Should the government require employers to give their employees an option to invest in a retirement fund run by state officials?
Republican lawmakers say “no” while Democratic lawmakers are moving forward with a bill that mandates employers to offer their employees the option of participating in a state-run retirement trust fund. The employers are not required to contribute money to the fund, but they are mandated to offer it to their employees who would automatically be enrolled and given the option to opt-out.
In the past, it was an idea that seemed far enough out of reach that Republicans felt they could ignore it. However, this year it has the support of some powerful interest groups, including labor unions and the AARP.
Sen. Joe Markley, R-Southington, said he assumed the bill was going to fall by the wayside during the legislative process because of what he perceives as problems. But he said he’s recently become concerned “it may develop a momentum of its own.”
Touted as a way to help low-income workers save for retirement, Sen. Martin Looney, D-New Haven, said there are too many workers in Connecticut dependent only on Social Security for retirement.
“I think it’s a fallacious argument that this is a market the private sector is filling,” Looney said.
He said there are about 600,000 Connecticut residents without any retirement plan except for Social Security. But putting aside the partisan bickering for a moment, he said it’s more important to get people into a retirement program more so than whether it’s a public or private program.
Sen. Gary Holder-Winfield, D-New Haven, said at some point people who haven’t saved anything for their retirement will end up coming to the state for assistance. He said the bill is fiscally responsible because it may make people less dependent on state government for help.
But Republican lawmakers were so concerned about the bill they held a press conference Thursday in Sen. Minority Leader John McKinney’s capitol office to criticize it.
“Democrats in the building believe that government is the sole person or entity for running every aspect of our lives,” McKinney said. “The reality is the private market makes products available to help people invest and make savings for their retirements. They’ve been doing it for a very long time. They can do it better than the government can do it.”
He said if the bill passes there will be job losses in the private sector as a result.
Proponents of the bill say it will offer participants a guaranteed rate of return on the principal invested, if the state receives permission to move forward with the plan.
For Sen. Len Fasano, R-North Haven, the real issue is whether the U.S. Department of Labor’s Employee Retirement Income Security Act would apply.
California, which passed a study bill two years ago to see if it couldn’t do something similar to what Connecticut wants to do, has not received a response from the U.S. Department of Labor regarding its inquiry. Connecticut labor officials say that’s because they were told they would need to pass legislation before getting a response.
“Whether we can even do this from the get-go needs to be answered,” Fasano said. “Can this bill be legal?”
Even proponents of the bill didn’t have an answer to whether it’s possible under federal law.
“What happens if payments exceed funds?” Sen. Toni Boucher, R-Wilton, wondered.
She said portfolio insurance is “extremely expensive” and could eat away at the “guaranteed rate of return” promised by the fund.
“It’s pandering to low-income earners at the expense of their own paycheck,” Rep. Vincent Candelora, R-North Branford, said. “These individuals would be forced to put 5 percent in a pension plan that they might not even be able to afford to begin with.”
But he said it was an idea he would be willing to study.
Holder-Winfield said the way the bill is written it already creates what could be defined as a study period that would require permission from the federal government to move forward.
Proponents of the legislation say the percentage workers contribute to the fund will be between 2 and 5 percent and workers will be able to opt out at any time.
A handful of private sector financial planners and advisers said that they would be willing to partner with state government in order to better educate this segment of the population about investing in their retirement.
McKinney said right now anyone can go into a financial institution and “for $50 open up an Individual Retirement Account with a payroll deduction that costs you nothing and your employer nothing.”
Catherine Ernsky, president of the Ernsky Group, said she would love for the state to partner with them and do a marketing campaign to try and reach the low- to moderate-income worker.
“But that one component we are not going to be able to change are those folks who right now are trying to put food on their table today [and] can’t afford to worry about retirement tomorrow,” Ernsky said.
McKinney said that’s a reality that the proponents of the bill can not overcome.
“The availability for people to go get retirement accounts is there,” McKinney said. “And the private sector is meeting the need.”
Sal Luciano, executive director of AFSCME Council 4, said if that were the case then there would be no need for this legislation.
“The shareholders and CEOs are making money off of working people,” Luciano said. “Between the huge savings in administrative costs and then the huge increase in gains by professional investors over the course of 35 years putting in over $100 a month could net you $100,000.”
He said no one is going to retire on that amount, but it’s better than nothing.