In Summary

• The Colorado Secure Savings Program mandates that qualifying employers with five or more employees who have been in business for at least two years and lack a current plan must offer an automatic IRA option by early 2024. This state-backed initiative, effective for eligible employees over 18, aims to boost retirement savings access for nearly one million Colorado residents.
• This new law is a response to the low retirement savings rate among Coloradans and the post-pandemic hiring difficulties faced by businesses. Though participation is optional for employees, the required auto-IRA via payroll deduction simplifies the process, with employers only needing to coordinate deductions, not contribute or act as plan fiduciaries.

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For many businesses and organizations in Denver, recent months have proved especially challenging for hiring. The abrupt shift during the pandemic to a remote work format opened to door to a new paradigm. Now that the pandemic has passed there is little vigor to return to the traditional office environment. This has triggered the Great Resignation where many employees simply resigned from positions to find a more flexible work format. To attract new talent, many businesses are bolstering benefits to include retirement plan options and other perks. However, for small businesses with at least 5 employees, it appears offering a retirement plan will soon be required. The Colorado Secure Savings Plan (HB 17-1290) created the mandated savings program in July 2020. While compliance is not required for a few more months, finding the right plan offering can take research and time. To help clients, prospects, and others, Hanson & Co has provided a summary of the new program and key details below.

Benefits of Employer-Sponsored Retirement Plans

According to the IRS, most workers will need around 80 percent of pre-retirement income to maintain the same lifestyle after retirement. Employer-sponsored retirement plans may have tax benefits and can go a long way in attracting and retaining needed talent, especially now. And though not in the scope of the Colorado Secure Savings Program, new retirement plans like SEP or SIMPLE IRAs or a 401(k) are eligible for a tax credit of 50 percent of eligible startup costs up to $500 or $5,000 (depending on costs) over three years. Plans that feature an automatic enrollment provision are also eligible for an annual tax credit for three years.

About the Colorado Secure Savings Program

Coloradans are not saving enough for retirement. In 2019, the Colorado legislature established a secure savings board within the state treasurer’s office to study how best to approach the problem. They evaluated three options:

• Automatic enrollment in an IRA, also called an auto-IRA
• Financial education
• Retirement plan marketplace

They ultimately decided on the Secure Savings Program, which was approved in the 2020 regular session. The intent is to help Coloradans ensure better access to employer-sponsored retirement plans. It’s estimated that more than 40 percent of the Colorado workforce doesn’t have the opportunity to save for retirement through work. Almost one million residents work for an employer that doesn’t offer any retirement plan; many others aren’t covered because they only work part-time. Studies show that workers with access to an employer-sponsored retirement plan are 15 times more likely to save. Under the Colorado Secure Savings Program, qualifying employers will be required to offer IRAs via automatic payroll deduction. This doesn’t mean that employers will need to contribute, though – only that the option is there for employees to contribute. Employers need not be plan fiduciaries, either, which should help to ease administrative and compliance costs for small businesses.

Program Requirements

The Secure Savings Program mandates certain employers offer an automatic IRA with the following features:

• Auto-enrollment with the option to opt-out
• Employee contributions are made via payroll deduction

There are about 21,000 Colorado employers that fall under program requirements. Qualified employers will have to comply with the new law if they have five or more employees, have been in business at least two years, and don’t have another qualifying retirement plan already. Requirements cover for-profit and not-for-profit employers. Once fully launched, these businesses will need to enroll eligible employees, provide the state-backed program with basic information about account set up, coordinate payroll deductions, and add new employees as needed. Those with less than 50 employees can get reimbursed for costs associated with starting the program. Specific amounts have not yet been determined but early estimates ranged from $200 to $600 per employer. And though it’s required for these employers to offer work-sponsored retirement plans, it’s up to the employees whether they want to participate. Eligible employees need to be at least 18, earn taxable wages and must complete or have completed at least 180 days of employment. Employees are still limited to federal IRA contribution limits, which are $6,000 for both Roth and traditional IRAs in 2022. Other federal IRA requirements on income phaseouts apply.

Timeline

Specific rules for the program will be finalized around July 2022, followed by the launch of a pilot program in October 2022. Regular enrollment for all other qualified employers will begin in early 2023. Once enacted, Colorado employers will have one year to comply or face fines and penalties.

Contact Us

Hanson & Co works with middle-market companies and high-net-worth individuals in Denver, Colorado, and across the country. Regardless of the complexity of your need, our team is ready to help you. Please complete the form below, and we will follow up with you shortly. [wpforms id=”1290″ title=”false” description=”false”]