WTF (What the Finance) is a State Mandated Retirement Plan?

Think all workers can participate in a retirement plan? Think again! According to a 2019 study by the Pension Rights Center* out of 139 million full and part-time workers, only 56% are participating in a work sponsored retirement plan. Only 12% of employers with less than 100 employees even offer a 401(k) plan**.

As usual, the people left out of the retirement planning picture are disproportionately women, minorities, and workers in lower paying service jobs.

Employers can’t solve all societal problems and the Federal Government can’t even agree on face masks, so some states are stepping in to make sure citizens are able to easily save for retirement. In July of 2020 Colorado joined 10 other states when Governor Polis signed the Colorado Secure Savings Act into law.

The law, which takes effect over the next 24 months-ish, requires businesses with 5 employees or more who have been open for at least 2 years and have not offered a retirement plan to employees in the past 2 years to implement the state mandated plan. The good news is that employers don’t have to start an expensive 401(k) plan or create a company benefit. They will just have to make payroll deductions into the state system available to employees.

Employees will be automatically enrolled in a portable, Roth IRA-like account that will receive after-tax payroll deductions and enjoy tax-free growth. Employees can opt out at any time.

Clearly some details are being worked out. In researching, I couldn’t find info on where the accounts will be opened (Vanguard? JP Morgan?), how the investments will be offered (Target date funds? Create your own portfolio?), and what the auto-enrollment percentage will be (3% of pay? 6%?). Lots to learn, so be on the lookout, whether you are a small business owner or the employee of one.



Kristi Sullivan is a Certified Financial Planner and owner of Sullivan Financial Planning, LLC .

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