The Connecticut Retirement Security Board has submitted a report to the General Assembly that says a public retirement program for private-sector employees is financially feasible under a range of market scenarios and plan designs. Connecticut is the first state in the nation to complete a market feasibility study of such a plan to address retirement financial insecurity.
In developing a program model, the board focused on the policy goals of increasing retirement security through a low-cost, pre-funded retirement savings program that requires a minimal amount of financial sophistication, according to the report.
The proposed program would not be mandatory for businesses that currently already offer a 401K plan or other workplace-based retirement savings option to all employees; it would not require that participating employers contribute to the program (only that they provide a payroll deduction mechanism for employees to contribute); and employee participation in the savings would be voluntary (they would be automatically enrolled, but can opt out if they prefer).
The report said the program could potentially serve, at a minimum, almost 600,000 Connecticut residents currently without access to workplace-based retirement savings. According to Connecticut-specific data from the Schwartz Center for Economic Policy Analysis at The New School, between 2000 and 2010, employers offering a retirement plan declined from 66 percent to 59 percent.
State Comptroller Kevin Lembo said in a statement that this program would be a feasible option to reduce Connecticut’s “growing retirement gap.” He said the program would benefit those forced to delay retirement indefinitely as well as the overall state economy.
The report’s highlights include:
- The financial analysis concluded that the program would need approximately $1 billion in assets to become financially self-sustaining. At a 6-percent default contribution rate and auto-enrollment (with an opt-out provision), the program should reach that self-sustaining threshold at the end of year two – and repay any estimated upfront costs and ongoing annual expenses between years three and five.
- Individual Retirement Accounts are feasible and suitable legal structures for the program, particularly with regard to account portability. The board recommends offering both traditional and Roth IRAs.
- The board recommends the legislature create an implementing board that oversees an independent entity responsible for managing the program – one that operates “with a maximum of transparency and reports to the legislature annually.”
- The board recommends that the program should be made available to all employees, including part-time workers, at the Connecticut location of a business or nonprofit organization that offers enrollment in the program, provided the employee has worked at that entity for at least 120 days.
