Lt. Gov. Nancy Wyman broke a tie vote Saturday in the Senate to send to the governor a controversial bill that would create a quasi-public agency to administer a retirement system for Connecticut residents.
Sens. Gayle Slossberg, D-Milford, Joan Hartley, D-Waterbury, and Paul Doyle, D-Wethersfield, joined Republicans in voting against the measure and tying the vote 18-18. Wyman cast her vote in the affirmative to send the bill to Gov. Dannel P. Malloy’s desk.
The bill would force every employer with more than five employees to deduct three percent of an employee’s’ paycheck to deposit in the fund. The plan would opt every state resident into the plan even though they would be able to opt out if they choose. It’s unclear how easy it would be for an employee to opt out.
Proponents of the legislation say that there are over 600,000 Connecticut residents without any retirement aside from Social Security.
“A very low percentage of people save systematically for retirement if there is not a payroll deduction . . . available to them,” Senate President Martin Looney, D-New Haven, said.
He said more people will find it less burdensome to participate.
Rep. Peter Tercyak, D-New Britain, who co-chairs the Labor Committee, said if he was 19 years old and someone had been taking 3 percent of his paycheck, he doesn’t believe he would regret having enough money to retire.
“Wow, imagine all this money,” Tercyak said. “No one looks back at a 19-year-old self and says I’m going to get out of there and save the 3 percent because pot is expensive.”
The financial instrument offered in the bill would be a Roth IRA, instead of a traditional IRA, which comes with tax benefits. Contributions to a Roth IRA are not tax deductible. This change was made because the state currently can’t afford to give up what was estimated as possibly $10 million in revenue.
However, the legislation that passed Sunday will be modified through another piece of legislation in order to make it more acceptable to the governor.
Looney said there are still more technical things to be worked out, but a separate piece of legislation would deal with how vendors are selected to run the program. There’s not enough time to amend and volley the current bill back and forth through the two chambers before the legislature adjourns May 4.
“There were questions raised about how the plan would be set up and options available to those who participate in the plan,” Looney said following the vote.
Chris McClure, a spokesman for Malloy, acknowledged that they are “working with the House and Senate proponents of the bill on the existing language of the legislation.”
The legislation is based on a Connecticut Retirement Security Board report 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.
Republicans in the Senate opposed the legislation and proposed a few amendments to the plan during a three-hour debate on the bill.
Sen. L. Scott Frantz, R-Greenwich, said the legislation creates a “huge bureaucracy” to administrate a plan already available through the private sector.
However, proponents argued that if the private sector is so good at selling these plans, then how come 600,000 Connecticut residents don’t have them.
Rep. Rob Kane, R-Watertown, said Connecticut lawmakers are becoming more parental.
“How many more things are we going to do to mandate in people’s lives?” Kane said.
State Comptroller Kevin Lembo, who co-chaired the Connecticut Retirement Security Board, said he thinks the private sector solution should be the first answer to this challenge, “but the market is currently failing to reach nearly half of our workforce.”
He concluded that the program may push Connecticut companies that don’t currently offer their employees retirement saving accounts into the private market.
“In fact, in the market feasibility study survey of Connecticut employers, approximately half of the employers said that — should the program be implemented — they would go out into the private market,” Lembo said.
The legislation does not mandate employers contribute to the fund, only that they make a payroll deduction available to their employees.
Still, the National Federation of Independent Businesses said the legislation would create a burden to small businesses, who would have to set up the payroll deduction.
“Small business owners are watching today’s debate closely and hoping that it will end well but it’s difficult to remain optimistic when a core group of Hartford lawmakers seem determined to over-regulate business owners in any way possible,” NFIB Connecticut state director Andrew Markowski said.