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Hartford — Senate and House Republicans gathered on Thursday to voice their opposition to Senate Bill 249, which would create a state-administered retirement plan for low-income private sector workers.
Employers would be required to offer the plan, but employees could choose to opt out. Opponents said low-cost retirement plans already exist in the private sector and that small business financial advisers could lose clients and essentially jobs. Proponents said that the private market hasn't reached 700,000 low-income workers and therefore a state-administered plan would offer them a low-cost way to save for their future.
"What people are trying to sell here is that you can't get a retirement account in the real world or, if you could, it would cost you too much," said state Sen. John McKinney, R-Fairfield, at a press conference on Thursday. "Don't worry about it because the government can do it for you. When (has) that ever proven to work? It hasn't."
The state-run account would be called the Connecticut Retirement Security Trust Fund and could have startup costs ranging from $6 million to $8 million, according to the nonpartisan Office of Fiscal Analysis. Ongoing costs would be paid for by employee contributions to the fund. Unless an employee opts out of the plan, he or she would have to contribute at least 2 percent of their salary but not more than 5 percent to their retirement. Employers would not be required to make contributions to the state-administered retirement fund.
The retirement trust would not be open for enrollment until the Connecticut Retirement Security Trust Fund board, which would be run by the state treasurer and comptroller, determines that it would be self-sustaining. The state would also have to determine that the state-administered plan would not have to abide by the federal Employee Retirement Income Security Act (ERISA) before implementing the state-run plan, among other requirements.
ERISA was designed to protect retirees in private-sector retirement plans. It requires companies offering these plans to provide information about the plans and places fiduciary responsibilities on those who manage and control the financial assets in the plan. It gives plan participants or retirees the ability to sue for benefits and breaches of fiduciary duty and guarantees payment of a certain level of benefits through the Pension Benefit Guaranty Corp., which insures pension plans.
California passed similar legislation in 2012, but it has not been implemented yet, in part because it hasn't been determined whether the California plan would have to comply with ERISA.
Several Republicans said if there was going to be a bill at all this legislative session about state-administered retirement for private workers, it needed to be a study bill because so many questions remain unanswered.
"Can this bill be legal?" said state Sen. Len Fasano, R-North Haven. "That needs to be answered before we go forward."
After the press conference, Democrats said implementation of the state-run retirement plan wouldn't happen until after the ERISA question was answered and that they wouldn't be offering it if the private industry's plans were working.
"Since the private entities are not successfully pursuing this market, small employers sometimes claim that the fees are too high and that it is counterproductive for them to accept the offerings that are out there, therefore, we are following the model of California and looking at a public alternative to give people a payroll savings deduction option," said Senate Majority Leader, Martin Looney, D-New Haven.
Several studies have shown that people save regularly only if there is a payroll deduction option, Looney said.
Republicans and financial advisers at the press conference said they were concerned that the costs of the state-administered plan would fall on the backs of low-income workers.
"Frankly, I think it is a piece of legislation that we are pandering to the low-income earners at the expense of their own paychecks," said Vincent Candelora, R-North Branford.
Hope Feller, a representative of the financial planning and insurance industry, said there are plenty of Individual Retirement Account plans available at banks and financial institutions that cost only $50 annually and included automatic payroll deductions.
"With this bill, the layer of paid professionals hired to create the retirement plan will be on the backs of the low-income participants," Feller said.
But Sal Luciano, executive director of the Council for the American Federation of State, County and Municipal Employees (AFSCME), said plan participants would benefit more from a state-administered plan with expert financial managers and low administrative costs than they would from a private sector plan.
"The 401(k) is really squeezing workers so the shareholders and the CEOs are making money off the working people," Luciano said. "... People are hard-working; they don't know how to invest, you know a 20-year-old doesn't know how to invest, but a pension fund manager, that is what they are paid for, that is their expertise," Luciano said.
The bill will likely be sent to the Appropriations Committee for revisions and has support in the House and Senate, Looney said.