State program provides retirement fund for small business employees – The Journal
Employers with five or more employees will be automatically enrolled in 2023
Starting in 2023, all Colorado employees of private businesses and nonprofit organizations will have access to a retirement fund through the Colorado SecureSavings program.
Employers with a workforce of five or more will be automatically enrolled in the program. Employees have the option to opt out of the program if they have an existing pension plan. Businesses or nonprofits with fewer than five employees will be exempt from automatic enrollment, but their employees will still have the option to enroll in the program.
The savings program will also include part-time employees.
“In some cases, you have companies where some employees have access to a retirement savings program, but some don’t,” Colorado State Treasurer Dave Young said. “So in those situations, employees who don’t have access to the scheme at work would then be eligible through the Secured Savings Scheme.”
If employees choose to use the program, a default rate of 5% will be deducted from each paycheque. However, employees can choose to increase or decrease this rate at their discretion. Because the retirement fund is through a Roth Individual Retirement Account, the amount an employee can contribute annually to the account is limited by federal law.
Federal law limits this contribution to $6,000 per year and $7,000 if an employee is over age 50. Because it’s a Roth IRA, it’s an after-tax program, which means taxes have already been deducted before the funds enter the account.
Employees can manage these funds through the Colorado SecureSavings portal.
Young said the program is slightly different from some 401(k) plans because some plans offer matching programs and because of federal law, the state cannot provide matching. He said the Colorado Treasury Department emphasized the program because it realized there was a national retirement savings crisis.
Through studies conducted by the Treasury Department, Young found that there were approximately 1 million people in the state without retirement funds through their employer.
The Treasury Department also found that most employees who were not enrolled in a retirement savings fund were those working in low-income jobs and were confused by financial terminology and acronyms.
“They wanted to get started, but they couldn’t make a decision because the whole financial services landscape was confusing for them,” Young said.
The Business Improvement District has an interest in continuing the program. Executive director Tim Walsworth said the scheme would greatly benefit some downtown businesses.
“I imagine a lot of companies would love to do something like this. It helps with employee retention,” he said.
Walsworth wants to enroll in the BID because the employees don’t have retirement funds.
Because there is no matching element to the Colorado Secure Savings program, he said that makes it attractive to employers.
The BID is also interested in continuing the program because of its downtown ambassador program. Downtown Ambassadors are part-time employees, and Walsworth wants to know if they might be covered.
He said it was important for businesses to know this will automatically happen in 2023.
“If there’s a mandate or a requirement, we need to let our companies know about it,” he said.
The Durango Chamber of Commerce will host a luncheon on Wednesday to discuss further details of the Colorado SecureSavings plan with local businesses.