Senate Leadership
March 13, 2008
Connecticut One Step Closer to Being National Leader on Helping People Save For Retirement
State administered 401(k) plan for small businesses and employees approved by Commerce Committee
Senate President Donald E. Williams, Jr. applauds the decision of the Commerce Committee today, co-chaired by Senator Gary LeBeau (D-East Hartford) and Rep. Jeffrey Berger (D-Waterbury), to approve SB No. 652 AAC Small Business Retirement Plans and send the proposal to the Appropriations Committee for further consideration.
Last month Senator Williams, State Comptroller Nancy Wyman, Senator Gary LeBeau (D-East Hartford), a small business owner, and a member of AARP (American Association of Retired Persons) announced a proposal to create a state-administered deferred compensation plan-including a 401(k) plan- for small businesses, self-employed individuals, and not-for-profits. If enacted, Connecticut would become the first and only state in the nation to offer such a plan.
Currently, about 75% of Connecticut's small businesses (those with fewer than 100 employees) do not offer retirement plans. One significant reason for this problem is that due to their size, small businesses cannot achieve the economies of scale that make 401(k) programs useful to their employees; fees are too high to allow meaningful growth for retirement.
"The fees associated with 401(k) plans have a disproportionate impact on people who work for small businesses," said Senator Williams. "The result is that the majority of these employees don't have 401(k) plans, and at the same time, the small businesses are at a competitive disadvantage when it comes to recruiting workers. Our proposal will help people save for retirement and instantly give our small businesses a real advantage over out-of-state competitors."
"This program would help the economic health and the fiscal health of our citizens," said Senator Williams. "It is a far sighted plan that will do a lot of good for our state and its citizens."
The cost reductions of the plan could enable access to plans for the employees of the small businesses that currently do not offer such retirement plans to their employees. The Office of the State Comptroller (OSC) estimates that investors could save about 50% on fees through a state-administered plan. This savings could mean that, on average, workers would have to work four fewer years to achieve the same retirement savings they would have achieved under otherwise available plans. This means that a typical worker earning $46,250-the average wage of a worker in the manufacturing sector-and saving 10% of their income would earn about $1.6 million toward retirement. This is $350,000 more than the same worker would have earned in the more costly private plans.
Read our earlier press release on announcing this plan and track the status and language of the bill.
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