Lawmakers Need to Retire this Proposal

01.09.2015
Issues & Policies

Walk into almost any bank in Connecticut and within minutes you can enroll in a good, low-cost IRA-style retirement savings plan.

Or if you prefer, go online and quickly set up an individual “myRA” federal retirement account—introduced by President Obama last year.

In Connecticut, where there’s a will to save for retirement, there’s a way.

A state panel, however, continues to work on the curious notion that retirement savings options are neither available nor affordable for many in Connecticut, so therefore state government must intervene. 

Created by the legislature, the Connecticut Retirement Security Board is charged with creating a state-administered retirement plan for private sector workers if their employers don’t currently offer them one.

Plan proponents continue to claim that without a public option, employees not offered a plan through their employers have no way to save for retirement. And if somehow they do have access to a savings plan, its costs and fees will be too expensive. 

It’s true that some employers can’t afford to offer a plan, or they lack the expertise to act as fiduciary. But if that’s the case, their employees still have options–a lot of them. 

The reality is, consumers already have a multitude of retirement savings products to choose from–offered by solid Connecticut financial services companies. Many of these are low-cost, some with fees as low as $50 per year. And now there’s also a new federal option.

The real question is less about supply and more about demand—people often simply choose not to save for retirement.

How viable?

Since the idea of a state-administered retirement plan for private  sector workers first surfaced, business groups have seen red flags. 

For example, how viable could the government-run program be, especially if it supposedly has:

  • A guaranteed rate of return for plan participants, to be secured by an insurance product that happens not to exist
  • No state (or employer) liability if the guaranteed rate of return is not met 

Who would make up the earnings shortfall?

Another red flag for employers is the administrative cost of such a plan. Previous iterations of a public plan have imposed a number of administrative requirements on employers, including continuously facilitating employee enrollment in the state plan.

Some tasks, such as the transfer of employee payroll contributions to the retirement plan, carry a $250 per employee penalty if not performed in a timely manner by the employer.   

And what of the claim that the plan is to be entirely funded by employees, leaving employers only minimally burdened by the new state mandate?    

Despite the promise that the plan would not cost Connecticut businesses, employers were alarmed this week that members of the board asked for a legal look-see into the possibility of requiring employer contributions.

Discussing questions to be included in an RFP for market analysis and legal representation, Jamie Mills, senior advisor for policy analysis in Governor Malloy's Office of Policy and Management asked that questions about whether employers could be legally required to contribute to the plan be included in the RFP.   

Employer groups have argued that those contributions would create a fiduciary relationship on their part–and the possibility that the liability for plan shortfalls would fall squarely on their shoulders. 

Crowded field

Despite the fact the proposed state plan would directly compete with plans offered by Connecticut's financial services sector—which employs more than 100,000 people in the state–the board is also ignoring a new competitor in the marketplace: the federal government. 

Last year the U.S. Treasury launched a new retirement savings plan, called myRA, directed at low and medium income individuals. The plan is entirely voluntary for both employees and employers and promises to never lose value due to backing by U.S. Treasury savings bonds. 

The myRA website also boasts, like many private sector options, that any individuals with a Social Security number, driver's license and email account can enroll in the plan in just five to 10 minutes.

There is no evidence the state could perform these functions in a more cost-effective or efficient manner.     

Why?

So, why is the Connecticut Retirement Security board still moving forward with developing the plan?

Cost and access to a plan is clearly not a barrier. Individuals who hesitate to their retirement savings in private financial markets also now have the option of a federal government run plan.

If the state creates its own retirement plan for private sector employees, it would not only be competing with financial services businesses that call the state home, but also with the federal-government-run plan. 

Wouldn't taxpayer dollars used to design this plan and someday pay those to administer it be better spent educating people on the basic importance of saving for retirement?

Businesses are left wondering if some of the Connecticut Retirement Security Board's members have a different purpose: namely trying to put private sector retirement options out of business and foster more citizen dependence on state government. 

Or, maybe it's an effort to give the state control of more of your money to support spending programs. 

If there’s a grain of truth to either theory, that would be a cavalier game to be playing with other people's retirement savings.

For more information, contact CBIA’s Eric Gjede at 860.244.1931 | eric.gjede@cbia.com | @egjede

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