Employees, Businesses Pay Price in Mandate’s Shift to Roth IRA
After a report revealed the major costs to the state of a proposed retirement plan mandate, proponents are altering the plan to reduce its short-term fiscal impact to the state in an attempt to make it more politically palatable.
SB 249 would require employers with five or more employees that do not provide employees with access to a 401k, IRA, or pension plan to facilitate employee participation in a newly-created state run plan.
The Office of Fiscal Analysis (OFA), the legislature’s own nonpartisan budgeting office, projected SB 249 would cost the state up to $10 million in program startup costs—and up to $165 million in lost tax revenue each year as employees invest tax-deferred wages in the retirement plan.
But proponents filed an amendment to the bill that aims to avoid the revenue gap by changing the proposal to a Roth IRA—which means participating employees would have to pay taxes on their savings up front.
Rather than be allowed to save pre-tax wages, all plan participants will be forced to pay between 2%-5% of their post-tax wages—which would be a significant hit on their paychecks.
Basically, the plan would take more money from people the program is supposed to help—those who don’t have a retirement plan because they can’t afford one. But the state would get its tax revenue, making the program appear to be fiscally neutral in the short term.
What’s more, all Connecticut taxpayers would still be on the hook for the $10 million in implementation costs and employers would still have the costs and administrative burdens of the new mandate.
Another impact of the proposal is the potential job losses in Connecticut’s financial services sector that already offers hundreds of available retirement plan options—including tax deferred accounts.
No matter how many fiscal maneuvers are made in the closing weeks of session, the business community remains opposed to the mandate. There’s no evidence that the state can more effectively administer a retirement plan better than the private sector, nor should it try to when the market is already full.
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