Legislation
Colorado is poised to join the states with a state-sponsored retirement savings plan for private sector workers—including a mandate for employers (with more than five employees) that do not currently offer a retirement plan. The state Senate is considering a bill that would create an IRA-based program.
On May 20, 2019, Gov. Jared Polis (D) signed into law SB 19-173, the Colorado Secure Savings Plan Act, a measure that created the Colorado Secure Savings Plan Board, a body charged with studying approaches to increase the amount of retirement savings by Colorado’s private-sector workers and which was to submit a report to the governor by Feb. 28, 2020. The measure the Senate is now considering, SB20-200, would amend the Colorado Secure Savings Plan Act to create an IRA-based program and would impose a retirement plan coverage requirement on employers with five or more employees.
The bill also:
- Specifies the powers and duties of the Board regarding the creation and administration of the Colorado Secure Savings Plan Act and updates the criteria to which the board would be required to adhere in developing the program.
- Would require the Board to adopt rules regarding enrollment in the program, contributions to and withdrawals from program accounts, the process for employer exemptions from offering the program and required disclosures.
- Would create the Colorado Secure Savings Program Fund in the state Treasury, which would consist of money:
- appropriated by the General Assembly;
- transferred to the fund by the federal government;
- arising from fees and penalties in connection with the program; and
- from any gifts, grants or donations made to the fund.
Late last month, the state Senate’s Committee on Finance referred the bill unamended to the Senate Committee on Appropriations. On June 4, the Appropriations Committee added an amendment to SB20-200. It would add language concerning administrative costs, and provides that they would be “paid solely through gifts, grants and donations” and would allow the state Treasurer to seek, accept and spend gifts, grants and donations from private or public sources for that purpose.
The Appropriations Committee has passed the bill as amended and has now reported it back to the full state Senate.
Savings Plan Board’s Report
SB20-200 is based on the findings of the Colorado Secure Savings Plan Board and its recommendations. The bill’s summary notes: “The board found that a state-facilitated automatic enrollment individual retirement account program is the best option for Colorado and recommended the establishment of such a program, coupled with the greater use of financial education tools in the state … In furtherance of the board’s recommendation, the bill directs the board to create and implement the Colorado secure savings program.”
“A significant portion of Coloradans have insufficient savings to generate enough income to maintain their living standards in retirement,” the Board says, arguing that analysis of state expenditures and revenue projections estimate that the combined budget and revenue impact of that inadequacy in 2020 to be $370 million. “That impact more than doubles to $839 million by the year 2035, and the cumulative fiscal impact to the state from insufficient retiree savings will be nearly $10 billion over the fifteen year period from 2021-2035,” it adds.
“A significant portion of Coloradans have insufficient savings to generate enough income to maintain their living standards in retirement,” the Board says, arguing that analysis of state expenditures and revenue projections estimate that the combined budget and revenue impact of that inadequacy in 2020 to be $370 million. “That impact more than doubles to $839 million by the year 2035, and the cumulative fiscal impact to the state from insufficient retiree savings will be nearly $10 billion over the fifteen year period from 2021-2035,” it adds.
While approximately 40% of working Coloradans have access to an employer-provided retirement plan, another 40% do not, the report says—which amounts to more than 939,000 workers. In addition, they say, another 20% are not participating in a retirement plan at work; many of them, the Board says, work for an employer who offers a plan, but not to them (for instance, part-time workers). And 152,000 are self-employed or independent contractors who do not have a retirement plan.
Increasing retirement savings, the Board says, in turn would “increase the expected levels of spending by Coloradans in retirement, driving both increases in state revenue, and job formation.” This includes increased spending by individuals and associated with sufficient savings, which research conducted for the Board estimates will amount to $724 million by 2035 and create more than 6,130 jobs that will generate $241 million in earnings. Cumulatively, the research projects that such results for the period 2021-2035 would represent more than:
- $9 billion in total economic impact;
- 5,100 new jobs per year on average (76,000 over the period);
- $3 billion in job-related earnings; and
- $742 million in additional net state tax revenue.
Additional research conducted for the Board by Corona Insights concerning financial education and empowerment found that:
- most see themselves as responsible for their own retirement savings;
- many respondents expressed nervousness and anxiety about retirement planning;
- many found fear of making the wrong choice paralyzing and overwhelming; and
- savings strategies that require minimal action are viewed as more successful and more likely to make retirement savings easy for people.
Board Proposals
According to the Board, the steps taken by the Colorado Secure Savings Plan should include:
- retaining a third-party administrator to administer the program;
- minimizing and limiting total annual fees paid by savers who participate;
- implementing processes that reduce the actions employers would have to take;
- ensuring the portability of benefits by permitting the employee to make contributions to their plan even if the employee changes employers and/or no longer works for an employer who participates in the program;
- ensuring that employers in all of Colorado’s industries that do not offer plans are covered by the program and that employees in all of Colorado’s industries can participate;
- providing for the investment and deaccumulation of enrollee assets in a manner that maximizes financial security in retirement;
- allowing employers not covered by the Colorado Secure Savings Program to facilitate employee payroll deductions into the program;
- allowing individuals who meet the qualifications to open an IRA to voluntarily participate in the program;
- ensuring that, under reasonable financial assumptions, the program will have a positive cash flow within five years; and
- allowing savers to contribute within 24 months of ratification of enabling legislation.
Auto IRA. The Board suggests that the plan include an auto-IRA. Among its features would be:
- auto enrollment;
- beginning employee contributions at 5% of gross wages, with auto-escalation by 1% per year to a maximum of between 8% and 10%;
- allowing employees to opt out;
- allowing employees to set a different contribution level; and
- providing a variety of investment options.
Financial Education. The Board suggests that it, and the state, work with program participants and existing organizations to increase financial awareness and education as they relate to the Colorado Secure Savings Program. It adds that financial education coupled with a savings program will be even more effective. “Participation in retirement savings—including through an Auto IRA—can improve financial education, since it provides a place and a purpose for relevant information,” says the report.
Small Business Retirement Marketplace. The Board does not support establishing a small business retirement marketplace, because:
- it expects that a marketplace “would require meaningful cost to develop, implement and maintain for very little impact”;
- it may be possible to partner with an existing state’s marketplace instead of creating a new one; and
- it does not consider such platforms to have shown themselves to be effective at increasing savings rates.
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