State Senator Gary LeBeau
February 21, 2008
LeBeau Endorses Plan to Help Small Business Employees Save For Retirement
Connecticut could become first state to offer state-administered 401(k) plan for small businesses
Senator LeBeau, co-chair of the Commerce Committee, speaks at a press conference announcing a plan with the State Comptrollers Office to create a pool of retirement savings plans such as 401(k)s to be made available to small business employees and the self-employed at cost savings that will benefit individuals and the economy. Also pictured are (left to right) Senate President Pro Tempore Donald Williams and State Comproller Nancy Wyman. (February 21, 2008)
State Senator Gary D. LeBeau (D-East Hartford), who is co-chairman of the Commerce Committee, today joined with Senate President Donald E. Williams, Jr. (D-Brooklyn) and state Comptroller Nancy Wyman to announce 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 into law, Connecticut would become the first and only state in the nation to offer such a plan. By some estimates, a typical worker earning $46,250 per year--the average wage of a manufacturing sector employee- and who saves 10 percent of their income would earn about $1.6 million toward retirement over 35 years of work with a 50 percent employer match.
"This is one of a series of actions that we are going to take this year to help small businesses," said Sen. LeBeau. "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."
Sen. LeBeau said the Commerce Committee this morning raised the concept of "An Act Concerning a Small Business Retirement Plan." He said the committee is also considering at least two other pieces of business-friendly legislation: An Act Concerning the Elimination of the Business Entity Tax, and An Act Concerning the Entrepreneurship Tax Credit.
"These three bills together are a 'trifecta' as far as small business is concerned," said Sen. LeBeau. "This is exactly the kind of progressive, forward-thinking plan that Connecticut needs. It not only makes small companies more attractive to potential employees, but it helps retain those employees who may be looking elsewhere for these benefits."
The business entity tax bill seeks to eliminate or significantly reduce the $250 tax that was created in 2002 and which is applied to all foreign and domestic limited liability companies, limited liability partnerships, limited partnerships, and S corporations that are required to file annual reports with the Secretary of the State. Nearly 120,000 businesses are subject to the tax; eliminating it would save small business owners an estimated $35 million in FY 2009.
The entrepreneurship tax credit--an issue that Sen. LeBeau championed last year and for which he recently received an award from the Connecticut Technology Council--would create an "angel investment" tax credit bill. An "angel investor" is an accredited investor as defined by the Securities and Exchange Commission who invests in very new businesses and who receives a tax credit equal to a portion of their new business investment--for example, a tax credit equal to no more than 35 percent of the investment, not exceeding $125,000. The bill did not pass last year, but Sen. LeBeau remains committed to it.
Regarding the 401(k) proposal, currently, about 75 percent of Connecticut's small businesses (those with fewer than 100 employees) do not offer retirement plans. One significant reason s 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."
Senate Democrats propose authorizing Comptroller Wyman'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 employers, including those who wish to participate by contributing on behalf of employees who participate. The plan would be initiated and administered by the comptroller.
Start-up costs are expected to be minimal (on the order of $500,000) 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 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 Comptroller's Office, 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.
Download a handout that shows hypothetical examples of individual retirement savings under this plan (PDF file).
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