Colorado became the latest state to mandate employer-based retirement plans under a bill signed into law by Gov. Jared Polis on July 14.
The Colorado Secure Savings Program, contained in Senate Bill 200, ensures that workers at businesses with at least five employees have access to an Individual Retirement Account funded through automatic payroll deductions. Workplaces not currently providing a retirement savings plan will have to offer a new one administered by the Colorado state treasurer under the direction of an advisory board.
The new law, similar to what Oregon pioneered in 2017 with its OregonSaves program, could mean nearly a million Colorado workers currently lacking access to an employer-based plan gain the benefit, with the new program likely up and running by mid-2021.
“The data and science show this approach will increase the number of savers early in their careers, and they will be better prepared for retirement,” Polis said during the bill’s signing as reported by The Denver Post.
The Post article says the Bell Policy Center in Denver spent seven years working on the issue and made five runs at passing a bill, culminating with this year’s successful attempt when Colorado lawmakers passed the bill in June.
In 2019, the general assembly created the Colorado Secure Savings Plan Board in the office of the state treasurer to study the costs to the state of insufficient retirement savings and approaches to increasing retirement savings in Colorado. The board found that a state-facilitated automatic enrollment individual retirement account program was the best option for Colorado and recommended establishing such a program, coupled with the greater use of financial education tools in the state.
Backers of the new mandate argued that nearly half of all U.S. households have no retirement savings, and estimated that more than 900,000 workers in Colorado lack access to a retirement plan option at work, disproportionately impacting young workers and minorities.
Aside from making it easier for workers to save for retirement helping younger workers get an early start, the program is also intended to help smaller businesses provide a workplace benefit common at larger firms.
Supporters also argued that having more workers with retirement savings would reduce the burden on Colorado taxpayers over the long haul. And financial service providers, who initially opposed the program, would get more potential customers who had accumulated assets in their plans, which will be portable.
Individuals can of course set up an IRA on their own when they don’t have access to an employer-sponsored plan, but the Bell Policy Center research found not many individuals were doing that.
“We were finding the thing that was getting people into an IRA was access to that IRA at work,” Bell President Scott Wasserman told The Post.
An exemption has been carved out for businesses with fewer than five employees, and workers also can opt out of the savings plan.
Most states have at least considered similar auto-IRA programs, and several states including California, Connecticut, Illinois, Maryland, New Jersey and Oregon have already implemented programs.
A 2019 study by the Employee Benefit Research Institute found that if OregonSaves were applied nationwide, the $3.83 trillion aggregate retirement savings deficit among American households would fall by $456 billion, or 12%.