Should a state be in the business of encouraging workers to save for their future retirement by pushing them toward a state-sponsored plan?

Connecticut is doing so.

I was skeptical when the Connecticut legislature adopted the MyCTSavings plan. Wasn’t it a function of individual responsibility to plan for future financial security? Did Connecticut need another bureaucracy pestering companies to enroll in the plan and following up when they failed to do so? Didn’t small businesses, which the program primarily targets, already have enough to deal with?

Yet I have concluded this is a social experiment well worth the effort. If successful, it could become a model for other states. If it fails, there will be things to learn from that as well. California and Oregon also created retirement savings programs targeting employees without access to traditional employer-sponsored plans.

In testimony to the legislature, Comptroller Sean Scanlon said other states, including Maine and Delaware, have explored partnering with Connecticut to share administrative costs in such programs.

It should not be news to anyone that Americans are not adequately saving for retirement. People know they should be saving or saving more. Many younger workers intend to start stocking away savings someday. But there are competing priorities, such as paying bills and keeping a roof over their heads and food in the refrigerator. And maybe a trip, or replacing that clunker of a car, or building a small company, or streaming a couple of more channels. There are certainly good reasons, and plenty of bad, for delaying saving for retirement. Inflation has made it tougher to find those extra bucks.

The strategy of Connecticut’s MyCTSavings plan is to offer retirement plans for workers at companies that do not have plans and do it in such a way that workers must choose to opt out of saving for the future, rather than getting around to opting in.

Under the plan, managed by the Office of State Comptroller, companies with five or more employees that do not have retirement plans must sign up their employees in MyCTSavings. Their employees are then enrolled, unless, within the 30-day time limit, they make a choice not to participate. If you do not opt out, 3% of your compensation will be contributed into your own Roth IRA. Once enrolled, workers can amend investment options and change the amount contributed, or not.

The retirement account is portable. If a worker changes jobs, their account follows them. AARP Connecticut, pointing to statistics showing employees are 15 times more likely to save for retirement when offered an auto-deduction opportunity, has backed the program. According to AARP, 55 million workers nationwide and 600,000 in Connecticut have no access to retirement plans through their companies.

Launched in March 2022, companies had until March 30 to either report they had a retirement plan or enter the state plan. About half of the roughly 30,000 companies that are required to do so met the deadline. This is not surprising. Company owners have much to do deal. One more requirement from state government, particularly one that as of now comes with no penalty, may well be ignored.

About 10,000 employees have enrolled, contributing assets exceeding $3.5 million.

The comptroller’s office has so far focused on persuading companies that enrolling is the right thing to do for their workers. Scanlon extended the deadline to do so to Aug. 31. There is a push in the legislature to at some point impose a penalty against companies that fail to register as a means of forcing them to do so. A small fine, which could then be returned when the company enters the program, may do the trick.

Knowing businesses must enter the state program if they do not already have a retirement plan for their workers should provide an incentive for private money managers to offer alternative plans, with claims they can do it better. To incentivize businesses to offer retirement saving plans, the Secure Act 2.0 passed by Congress in December offers tax credits to cover the costs of a 401(k) plan.

If large segments of the population enter their retirement years with inadequate savings to subsidize Social Security, society will have a big and costly problem. If it takes states stepping up to force the issue of retirement savings, so be it. If that, in turn, persuades greater involvement by private money managers, all the better.

Paul Choiniere is the former editorial page editor of The Day, now retired. He can be reached at paulchoiniere@yahoo.com.