Democratic Gov. Dannel P. Malloy said he would veto a bill championed by progressives that would create a quasi-public agency to administer a public retirement system for all private sector employees — if the legislature doesn’t fix it.
“I would veto the bill unless the changes are made,” Malloy said Friday at an unrelated press conference.
The bill would require every business with more than five employees that doesn’t offer a retirement savings plan to deduct three percent of an employee’s’ paycheck to deposit in a state retirement fund. Every eligible employee would be opted into the plan, but they could choose to opt out. And employers would not be required to contribute to the fund, but they would be required to offer the payroll deduction for the Roth IRA.
Opponents of the legislation argued that it will push those private-sector businesses selling competing products entirely out of the market.
Malloy has quietly expressed concern about the composition of the board that would manage the fund. The governor also wanted to be the one to select the chairperson. Currently, there is only one fund manager allowed under the legislation headed to his desk. The governor wants to expand the number of fund managers in an effort not to undercut the private securities industries, which sells individual retirement accounts.
The changes needed to satisfy the governor could be made during a special session on the budget next week.
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.
The concept has the support of the AARP, state Comptroller Kevin Lembo, state Treasurer Denise Nappier, and other progressive politicians. Even former U.S. Secretary of State Hillary Clinton, who Malloy supports, seemed to endorse the idea during a recent visit to Connecticut.
“I am a big believer in the states being the laboratories of Democracy,” Clinton said during a visit to New Haven. “We have to come up with some new approaches to help people save for retirement. Often that’s practically impossible because . . . you don’t have any money left to save.”
New York Mayor Bill de Blasio wants to make New York City the first in the country to create a retirement savings program for private sector employees.
A recent AARP survey found 61 percent of Connecticut voters ages 35 to 64 support a public retirement plan.
The bill was opposed by the private securities industry, which felt the state was infringing on its market. However, proponents say there are 600,000 Connecticut residents without any retirement savings beyond Social Security who will likely have to turn to the state for assistance in their old age because it’s nearly impossible to live on only a Social Security income.
Lembo, who co-chaired the Connecticut Retirement Security Board, has 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 that employers must contribute to the fund, only that they make a payroll deduction available to their employees.