Connecticut is moving forward with the implementation of the Connecticut Retirement Security Program, which will provide the 600,000 people without a workplace retirement savings plan an opportunity to build a secure financial future for themselves and their families.
In the process, the program that was signed into law in 2016 and will begin in 2018 will help cut into the huge gap between what exists for retirement and what is needed, as well as reduce the reliance on state-funded social safety net services in the future. A recent AARP Public Policy Institute report found Connecticut would save more than $90 million on public assistance programs between 2018-2032 if lower-income retirees save enough to increase their retirement income by only $1,000 a year.
AARP is glad Connecticut is taking a leadership role in addressing a retirement savings crisis that stretches across America. We are one of a few states, such as Oregon and Maryland, to provide opportunities for people to save for retirement at work. There is an estimated $7 trillion retirement savings deficit among older Americans in the United States, according to data from The Center for Retirement Research at Boston College.
The average retirement savings for American households approaching retirement is $12,000. Three quarters of Latino households have less than $10,000 saved for retirement, compared to one-half of white households. This is mainly due to the fact that in the private sector, Latinos have 42 percent less chance of having a retirement plan compared to whites.
The plan will require all Connecticut businesses of five or more employees with no pension or 401K plan to offer the option to participate in the retirement security program. It will be voluntary for employees, who will be automatically enrolled but have the ability to opt out, and employers will not be required to match contributions.
The default employee contribution rate for people who do not opt out will be 3 percent of their pay, which will go into a private Roth IRA account that they select from the available vendors. Employees will be able to increase or decrease the contribution rate. The vendor/vendors for the Roth IRA’s will be chosen by an RFP conducted by the authority. The law adds no additional cost to taxpayers and will lead to less reliance on state-funded social safety net services in the future.
Automatic payroll deductions encourage savings. In fact, AARP Public Policy Institute studies show people are 15 times more likely to save for retirement if they can do so through a payroll deduction program at work.
The new law was the product of the Connecticut Retirement Security Board (CRSB), co-chaired by State Comptroller Kevin Lembo and State Treasurer Denise L. Nappier, which was charged with providing recommendations about the efficacy of a workplace savings plan for workers in the state without access to such a program.
There are many hardworking middle-class workers in Connecticut who are headed to retirement financially unequipped. This is an issue that affects the workers and their families who are financially forced to delay retirement, as well as for our entire state economy. The state will ultimately save money by helping people plan for self-sufficiency in retirement and avoid reliance on public assistance.
It’s refreshing to see Connecticut legislators address an issue that impacts everyone in our state. A survey showed three in four Connecticut Registered Voters aged 35-64 were concerned that some residents have not saved enough for retirement and could end up being reliant on public assistance. Many are anxious about their own retirement, and wish they had more money saved.
Nora Duncan is the state director for AARP Connecticut.