Senate Leadership
April 24, 2008
Democratic Senate Makes History - Passes 1st in the Nation Universal 401(k) Plan
Senate President Donald Williams and Senator Gary LeBeau say plan will help people who work for small businesses save for retirement--at no cost to business
State Senate President Donald E. Williams (D-Brooklyn) and Senator Gary LeBeau (D-East Hartford) said today that Connecticut moved one giant step closer to becoming the first state in the nation to create a state-administered deferred compensation plan-including a 401(k) plan-to small businesses, self-employed individuals, and not-for-profits.
S.B. 652 "An Act Concerning Small Business Retirement Plans," passed the Democratic controlled Senate today by a vote of 22-11. Senator Williams and Senator LeBeau thank State Comptroller Nancy Wyman, Attorney General Richard Blumenthal, and volunteers with the AARP for supporting this historic bill--which now goes to the House for final action.
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.
"By pooling together small business employees from across Connecticut, we will help people save for retirement and instantly give our small businesses a real advantage over out-of-state competitors," said Senator Williams. "I am proud that so many members of the Senate stood up to the special interests trying to block the bill and instead stood with small businesses and working families struggling to save for retirement."
"This is one of a series of actions that we want to take this year to help small businesses," said Sen. LeBeau, who is co-chairman of the Commerce Committee. "This proposal speaks directly to entrepreneurial and business activity in Connecticut, because one of the areas where we're lagging the nation is in growth in small business employment."
Comptroller Wyman said the program will be an extension of the retirement-savings plans that her office currently administer for state employees: "My office has had tremendous success in increasing participation in the state's retirement-savings plans and I believe Senator Williams' proposal can be a way to extend that success to small businesses," Wyman said. "The $2 billion in assets in the state's plans will provide enormous leverage to offer small businesses a very affordable investment plan."
Attorney General Richard Blumenthal is also a supporter: "Connecticut has an historic opportunity to rescue a pension-less population--with virtually no liability or cost to the state," Blumenthal said. "Almost half the nation's citizens--the self-employed or employees of smaller businesses--have no retirement security. Financial insecurity can tarnish the golden years--imperiling individuals and the entire economy. A 'State K' would put the state behind small businesses and employees, empowering them to obtain vital benefits." The AARP is launching an advertising campaign this week and has released a report that details the benefits of the plan for Connecticut families and businesses. The report, Analysis of Proposals to Broaden Private Pension Coverage and Retirement Savings through State-K Programs, details the growing retirement savings crisis in the nation, and specifically in Connecticut:
- "If enacted, SB 652 would represent the first effort by a state to actively assist small employers to establish retirement plans for their employees."
- The report finds that, "...nearly six out of 10 private sector workers in Connecticut do not participate in an employer-sponsored retirement plan," and, "...the prominent problem in the state of Connecticut is retirement plan coverage for the 36 percent of workers employed by small firms."
"The universal 401(k) plan provides a cost effective way for small businesses to give their employees a savings boost," explained AARP State President, Don Ciosek. "At the same time, these plans can provide the employer with an important recruitment and retention tool."
"Connecticut has an exciting opportunity to lead the nation in offering retirement savings options to small businesses and their employees," explained, AARP State Director Brenda Kelley. "But, this isn't just about bragging rights, the 401(k) plan can be part of Connecticut's economic development initiatives to attract and retain skilled employees."
Our Proposal: Authorize the Comptroller's Office to submit a Request for Proposals (RFP) with the goal of establishing a state-administered deferred compensation plan-which would include a 401(k) plan - open to any small employer, including those who wish to participate by contributing on behalf of employees who participate. The plan would be initiated and administered by the Comptroller's Office.
Cost: Start-up costs are minimal and could be recouped through administrative fees (in the same way that plans on the market recoup fees) and repaid to the General Fund over the first few years. The net cost to the state would therefore be zero.
Background: The state of Connecticut currently operates a 401(a) defined contribution plan, an IRC section 457 deferred compensation plan, and a 403(b) retirement savings plan for state employees. According to the State Comptrollers Office (OSC), the new 401(k) plan, which would be regulated by the Employee Retirement Income Security Act of 1974 (ERISA), would not be open to state employees.
The cost reductions could enable access to plans for the employees of those small businesses that currently do not offer such retirement plans to their employees. The OSC estimates that investors could save about 50% on fees through a state-administered plan. 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.
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