Connecticut plan could ease retirement worries

Jan. 28--Connecticut Comptroller Kevin Lembo has an idea already on whom he thinks should be the first person enrolled in a Connecticut retirement plan designed to sign up private-sector workers automatically -- the person running that plan. That individual should be hired within the next few months.

As many as 600,000 more could follow, by state estimates, as Connecticut ramps up a new Retirement Security Authority where workers could consider setting aside money into Roth individual retirement accounts that help them compound their annual savings -- if the state sets aside enough funds to get CRSA up and running.

This past week, Connecticut issued a job notice for a CRSA executive director, who would create and oversee a retirement savings plan for workers that lack access to pension or 401(k) plans through their private-sector employers. The state is also seeking to award contracts for an outside administrator to handle day-to-day CRSA management and transactions, with the system to be supported by fees charged program participants, not unlike the model for 401(k) plans.

Under board chair Scott Jackson, commissioner of the Connecticut Department of Labor, CRSA's board has been holding monthly meetings throughout the state that are open to the public, with the next one scheduled for Feb. 16 at the Hamden American Job Center at 37 Marne St. in Hamden. No meetings are scheduled to occur in southwestern Connecticut, but CRSA posted call-in numbers on meeting agendas online at www.ctdol.state.ct.us.

Speaking at a Jan. 19 CRSA board meeting in Wethersfield, Lembo laid out the state's resources to pay for the executive director and asserted the individual should "eat what we cook" by participating in the CRSA plan. At the same meeting, Jackson acknowledged the authority must still raise additional funding to support the early design and administration of the plan after hiring that individual, with some directors questioning whether early funding authorized by the General Assembly is sufficient to create the plan.

"It's a legitimate question," Jackson told CRSA directors. "The first effort would likely be to explain to the Legislature what has transpired, and provide the information, and indicate that the setup was not a setup to succeed."

One in four on empty

As of 2017, the New England states had the highest percentage of private-sector employers offering retirement plans to their workers, according to the Bureau of Labor Statistics, at 63 percent versus the U.S. average of 48 percent. According to an October report to Congress by the U.S. Government Accountability Office, one in four Americans between age 65 and 74 have no retirement savings on which to draw, forcing them to rely on Social Security and income they may be able to generate through work or other means.

CSRA's board has yet to set a target launch date for retirement plans offered by CRSA, but anticipates helping workers amass $1 billion in capital within 10 years, with the funds invested for future payouts. Workers would be automatically enrolled unless they opt out, a mechanism policymakers hope will result in more workers putting money aside for their retirement.

CRSA would enroll participants at a default 3 percent contribution rate, which workers could adjust upward or downward at any point. For the median Connecticut household making $73,400 a year at age 40, that could equate to a retirement investment of $2,200 annually that could result in $175,000 in savings by retirement at age 67, according to an online calculator by Bankrate.

On behalf of plan participants, the CRSA plan would invest in a passive equity fund, a money market fund and target date funds that transfer money into more conservative investments the closer individuals get to retirement age. The plan would be able to move with workers as they change jobs, including if they move out of state.

Self-sustaining at 3 percent?

The 3 percent contribution rate Connecticut is eyeing is more conservative than a similar plan in Oregon, which is already in a pilot of a similar plan in advance of a wider rollout this year.

OregonSaves enrolls workers at a 5 percent initial savings rate, which escalates 1 percent annually after that to a 10 percent cap. After five years at Oregon's median household income, families would be putting aside $5,700 for retirement, which in a Roth IRA plan would produce savings in excess of $400,000 for earners starting at age 40.

At last week's board meeting, one director questioned the 3 percent rate set under the enabling legislation for the Connecticut plan.

"Our feasibility board recommended that the minimum amount of contribution be 6 percent," said John Sayour, a Stratford-based financial adviser with Eagle Strategies. "The bill passed it at 3 percent. The difference in having a plan be self-sustaining was about three to four years more, based on the number of companies and people that we expected to have."

CRSA represents a start, however, and as workers get statements showing their nest eggs growing, the hope is many would adjust those percentage contributions upward and explore other ways to save for retirement -- and that any small-business owners who do not offer their employees retirement plans will be prompted to look into doing so.

"I know (there are) 600,000 people in Connecticut who will now begin to, hopefully by the end of the year, have the ability to save for retirement at work," said John Erlingheuser, AARP's state advocacy director in Connecticut.

[email protected]; 203-842-2545; @casoulman

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