Employee Retirement Plan Mandate Surfaces
Any business in Connecticut not currently offering employees access to a 401(k), IRA, or pension plan will have to help their workers participate in a state-run retirement plan under a bill in the Labor Committee (unless they expressly opt out).
Advocates of SB 249 falsely believe the reason many people aren’t saving enough for retirement is not because they choose not to, but because they’re not being offered access to a retirement plan.
Numerous retirement savings plans are readily available to anyone who walks through the doors of a local bank, however, and that’s just scratching the surface of products in the marketplace.
Yet SB 249 creates a public retirement plan that would compete–by government mandate–with private-sector products in Connecticut. Employers will incur the cost of facilitating their employees’ participation in the state plan through payroll deduction, be required to host open enrollment periods, and be responsible for remitting employee contributions to the state plan.
Too Good To Be True
The state plan is supposed to offer participants a guaranteed rate of return on their contributions—but how that would hold up if the plan fails to meet investment expectations is unknown.
The proposal calls for the state to purchase an insurance product to make up the difference if returns do not meet expectations, but no such insurance product exists. Taxpayers could end up footing the bill.
While other states have recently looked at establishing a mandatory public plan like the one in SB 249, only California has passed similar legislation. That bill won’t be implemented, if ever, until 2016 or later as California is in the middle of an extensive, multiyear feasibility study.
California feared the potential for billions of dollars in unfunded liabilities, and will require a revote on the proposal once they have an understanding of it potential costs.
Why Compete with Ourselves?
If Connecticut wants to compete with other states for business, we should avoid being the first to impose this burden on employers.
Furthermore, why would the state want to create a program to compete with businesses that are already here? The Connecticut marketplace is filled with low-cost retirement planning products, and more than 100,000 Connecticut employees make their livelihoods working for businesses that provide those financial services products.
Connecticut’s reputation for being unfriendly to business won’t improve if state government puts itself directly in competition with the private sector.
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