Connecticut employers who do not have an approved retirement plan for their employees can now be directly penalized with fines ranging from $500 to $1,500, depending on the size of their company, for not participating in the state retirement program known as MyCTSavings under a new law which will take effect on July 1.
According to the bill language, employers who do not respond to three notices of noncompliance sent by the Comptroller’s Office will face a civil penalty of $500 if they employ between five and 24 employees; $1,000 for companies with 25 to 99 employees, and $1,500 for a company with more than 100 workers.
The program, which requires automatic enrollment of employees who do not have access to a retirement plan through their employer into a state-sponsored Roth IRA, has struggled to reach the number of participants originally envisioned by proponents, who claimed that upwards of 600,000 employees in Connecticut did not have access to an employer-sponsored retirement plan. Employees can opt out of the program if they choose, and while employers do not pay into the program, they do have to process the payments of their employees who are enrolled.
Initially, the savings program did not include a clear enforcement mechanism for non-compliant employers other than facing civil litigation by the Comptroller’s Office – something Comptroller Sean Scanlon said he would not do. Scanlon continues to travel around the state, trying to raise awareness of the program for both businesses and employees.
Under the latest enacted law, however, the Comptroller’s Office can just issue fines directly after repeated warnings to business owners, rather than having to initiate court proceedings – something the Comptroller’s office has been trying to get passed for two years.
“My office seeks reasonable and less severe enforcement mechanisms, in line with the practices of other states with similar programs, using reasonable financial penalties. Penalties would only be assessed after repeat notifications are sent to the business, giving employers ample opportunity to either elect their own private plan or join MyCTSavings,” Scanlon said in written testimony.
The legislation also allowed for Personal Care Attendants (PCAs) to participate in the program – opening the program to an additional 12,000 employees — and created automatic contribution increases in line with federal contribution standards; essentially, new program participants see their contribution automatically increase one percent per year until reaching at least 10 percent of pay but not more than 15 percent. Employees can separately opt out of the automatic escalation.
Lastly, the bill created a mechanism whereby those who are eligible for matching federal funds would be able to receive those funds and have them held in a different savings vehicle.
During their June 20 meeting, the Retirement Security Program board of directors voted to raise the standard base contribution rate from 3 percent of employee income to 5 percent, in line with most other state retirement programs. While 5 percent will be the standard deduction, employees can still set it higher or lower. The average contribution rate in Connecticut thus far, is 3.4 percent.
During the Retirement Security Board meeting, Scanlon said he recognizes these are big changes and that his office will be diligent and thorough in reaching out to both employers and employees so they are aware of the changes before they are implemented through public outreach.
Connecticut’s third-party administrator for the program, Vestwell, indicated they will notify savers a month ahead of time that their contribution rate will automatically increase, with the ability to opt out of the change.
Originally a product of Gov. Dannel Malloy’s administration, the MyCTSavings program faced numerous delays until finally being launched in 2022. Since that time, the program has undergone updates through the General Assembly, including a 2024 special session that allowed Connecticut to partner with other state retirement programs to pool their assets and reduce third-party administrative fees, which can eat up tens of thousands of dollars from employees’ retirement savings.
Following special session approval to partner with other states, Connecticut teamed up with Rhode Island’s RISavers program and, according to the Retirement Security Board’s meeting minutes from May of this year, the partnership with Rhode Island resulted in “an immediate drop in basis point fees from 20 basis points to 17 basis points.”
The MyCTSavings program currently has over 32,000 participants across 7,500 businesses with $43 million in total assets. States such as California, Oregon, Maryland, and Colorado have launched similar programs. Scanlon praised the passage of the latest bill enabling more employees to save for retirement.
“Over the past three years since MyCTSavings launched, I’ve toured hundreds of small businesses to hear from employers and employees. They’ve taught me a lot about how we can continue to strengthen this program and how much it means to business owners to provide their employees with the opportunity to save for retirement,” Scanlon said in a press release. “I am committed to the success of MyCTSavings by enrolling more employers and employees so that all Connecticut workers have the chance to enjoy the dignified retirement they deserve.”
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