By Matt Gallagher
Connecticut business owners were recently notified of the launch of the state-mandated retirement program, MyCTSavings. The program is a good faith effort by the state government to address the current retirement savings crisis. The MyCTSavings website touts the program as a “seamless way to help Connecticut employees save and plan for retirement,” especially for the “more than 600,000 private sector employees who don’t have a pension plan.” employer-sponsored retirement savings.
The program requires employers with five or more employees who do not currently offer a retirement plan to provide a payroll mechanism that allows employees to contribute to a Roth IRA. Employers will be responsible for providing eligible employees with program information and for deducting and remitting contributions in a timely manner.
Depending on the number of employees, employers will need to implement the program between June 2022 and March 2023.
For many Connecticut business owners, the launch of the state-run program is viewed with concern and some skepticism. Past attempts by the state to introduce similar programs have failed, and private business owners generally prefer to decide for themselves whether or not to offer a retirement benefit. However, since the state mandates this program, employers should examine the retirement plan landscape and decide which plan best suits their company and its goals.
For most employers who do not currently offer retirement benefits, the primary concern is cost. Benefits programs, including pension plans, can be costly, both in actual expense and in administrative burden. In a competitive landscape, many employers don’t believe they can streamline by offering additional perks.
To allay these concerns and ensure they are making an informed decision about this type of benefit, business owners should consider the following:
Does the business owner have a retirement strategy and would he consider participating in it himself? By contributing to a qualifying plan, a business owner can build retirement savings while reducing their tax liability. In many cases, reducing taxes can greatly mitigate the cost of the plan. However, since most plans are subject to compliance testing, business owners may be required to offer some consideration or employer contribution if they wish to participate. Conversely, if an employer has no interest in participating, it could offer a plan without compulsory contributions.
In an extremely tight labor market, would a pension plan help you recruit and retain talent? Finding qualified employees in today’s job market is a real challenge, and offering a retirement plan can set employers apart. Most plans provide a vesting schedule for employer contributions to further help retain talent.
Would cost controls, such as discretionary employer matching or eligibility criteria, allay concerns about plan costs? Employers have some discretion in terms of plan design, which may limit the type of employees eligible to participate and what they might choose to contribute.
Consider participating in a group employer plan. PEPs, which were created under the SECURE Act in 2019, allow unrelated companies to come together to offer a 401(k) plan. PEPs have the potential to be less expensive, limit liability and allow employers to outsource most of the administrative and compliance burden.
Connecticut business owners who don’t currently offer a retirement plan will have to make some decisions. The state has begun implementing a mandatory program, but there are other options to consider. A retirement plan, like any employee benefit, must align with the objectives of the company in question. Knowing your options will help you make a sensible decision.
Matt Gallagher is a Partner and Head of Business Development at TrinityPoint Wealth. He can be reached at 203-693-8519 or email@example.com.