Retirement savings partnership subject of CT special session

Gov. Ned Lamont announced the General Assembly will hold a special session to address, largely, a potential tax increase related to Connecticut’s motor vehicle property tax , but the legislature is also expected to approve a change to the state’s retirement savings program for the private sector known as MyCTSavings , allowing Connecticut to partner with other states to help lower administrative fees that eat into employees’ savings.

The program, in the works for years and finally launched in 2022 , requires private sector employers who do not offer a qualified retirement program to employees to register with the state and begin making employee payroll deductions to pay into the program, although employees are able to opt out if they choose.

Although the original pitch for the savings program indicated that “more than 600,000” private sector employees had no employer-sponsored retirement savings program, MyCTSavings currently has just 6,422 registered employers, with 26,551 funded accounts, totaling $23.8 million in total assets, according to their latest numbers . Scanlon has personally been traveling to businesses across the state to promote the program, and there is currently no penalty for businesses not registering with the state.

While the program offers employees an easy way to contribute to a Roth IRA savings account with no contribution required by the employer, the program also has high administrative fees which can cut into an employee’s total savings over time. The fund is managed by a third party called Vestwell, which manages other states’ retirement programs, and, naturally, charges fees for their service.

The cost of those fees over a 30-to-40-year career, assuming an employee stays in the program and contributes regularly, could amount to between $18,000 and $65,000 in lost savings when accounting for growth, and compared to a traditional Roth IRA investment into some of the very same funds MyCTSavings places savers money into.

Being that the program is marketed largely to lower-wage employees likely unfamiliar with the jargon and numbers, those savers may not be aware of the potential costs.

Connecticut Comptroller Sean Scanlon has tried to push through legislation that would allow him to enter agreements with other states to build a bigger pool of assets and, under the contract provisions with Vestwell, lower the overall administrative fees associated with the program, though Vestwell fees would still exceed the cost of direct investment.

Pooling Connecticut’s retirement savings with other states would essentially create economies of scale and reduce the administrative fees that come directly out of savers’ investments.

Last year, House Bill 6552 , would have offered Scanlon the ability to join with other states, along with making some other programmatic changes, like the ability to enforce the program. The bill was passed in the Senate but got hung up in the House of Representatives.

This year, similar legislation under Senate Bill 136 , would have allowed personal care attendants to participate in the program, increased the automatic retirement deduction from 3 percent to 5 percent, established penalty fees for noncompliant employers, and allowed the comptroller to increase the default deduction rate annually, and indemnifies the advisory board overseeing the program.

Testifying in support of the bill, Scanlon said the increased contribution rates is following best practices from the private sector and that joining with other state programs “makes sense from a financial perspective.”

“Cooperation with other states would shrink the program’s administrative costs,” Scanlon said in written testimony. “More dollars stay in investor accounts from lowered fees in a larger the asset base, and the power of small states to engage in cost leveraging activities makes program investment more attractive to contractors, where we would have greater collective negotiating power for contracting provisions.”

Scanlon previously indicated that Connecticut had been contacted by states like Rhode Island and Delaware who were interested in partnering. Small states, with fewer potential savers, would likely benefit the most from partnerships to increase their assets.

This year’s bill once again was passed in the Senate but was held up in the House. While the legislative bill contained several changes to the program, including enforcement penalties, the governor’s proclamation for a special session only included allowing Connecticut to partner with other states.

“The state of Connecticut would become a host state to other states that have authorized similar retirement security programs for the purpose of reducing administrative costs and leveraging economies of scale for both participants in the Connecticut Retirement Savings Program and participants in states seeking to partner with Connecticut,” the governor’s proclamation said. “By entering into such cooperative agreements, the Connecticut State Retirement Program can enhance its own operational efficiency and make retirement savings more accessible and affordable to Connecticut residents.”

State retirement savings programs for workers without employer sponsored plans have become more popular in the last decade as states seek to encourage retirement savings and better prepare workers for retirement and decrease reliance on government assistance in their retirement years.

Reached for comment, Scanlon said MyCTSavings “continues to show strength while growing every day in assets and enrollees.”

“Providing my office with the authority to enter into interstate compacts will further support the program’s continued growth and give us the bargaining power to lower administrative costs for savers faster — a win-win for program participants,” Scanlon said. “I appreciate the collaborative support from our legislative leaders to build on our program’s success during this special session.”

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