By Matt Gallagher
Your Finances
Matt Gallagher
Connecticut business owners were recently informed of the launch of the state-mandated retirement program, MyCTSavings. The program is a good-faith effort on the part of state government to address the ongoing retirement savings crisis. The MyCTSavings website touts the program as a “seamless way to help Connecticut employees save and plan for retirement,” particularly for the “more the 600,000 private-sector employees who have no employer-sponsored retirement savings plan.”
The program requires employers with five or more employees who do not currently offer a retirement plan to provide a payroll mechanism for employees to contribute to a Roth IRA. Employers will be responsible for providing eligible employees with information on the program as well as deducting and remitting contributions in a timely manner.
Depending on the number of employees, employers will need to implement the program between June 2022 and March 2023.
For many Connecticut business owners, the launch of the state-run program is viewed with concern and some skepticism. Past attempts by the state to run similar programs have failed, and typically private business owners prefer to decide for themselves whether to offer a retirement benefit. However, since the state is mandating this program, employers should review the retirement plan landscape and decide which plan best aligns with their company and its goals.
For most employers not currently offering a retirement plan benefit, the biggest concern is cost. Benefit programs – including retirement plans – can be expensive, both in actual outlay of dollars as well as the administrative burden. In a competitive landscape, many employers do not believe they can rationalize offering additional benefits.
To allay these concerns and ensure that they are making an educated decision about this type of benefit, business owners should consider the following:
Does the business owner have a retirement strategy, and would they consider participating in the plan themselves? By contributing to a qualified plan, a business owner can build retirement savings while lowering their tax liability. In many instances, the reduction in taxes can greatly mitigate plan cost. However, since most plans are subject to compliance testing, business owners may be required to offer an employer match or contribution if they wish to participate. Conversely, if an employer has no interest in participating, they could offer a plan without a required contribution.
In an extremely tight labor market, would a retirement plan benefit assist you in recruiting and retaining talent? Finding skilled employees in the current labor market is a real challenge, and offering a retirement plan benefit can differentiate employers. Most plans allow for a vesting schedule for employer contributions to further assist in retaining talent.
Would cost controls, such as a discretionary employer match or eligibility requirements, assuage concerns about plan costs? Employers do have some discretion in terms of plan design, which in turn can limit the type of employee who is eligible to participate and what they might choose to contribute.
Consider participation in a pooled employer plan. PEPs, which were created as part of the SECURE Act in 2019, allow for unrelated businesses to join together to offer a 401(k) plan. PEPs have the potential to be less expensive, limit liability and enable employers to outsource most of the compliance and administrative burden.
Connecticut business owners who do not currently offer a retirement plan will need to make some decisions. The state has begun to implement a mandatory program, but there are other options to consider. A retirement plan, like any employee benefit, should align with the goals of the particular business. Knowing your options will help you in making a reasonable decision.
Matt Gallagher is a partner and head of business development at TrinityPoint Wealth. He can be reached at 203-693-8519 or mgallagher@trinitypointwealth.com.