Connecticut is now the fourth state behind Illinois, Oregon, and Maryland to require employers in the private sector over a certain size offer a retirement plan for their employees.
That came with Governor Dannel Malloy’s (D) signing of the Connecticut Retirement Security Program Act (H.B. 5591) into law on May 27, 2016, despite a sometimes bumpy road to get to his desk. Those machinations included a deadlocked Senate vote that required the intervention of the Lt. Governor, a marathon 6-1/2-hour debate in the state House and some additional modifications to the bill passed by those two bodies before Gov. Malloy would affix his signature.
Connecticut Provisions
These state laws couple a retirement plan offer requirement with the creation of a state run auto-IRA program that covered employers can use to meet that requirement. In Connecticut, the legislation applies to any employer that has been existence for at least two years and has five or more employees.
Covered employers who already offer a 401(a) plan, a 403(b) plan, a SEP, a SIMPLE plan, or “any other retirement arrangement approved” by the Connecticut Retirement Security Authority created by the legislation are totally exempt from the law, so long as those plans remain active and open to new participants. Starting Jan. 1, 2018, all other covered employers will be required to automatically enroll their employees (defined as workers 19 years of age or older that have been employed for at least 120 days) into the state program. Covered employers that do not comply with the law could be subject to a civil action from the impacted employees or the Connecticut Labor Commissioner.
Participants in the state program will be automatically enrolled at a contribution rate of 3% of pay with those contributions deposited into a Roth IRA and invested in an age-appropriate target date fund. A unique feature of the state program in Connecticut are the rules regarding distributions. As participants in the state program reach their “normal retirement age” (defined as 59-1/2 since individuals can withdraw any and all money from an IRA without a tax penalty after that time), 50% of the accumulated account balance will be converted into a “lifetime income investment.” It will be interesting to see how participants will react to this automatic annuitization provision, as they become aware of it.
Next Up?
The push to enact state initiatives addressing retirement plan coverage in the private workforce shows no sign of abating. The next state likely to see an auto-IRA law enacted is California. Legislation (S.B. 1234) is now working its way through the legislative process having cleared through two committees in the State Senate where it now awaits action in the full Senate. The ARA GAC team will keep you updated as the California legislation nears and crosses the finish line in the coming weeks and months.
Andrew Remo is the American Retirement Association's Director of Congressional Affairs.
