A Ubiquity Small Business 401(k) enables:
(*Up to $5,000 per year, plus an additional $500 per year for automatic enrollment for the first 3 years)
To help employees save for retirement, Connecticut is launching a mandatory retirement savings plan called MyCTSavings, effective in 2022.
The new mandate will help private-sector employees save for their futures with automatic paycheck deferrals into Individual Retirement Accounts. These funds will become accessible when an employee reaches 59.5 years of age, providing tax-free supplemental income.
Employers will still be eligible to start retirement plans of their own to offer employees as a competitive incentive and potentially a better alternative to the Connecticut mandate.
The Connecticut retirement mandate was developed in response to the 600,000+ private-sector employees in Connecticut who have no access to an employer-sponsored retirement savings plan. Public-sector employees will still be covered by pensions under Connecticut’s Municipal Employees Retirement System (CMERS).
According to supporter State Comptroller Kevin Lembo, “There is an entire generation of employees, many of them lifelong hard-working middle class people, who are headed to retirement financially unequipped.” He further suggests that the mandate will likely have a positive effect on the entire state economy.
A 401(k) solution provides employers with the opportunity to maximize their contributions and tax savings while helping their employees save for the future. With a 401(k) plan you can contribute 3 times more than with an IRA:
Maximum employee annual contribution amount
Additional annual employer contribution limit
Yes, up to an additional $40,500¹
Flat fees that don’t increase with your account balance
No, asset-based fees
Yes, flat fees
$15,000 credit to offset setup costs2
Flexible auto-enrollment and vesting schedules
Investment guidance based on individual risk tolerance
Employee enrollment meetings and education
Auto-enrollment and escalation
Required at mandated levels
Optional and flexible
Customizable investment lineups
1. This limit is subject to cost-of-living increases for later years (for prior years, refer to this cost-of–living adjustment table.)
2. Available to eligible employers who have less than 100 employees who received at least $5,000 in compensation in the previous year, had at least one participant who was a non-highly compensated employee, and in the last 3-years did not contribute to a benefit plan for your employees through a plan sponsored by you or a member of a controlled group that includes you.
The new state retirement mandate will affect all employers who have five or more eligible employees and do not currently provide a retirement savings plan.
Eligible employees are:
The Connecticut Retirement Security Authority’s MyCTSavings pilot program begins with volunteers in September 2021. Businesses involved in this early roll-out will receive exclusive early access to the program, as well as one-on-one support with implementation. Their feedback will influence the final design of Connecticut’s upcoming state-run retirement plan.
Employee contributions come directly from their paychecks with a default savings rate of 3% of gross pay (before taxes and other deductions). The money is invested into a default target-date fund based on the individual’s birth date. The target-date fund is part of a Roth IRA, which means taxes are paid up front on the amount as it is contributed, but are non-taxable when the money is distributed in retirement at age 59.5 or later. Employees whose employers are participating in the pilot will receive 30 days to opt out or log in to choose their own deferral rate.
Many residents are unaware that 0.5 percent of their paychecks will be paying for the state’s new paid family and medical leave program in January. The Connecticut retirement program will take out an additional 3% deduction to put toward an individual Roth IRA managed by a third-party vendor.
While it doesn’t cost employers anything to offer, they will have to comply with administrative efforts by submitting payroll information and updates on new employees eligible for the program. Further, the state-run plan could indirectly cost employers workers if the retirement plans they offer are not as good or better than the widely accessible MyCTSavings option.
The idea of a state-run retirement plan is nothing new. Since 2012, at least 45 states have implemented or considered state retirement options. The AARP has found individuals are 15x more likely to save for retirement when given the option through their employers, so adding automatic enrollment goes even further, increasing the total average savings rate by 56 percent. OregonSaves, the first state program to launch in 2017, now has more than $100 million worth of assets under management, with 100,000+ workers contributing and 33% of eligible employees opting out.
In Connecticut, the plan has been fraught with challenges that leave its success yet-to-be-seen. The original legislation was drafted and passed with a tie-breaking vote in the Senate in 2016, but has taken several years to get off the ground. Complications include legal hurdles over a similar program in California, a contentious change from multiple vendors to a single vendor, and the dismissal of CRSA executive director Mary Fay in January 2020.
Even as the state-run plan begins its rollout, consultants have expressed concerns that the program will not be financially viable as is; a market feasibility study found a 6 percent paycheck deduction would be necessary to achieve a $1 billion breakeven point to repay initial startup costs.
While the Family Medical Leave Act deduction is compulsory, participation in the new Connecticut retirement system is optional to a degree. If they wish not to participate, employers must establish and run their own retirement programs, and affirmatively opt-out of the state plan on an annual basis. Research by Pew Charitable Trusts in 2016 found that 51% of employers in states with retirement mandates chose to sponsor their own company plans, rather than rely on the state option.
Roth IRAs are one way to fund retirement, but they are not the only path to future prosperity. Consider these differences between Connecticut retirement IRAs and 401(k) plans:
The employer is the plan sponsor, and therefore is responsible for making decisions on plan rules, investments, and administrative decisions. There are many different 401(k) plans to choose from, including matching or nonelective contribution plans, profit shares, plans designed to automatically pass nondiscrimination tests, and low flat-fee plans that allow you to grow your enterprise comfortably without penalty. Tax deductions and new plan tax credits make 401(k)s the gold standard for businesses looking to incentivize workers with retirement plans.
As a small business 401(k) administrator, Ubiquity can help you decide which savings plan is the best choice for your company. We make saving for your retirement a breeze, with easy setup and affordable, flat fees. Schedule your free consultation to learn about small business retirement plans available in Connecticut.
Want to know more about Connecticut’s state-mandated retirement versus Ubiquity? We’ve got experts that have your back. Call us today at 855.912.6904 or email us at firstname.lastname@example.org