When Pete Turner, founder of burrito chain Illegal Pete’s, decided to offer 401(k) plans to employees a few years ago, it was tedious and time consuming. A staffer now spends 60 hours a year managing the retirement program.
But it’s worth it to Turner, who wanted to provide more for his workers other than a steady job. The benefit helped retain workers and give them future security. That’s why he jumped at the chance to help other companies and the state figure out whether there’s a simpler way to get all employees in Colorado saving for retirement.
“I do believe every single working American needs to do this right now because we’re all seeing the results of not doing it,” he said.
The report from the governor-appointed committee Turner has served on since May heads to the state legislature to explain how Colorado can make a state-facilitated retirement plan happen. It mentions that the state could spend $10 billion over the next 15 years to help older people who didn’t save enough for retirement.
A state plan would involve some costs plus extra steps for employers. But ultimately, the state would get someone else to run the program. Workers would see part of their paychecks automatically deposited into a Roth IRA. A bill, already causing concern among small businesses owners, is expected to be introduced in March.
Colorado has been looking at some sort of statewide retirement plan for years, but lawmakers last year passed a bill to start the research needed to make it happen. Armed with an $800,000 budget, the Colorado Secure Savings Plan Board – which used just $398,300 of the funds – found that nearly half the 2.4 million private-sector workers in Colorado are left out, mainly because their employers don’t offer a plan, or at least don’t offer it to them. Many are in retail and service jobs.
Employers who offer retirement plans or who employ five or fewer workers wouldn’t be required to participate.
Kameron Haake, 23, said many people in her age group aren’t thinking of retirement or don’t know how to start. She volunteered for the board.
“You’re told from a very young age that you need to start saving as soon as you graduate. But unfortunately (401(k) plans are) not offered in a lot of places, and so I was like, ‘How am I going to save if I work for a small business employer that doesn’t have access to those retirement plans?’” said Haake, who now works as a medical assistant at a practice that offers her a retirement plan.
Voluntary vs. madateAfter looking at the options, the board concluded that the most efficient way to get the remaining 939,000 Coloradans to save for retirement is automatic enrollment. But to do that, the state must rely on the employer to connect workers to the system.
And that’s got Tony Gagliardi, state director of NFIB Colorado, concerned for the 7,000 small businesses he represents.
“There’s costs associated with just setting up the plan,” Gagliardi said. “But the one thing that jumps out, and one I have stressed repeatedly since this issue has been debated, the one-size-fits-all retirement plan is not suitable for everyone.”
There’s also an ongoing national effort. In December, President Donald Trump signed Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act, into law. It incentivizes employers with tax credits to automatically enroll workers in retirement plans. Opponents argue a state plan isn’t necessary.
If you ask Matt Rosenberg, president of RoseCap Financial Advisors in Grand Junction, most people support saving for retirement. But options are already available without the government getting involved.
“Generally speaking, retirement plans are a good thing and trying to incentivize people to save for retirement on their own is good,” Rosenberg said. “But when you have public institutions taking this on, they start crowding out the private sector, which is already doing this.”
But a main qualm is that some consider this yet another mandate for small businesses.
We’ve got a lot of bills in the legislature this year that are mandating things for employers. And this would be stacked on top of yet one more mandate that you would have to participate in,” Hays said. “That’s where it becomes a bit onerous just in trying to run your business.”
State Treasurer Dave Young acknowledged an auto-enroll program would be most burdensome to small businesses who don’t have an HR person or don’t use an automated payroll system. Reimbursing employers is a possibility, but that would add to the cost of the program, he said.
If the program moves forward, the state could pay upfront and ongoing costs of around $730,000 a year to get it started, hire an administrator and work with employers to get workers enrolled. It would also set up a financial education program. A fee limited to 1% of worker contributions would help fund the program’s administration. The report forecasts that the program would reach breakeven by year four for the state and year nine for the administrator, though it could operate at a loss of up to $2.4 million a year as it ramps up.
The ‘cost of doing nothing’Others feel that if the state doesn’t do something, Colorado faces an expensive future caring for aging adults who didn’t save enough for retirement.
It’s the cost of doing nothing, said Bob Murphy, state director of AARP Colorado. On average, middle-class, working-age families with incomes in the 50th percentile have saved just $5,000 for retirement. And, as previously reported in The Colorado Sun, the state is getting older.
The growing number of people who don’t save enough for retirement could qualify for low-income subsidies, which translates to a larger expense for the state. This year, state-funded assistance to support the elderly population is expected to be $1.26 billion. If current savings levels continue, the state expense is expected to double to $2.59 billion by 2035. The cumulative impact in the next 15 years would be $10 billion, according to the committee report.
“A projected $10 billion in fiscal impact to the state over the next 15 years as a result of insufficient retirement savings certainly is an eye-opener,” Murphy said. “In summary, after nearly six years of AARP Colorado working on the Colorado Secure Savings Plan, we believe this report points out not just the need, but the urgency to get this bill passed, so nearly all Colorado workers have the opportunity to save for a more comfortable retirement.”
Young, Colorado’s Treasurer, said the reason for auto enrollment is simple: Most people don’t do it, though they can voluntarily set up their own retirement account.
Results are already inState programs are getting more attention, with Oregon, California and Illinois starting their own in recent years.
It’s a promising experiment with 60-70% of participants sticking with contributing with plans, said John Scott, director of retirement savings for The Pew Charitable Trusts. But it’s still early and more research is needed to see if it’s working, he said.
“But we still don’t really understand what kind of impact this is having for employees. A lot of these workers are taking a 5% reduction in pay to save for the future. How does that affect them in the present? That’s something we’re interested in,” he said.
The Colorado committee spent nearly all of the $398,300 on consultants – Corona Insights, Center for Retirement Research at Boston College and Econsult Solutions – who analyzed best scenarios based on programs in other states. The conclusion? The plan achieves the greatest retirement savings if employees are automatically enrolled.
The state of Washington didn’t go the auto-enroll route. It launched its Retirement Marketplace in 2018 by creating a portal to shop for plans. But the state placed no requirements on employers or workers. A Forbes article at the time called it the “we-hope-you-sign-up” approach. So far, the state has only about 200 participants, or fewer than 1% of those who are eligible, according to the committee report.
But over in Oregon, the state’s OregonSaves program counts 64,720 participants who have saved up $46.2 million, said Kasey Krifka, engagement director for the Oregon Treasury Savings Network.
Oregon is the poster child for the movement. The state requires employers with five workers or more to enroll. Employees contribute to their own retirement accounts through automatic payroll deductions that default to 5% of their pay. (It’s all adjustable for the worker, who can also put the stop deductions at any time.) Participants save an average of $117 a month and 70% stuck with the program. The program is now offered to all Oregonians with earned income.
Not all employers have signed up, and there is a penalty – up to $100 per eligible employee. But the state is more focused on getting more people involved.
Auto enrollment isn’t a panacea, though. The Boston College report found that the three states with automatic enrollment also saw 30% to 40% of participants drop out. Possible explanations are that the employees moved on to other companies or the state had invalid contact information.
However, the two thirds who stuck with the programs now have a retirement account. Early savers In Oregon have since saved $2,000 on average. One year in, Illinois has 42,000 funded accounts with $11 million saved. In less than a year, California has nearly 4,000 accounts with $1.4 million saved.
What the plan could look likeDetails of Colorado’s plan won’t be solid until a bill is passed and a new committee is formed to create the rules. But after nearly a year’s worth of research, the Colorado Secure Savings Plan Board had several recommendations for a Colorado Auto IRA program:
Require automatic payroll deductions for employees, starting with 5% sent to their retirement account. Workers can adjust their contribution or opt out.Provide a low-risk investment portfolio, plus target date funds so workers can easily pick a plan based on their age.Limit fees to 1%. Fees would pay the administrator to run the program.Exempt employers who already offer a retirement plan or employ five or fewer workers. Government is also excluded.Require employers to provide information about the program to workers, execute payroll deductions and add new employees to the program as they become eligible. Employers are not plan sponsors so they are not fiduciaries or responsible for monitoring the plans. They also won’t be required to contribute to employee plans. Make the account portable so a worker who leaves a company can take the account with them. Offer opt-in to the program for contract workers, self-employed workers or any other employee not covered by an employer’s retirement plan.Include a financial education component.Ensure program is cash-flow positive within five years.Start the plan within 24 months of passing the bill. The Colorado Sun is a reader-supported, journalist-owned news outlet exploring issues of statewide interest. Sign up for a newsletter and read more at coloradosun.com.