Early Tuesday morning, the House passed a bill that would create a quasi-public agency to administer a retirement system for Connecticut residents who currently may not have one through their employer.
The bill passed at 3 a.m. on a 76 to 63 vote.
Rep. Peter Tercyak, D-New Britain, said there are over 600,000 Connecticut residents without any retirement aside from Social Security. He said that means that at some point, those 600,000 residents will seek state benefits once they find out they can’t live off Social Security.
Under the bill, employees who work for companies that don’t offer a retirement would automatically be enrolled in the plan and a contribution would be deducted from their payroll. The default contribution would be 3 percent of an employee’s pay, if the employee didn’t specify how much they would like to contribute.
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.
It will take one or two years longer at 3 percent, according to the fiscal note.
The January report did not recommend guaranteeing a rate of return on the investments and it didn’t recommend giving investment choice, but it recommended giving the board the ability to amend and evolve the investment program over time.
The financial instrument offered in the bill would be a Roth IRA, instead of a traditional IRA, which comes with tax benefits. That’s because the state currently can’t afford to give up what was estimated as possibly $10 million in revenue.
“We’re told this way would be better for low-wage workers,” Tercyak said, defending the change.
Rep. Dave Rutigliano, R-Trumbull, said Roth IRAs are usually vehicles used by residents with higher income who have maxed out their tax deductions with a traditional IRA.
Rep. Gail Lavielle, R-Wilton, said a Roth IRA is a perfectly good vehicle if you want to save money you’ve already paid tax on, but the open market still offers individuals a full range of savings options.
“Why are the proponents proposing this? Why is this here? Why are we discussing this?” Lavielle said.
Tercyak said because the current system is apparently not working for at least 600,000 residents who are participating in any retirement plan.
Lavielle said she doesn’t buy the argument that people can’t and won’t save for their retirement, if the state doesn’t do it for them.
“I think that’s an insult to the intelligence of our residents,” Lavielle said.
Connecticut would be one of the first states, after California, to offer a public retirement program to its residents.
The proposal has the support of top state officials like Comptroller Kevin Lembo and Treasurer Denise Nappier, and organizations like the AARP.
Tercyak said Connecticut’s plan is portable so if a person no longer wanted to participate in the Connecticut Retirement Security Authority board plan they could decide at a later date to transfer it to one offered by the private sector.
In order to start the fund by January 1, 2018, the newly formed quasi-public agency will have to take out a loan that will be paid back by that agency. None of the employees in that agency will be considered state employees and the state won’t be liable.
According to the fiscal note, it’s estimated the newly formed board will need at least $500,000 to $1 million to run the fund. And with a 3 percent contribution rate, it’s anticipated the board may be financially self-sustaining three to four years after the program starts.
That means any start-up capital may be repaid within five to eights years after the program is implemented.
Early on the debate, Republicans offered an amendment that would prohibit the Connecticut Retirement Security Authority board of directors or its vendors from contributing to political campaigns or party committees. After a brief break in the action, Democrats agreed to accept it as a friendly amendment and approved it by a voice vote. Later in the debate they removed party committees from the amendment claiming the decision was based on a court case. Then when Republicans tried to amend it again, they agreed to ban contributions to party committees.