State to Study Mandatory Opt-out Retirement Fund

Sen. Boucher: Government should not be managing private retirement accounts

Hartford, CT – An estimated 740,000 Connecticut residents, many of them low income workers, do not participate in an employer-provided retirement plan. The state of Connecticut will begin a study to decide whether it should start such a retirement plan for those workers.

“The problem is not a lack of options. The problem is that many families are living paycheck to paycheck. They are working harder for less and don’t have enough money to invest in a retirement fund,” said Sen. Boucher a member of the Finance, Revenue and Bonding Committee.

The study is born out of a bill passed by the legislature last spring. Senator Toni Boucher (R-Wilton) voted no on the bill, saying the measure was unnecessary. Boucher was joined by a group of Republican legislative leaders, business advocates and financial advisors all of whom spoke out against the bill because it would mandate Connecticut businesses to automatically enroll employees if the business did not offer an alternative retirement plan.

The state-run retirement plan would also require between 2% – 5% of an employee’s income to be withheld and deposited into the state-run retirement fund. An employee who chooses not to participate would have to opt out in writing every two years.

Opponents argued that government should not be undermining private businesses that already offer retirement fund services.

Hope Feller, Financial Planner from Westport said, “Right now for 50 dollars a year a worker can go into a bank or a financial institution and can open an IRA, (individual retirement account) using payroll deductions from their employer at no cost and no fiduciary responsibility to the employer – as a vehicle to save for retirement.”

As part of the study the state retirement board is asking the public for its input. Written public comments are due Nov. 3, and will be followed by a public hearing on Nov. 19 at a location to be determined.

The state-run retirement plan would be managed by the State Comptroller’s Office and a special oversight board. Administrative costs associated with the bill would increase state spending by $8 million.

“Perhaps state government needs to find a way, within existing resources, to educate the public about the importance of retirement savings and the opportunities already available to them, but state government should not be managing private retirement accounts,” said Sen. Boucher.

Senator Boucher, who has an extensive background in financial management, noted that another provision of the bill requires the state to procure insurance to protect the investments made by plan participants. However, insurance of this nature is costly and does not provide the same level of protection that individuals would receive for investments made with private institutions.

“It is virtually impossible to guarantee a certain rate of return in investment, leaving room for liability problems for the state,” Senator Boucher said. “Buying portfolio insurance to cover shortfalls is exorbitant and rarely done as the very high costs reduce the gain or return on the investment.”

Opponents of the state run retirement plan also note that no other state has successfully implemented one. California has been trying for over two years and still has not overcome the significant legal obstacles. Bills in at least ten other states have failed or stalled over legal and practical concerns.

More details about the request for public comment, including how and where to submit comments, are available on the CRSB’s website at www.osc.ct.gov/crsb/index.html.