Happy 401(k) Day!

In response to the 940,000 Colorado private-sector workers that lack access to an employer-sponsored retirement savings plan, the Colorado SecureSavings Program will allow those who need it the most to access this essential benefit.  A retirement savings benefit is proven to increase the likelihood that employees consider saving. Additionally, access to educational resources and employer support creates the opportunity for those that do not traditionally invest to understand the true value it could bring to securing their financial futures.

There is a retirement savings crisis on the horizon with many across the United States relying on an uncertain Social Security benefit. Now, more than ever, individuals must learn how to manage their own retirement savings. So, how does the state requirement support this effort and what are the viable alternatives?

What is the Colorado SecureSavings Program?

Unlike a defined benefit plan, the Colorado SecureSavings Program is a portable IRA that Colorado private-sector workers fund by payroll deductions through their employers. Because it is portable, the account follows the employee no matter how long they stay with their employer, which encourages continued retirement saving. Employers are required by law to enroll their employees, but employees may opt out of the Program or re-enroll at any time. When the Program launches in January 2023, employers must choose to participate in the Program or to obtain a qualified retirement plan for their employees.

If a business already offers a qualified retirement plan to some or all of its employees, it can certify its exemption through the Program’s online portal and is not required to participate. Participation in the Program requires the following three actions by Employers: register, upload employee roster, and remit employee payroll contributions. The lawmakers required that the Program design minimizes the time burden on employers; therefore, registration is expected to only take minutes by inputting a few data points. Depending on what type of payroll system a business uses, uploading the employee roster and remitting can be automated through the Program’s online portal and will likely only require 15 minutes per month.

Unlike a 401(k) plan, the participating employer is not a fiduciary in the SecureSavings Program. This means the employer does not bear responsibility for the administration, investment, or investment performance of those participating in the state program. Participating employers do not have any liability for an employee’s decision to participate in, or opt out of, the Colorado Secure Savings Program or for the investment decisions of the Board or of any enrollee.

How Does the State Requirement Differ from a 401(k)?

Both a 401(k) and the state program offer employees a means to a more financially secure future. However, there are a few advantages of a qualified alternative like a 401(k) that employers should consider as the deadline approaches. Employers have the choice to “match” a percentage of employee contributions to retirement savings in a 401(k). Matching employer contributions appeal to jobseekers and benefit employees because matching contributions grow the savings account quicker than one without an employer match.

Employers should also consider the cost of qualified plans, whether they are suitable for their employees, and the legal and administrative requirements for sponsoring a plan. The Colorado Secure Savings Program contribution limits align with federal standards for IRAs (which are considerably lower than 401(k) contribution limits), employers are prohibited from matching, and the Program is provided to employers at no cost. While this public option may appeal to some businesses, other plans may offer more robust benefits, opportunities for employer matching, small business tax credits, and more employer control over the investment lineup.

Next Steps for Colorado Employers

Colorado SecureSavings launches in 2023, so now is the time for business owners to explore all options in the private market and consult competent tax advice. Employers are encouraged to consider the full range of options before enrolling in a retirement program, whether that be the state program or a qualified alternative like a 401(k).

Shelton Capital Management is a Denver-based 401(k) provider working in conjunction with the Colorado Department of the Treasury’s Colorado Secure Savings Program to increase awareness of the importance of retirement savings. With the approaching state-requirement, it is essential that small business owners across Colorado are aware to avoid potential penalties for non-compliance and understand alternative options that may be more suited to their businesses’ needs.

Carrie Della Flora manages the Client Experience team and is responsible for providing authentic client service and support to Shelton Capital Management’s 3(38) Fiduciary clients. Della Flora joined Shelton in 2018 with 16 years of industry experience, having recently worked at Matrix Financial Solutions.