plan into a retirement savings plan.
Democratic legislative leaders argued that people were not saving enough for retirement due to lack of access to a plan, and would be considerably more likely to do so if enrolled in a plan by their employer.

Costly Scheme, Faulty Premise

CBIA agrees that most people are not saving enough for retirement, but led opposition to this costly and burdensome mandate due to its faulty premise that people don’t have access to plans.
The fact is anyone can be enrolled in a retirement savings plan with automatic contributions just by walking into a local bank branch and signing up.
The legislature’s mandate stands to take a huge chunk of the retirement plan market and hurt local brokers, agencies, and their employees.

The retirement plan mandate's effective date could be rolled back to September 2018—or later.

Unlike traditional 401(k) plans, the state-run plan offers no tax benefit for the mandatory 3% contribution deducted from employee paychecks.
Further, a portion of the employee contributions will be used to fund the administrative bureaucracy needed to run the program.
Employers also will be saddled with the additional administrative burdens of enrolling employees into a plan. This essentially forces employers into a financial adviser relationship with employees.

Congress to States: 'Not So Fast'

Under the Obama administration, the U.S. Department of Labor did not require state-run retirement plans to comply with important consumer protections governed by the Employee Retirement Income Security Act of 1974.
That gave states the green light to set up the plans without having to comply with the same protections required from private sector plans—giving the state plans an unfair competitive advantage.
However, earlier this year, the U.S. Congress overturned the regulation allowing states to develop and run retirement plans that did not comply with ERISA.
And that left supporters of the Connecticut plan scratching their heads over what to do next.
Those supporting the plan—and pushing for more mandates on employers—decided to continue.

State Implementation Slows

Originally, Connecticut's law required legislative leaders to appoint individuals to a Connecticut Retirement Security Authority by July 1, 2016.
The authority was tasked with developing rules and procedures so that employers could begin enrolling employees into retirement plans by January 1, 2018.
The authority finally convened for the first time in August 2017, more than a year after the mandate implementation process was supposed to have started.
Amid the confusion surrounding the mandate's implementation—and the probability of further delays—many Connecticut businesses have been solicited by a large payroll provider, urging them to enroll in the provider's plan so they can be in compliance.
But employers do not have to enroll in any such plan—at least for now.

For more information, contact CBIA's Eric Gjede (860.480.1784) | @egjede


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