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Colorado Secure Savings Program Requires Businesses to Offer Employer-Sponsored Retirement Plan

The Colorado Secure Savings Program requires businesses with more than five employees in Colorado to provide employees access to a retirement plan.
Two women discuss options after Colorado mandates employer-sponsored retirement plans be offered.

There are almost 40 million employees working in the private sector who do not have access to a retirement plan with their employer, according to the U.S. Bureau of Labor Statistics*. On July 21, 2020, Colorado moved to help reduce that by one million. The passage of the legislation establishing the Colorado Secure Savings Program mandates businesses with at least five employees offer access to an individual retirement account (IRA) funded by automatic payroll deductions.

Businesses that currently do not offer a retirement savings plan will be obligated to do so through the Colorado state treasurer and under the guidance of an advisory board. The state is targeting mid-2021 for the program to be implemented.

Why are state-mandated employer-sponsored retirement plans becoming popular?

Studies over the past decade have shown that the retirement-readiness of the average household with working adults has worsened. Although data vary from study to study and year to year on the amount households have saved, all studies agree on a similar conclusion: private-sector employees either do not have enough saved for retirement or they aren’t saving at all.

A 2018 consumer spending report from the U.S. Bureau of Labor Statistics showed that the average American spent almost $3,900 a month on basics (food, housing, health care). The average Social Security retirement benefit was about $1,470 at that time. An individual’s retirement savings is supposed to make up the difference.

Realizing the crisis facing residents of their state, Colorado joins 10 others that have enacted legislation for state-mandated retirement plans by employers for private employees: California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York, Oregon, Vermont, and Washington.

What employers should know about the Colorado Secure Savings Program

Employers must implement the Colorado Secure Savings Program for their employees if they have:

  • Five or more employees at anytime during the calendar year
  • Been in business at least two years, and
  • Not offered a qualified retirement plan in the preceding two years

There is a phased rollout for employers, starting with those with 100 or more employees, and enrolling employees must begin with 24 months of the date the Board is authorized to begin implementing the plan.

Employers can face a penalty for noncompliance such as failure to enroll eligible employees, of $100 per eligible employee per year (up to max of $5,000 annually). Enforcement of this rule begins one year after the due date set for the employer enrollment based on the number of employees in the business’ workforce.

What employees should know about the Colorado Secure Savings Program

The Colorado Secure Savings Program provides a portable retirement plan for employees who are 18 years of age or older, have been employed by a Colorado employer for at least 180 days, and who earn taxable wages in Colorado.

They will be enrolled automatically in the program but can opt out, and the default rate that will be withheld from each paycheck will be 5 percent with an auto escalation each year. Participants will be able to change the percentage withheld after enrolled.

Looking forward

There are many details to the program that the advisory board has yet to develop and/or release, but Paychex will continue to monitor the legislation and provide updates when information is available. One notable advantage for small businesses is providing a benefit similar to larger companies, acting as a perk to attract and retain younger employees and help them start building a retirement savings.

Colorado businesses do not have to wait for the program to launch and can open a retirement plan such as a 401(k) through a provider such as Paychex to satisfy the mandate.

*Consumer Expenditure Survey, 2018

Female author icon
Maree P Vahue, MBA, QKA, is a professionally accredited Retirement Services Compliance Analyst II for Paychex, Inc. based in Rochester, NY.
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