A trio of Republican Senators said they don’t believe Connecticut should create a public retirement system that would require private sector employees to contribute to a retirement plan through a payroll deduction.
Instead, Senate Minority Leader Len Fasano, and Sens. L. Scott Frantz, and Toni Boucher, suggested the state hire a marketplace director who would be responsible for sharing private retirement plan options with small businesses.
Fasano said it would create a one-stop shop for small businesses to search for IRAs or other types of retirement plans for their employees. He said it would be modeled on similar legislation in the state of Washington, which dedicated $524,000 over two years to implement the initiative.
But state Comptroller Kevin Lembo, who co-chairs the Connecticut Retirement Security Board, said he doesn’t know why the private sector is so scared to compete or why Republicans would use Washington as an example.
Lembo said the program in Washington is not even operational.
As for competition, Lembo said it’s always his first instinct to let private markets figure out these types of things.
“But private markets have had sole control over these products for a long time and they’ve done some good work and they’ve introduced some innovative models and products,” Lembo said. “That said, we have 600,000 people in Connecticut who are working full or part-time and have no access to a workplace sponsored savings plan for retirement.”
Lembo, who has been studying this issue for years, said it makes sense that the state take the lead because the number of people without retirement savings isn’t going to “ricochet back on the private sector.” It’s likely going to be the state or federal government that supports individuals who find out they can’t survive on Social Security alone.
Lembo said state government needs to step in to offer an alternative or act like a “sharp stick” to spark innovation in the private sector.
“When and if there is a mandate that employers with five or fewer employees offer a payroll slot for their members to participate in this thing you will see growth not only in participation in the new publicly sponsored plan, but also in the private market,” Lembo predicted.
The state’s largest business lobby said the legislation would cost the state jobs in the financial services industry.
“If this plan becomes the default option for any employee that does not have a retirement plan, it will push those private-sector businesses selling competing products entirely out of the market,” Eric Gjede, assistant counsel at the Connecticut Business & Industry Association, said. “This will result in a loss of jobs and revenue to the state.”
Frantz said there’s no reason to think the state will be better than the private sector at managing these investments.
“You can walk into a bank today and get an IRA,” Frantz said. “There’s really no reason for us to even think about getting into this business.”
The AARP of Connecticut supports the measure. A recent AARP survey found 61 percent of voters ages 35 to 64 support a public retirement plan.
In 2014, the legislature created the Connecticut Retirement Security Board and it raised nearly $1 million in mostly private funds to conduct a market feasibility study.
The Connecticut Retirement Security Board released a report in January that found a public retirement program would need approximately $1 billion in assets to become financially self-sustaining. If one-third of those eligible to enroll in the program did so and contributed up to 6 percent of their earnings, then the program should be self-sustaining at the end of year two.
The report does not recommend guaranteeing a rate of return on the investments and it doesn’t recommend giving investment choice, but it recommends giving the board the ability to amend and evolve the investment program over time.
“My objection is that there’s no flexibility for the employee,” Fasano said. “My objection is we’re giving one person the right to manage a $1 billion worth of assets . . . that’s very scary to me.”
Lembo said the legislation offers an opportunity to have a greater discussion about implementation. He said the legislation doesn’t dictate how the program should be implemented by the board, but it creates a board to oversee the implementation of a program.
This story will be updated soon.