Hartford — Labor advocates and state Sen. Cathy Osten, D-Sprague, announced Tuesday that they will push for a new state-administered trust fund to give low-income private sector workers and self-employed people access to an individual retirement account.
Osten said the retirement system would be based on contributions made by the workers and would not call for contributions from the state or employers. The cost to employees would be low because administrative fees would be lower than those of plans currently offered in the private market, advocates said.
The provisions in the new legislative bill would be based on Senate Bill 54 from last year, Osten said.
If passed, the new trust fund would be called the Connecticut Retirement Security Trust Fund. The proposal calls for it to be managed by a board chaired by the state treasurer and comptroller.
About 740,000 Connecticut residents are not enrolled in an employer-provided retirement plan, according to a report by the Schwartz Center for Economic Policy Analysis, cited by advocates for the plan.
Dorry Clay of Stonington, who owns a one-person graphic design company, said she has had no feasible way to save for her retirement. She said she has been an artist all her life but started the business after losing her job during the recession. She was diagnosed with cancer, which wiped out her savings.
“I don’t want to have to work until I am 70 or older because I can’t afford to retire,” she said. “The public retirement plan is an absolute no-brainer.”
Employers with five or more employees would be required to offer employees a payroll deduction option to join the trust program.
The default employee contribution would not be less than 3 percent of their salary, under the provisions of last year’s bill being proposed as a model.
When asked whether the state should start up a retirement plan for private employees after managing its public pensions so poorly, Osten said yes.
“This publicly run retirement fund would not require an employer piece to it, and therefore, would not have that piece of the problem that has happened,” Osten said.
The state’s two main public pension systems, one for teachers and one for state employees, are funded at 55 percent and 42 percent of their anticipated obligations, respectively. Experts say pension systems should be funded at 80 to 100 percent.
Sal Luciano, executive director of the Council for the American Federation of State, County and Municipal Employees (AFSCME) said the proposed public retirement plan would be at low cost to individual participants because there would be a large number of participants. Participants would have access to financial planners, he said, and would pay fees of about 0.5 percent of their retirement contributions.
He compared that to a fee of 2.6 percent for some private plans.
Joshua Gottfried, founder and principal of Gottfried & Somberg Wealth Management LLC in Glastonbury, said there are already low-cost retirement investment options such as the Vanguard 500 Index Fund, which has more than $155 billion in assets, charges 0.17 percent and has a $15 annual fee.
“Why create a new product when knowledge is what is needed?” he said. “The products already exist.”
When last year’s version of the bill was brought before the Appropriations Committee, several Republicans questioned why the state would create a plan when there are others already in the marketplace. They said that they would prefer the state create a marketing plan to encourage people to save for retirement instead of starting its own plan.