LAST REVIEWED Nov 19 2021 12 MIN READ
By The Human Interest Team
Colorado’s Secure Savings pilot program is expected to go live in October 2022 as an automatic-enrollment, paycheck-deduction IRA.
New Mexico and Colorado have partnered to offer the nation’s first multi-state IRA program.
However, it’s unclear if Colorado will need to extend their launch timeline to coincide with New Mexico’s July 2024 launch target.
Program roll-out will be staggered, impacting all private sector businesses with 5+ employees that have been in business for at least 2 years.
Once the state’s savings program is implemented, nearly a million Colorado employees who don’t currently have access to a retirement savings plan at work will have an easier route to start saving. While the program start date is still to be determined, the state expects to begin implementation in October 2022, at which point participation would be automatic and mandatory for subject employers.
Although the program is still in the design phase, the Colorado Treasurer has already announced plans to team up with New Mexico to make accounts portable between the Colorado Secure Savings program and the New Mexico Work and Save IRA. The first-of-its-kind agreement between the two states could help preserve retirement savings for the thousands of people who move across the Colorado-New Mexico border every year.
Here’s what employers need to know about the Colorado Secure Savings Program.
Like 14 other states (and counting), Colorado will require employers to offer a retirement benefit to employees
Colorado has joined the ranks of states requiring a mandated retirement savings plan or enroll their eligible workers in a state-sponsored Roth Individual Retirement Account (IRA) plan. The Colorado Secure Savings Program (Senate Bill 20-200) was signed into law by Governor Jared Polis in July 2020.
Positive impact, especially for key groups: young and minority employees, lower-income earners, and small business employees
The American Retirement Association (ARA) estimates that 91,808 employers in the state of Colorado do not provide a retirement plan to their employees. Colorado’s Senate Bill 20-200, estimates that means more than 900,000 workers, or about 40% of working Coloradans, are without an employer-sponsored retirement plan, with young and minority workers more likely to lack access. According to the Senate Bill:
Young and minority workers: Nearly 50% of workers between the age of 25 and 29; 46% of African-American workers; and 59% of Latinx workers in Colorado lack access to a workplace retirement program.
Lower-wage workers: Similarly, the state’s lowest wage workers are also less likely to have access to such a savings program, including nearly 70% in the lowest income quintile.
Small business employers: Just 19% of small employers are able to offer a retirement plan, despite many wanting to do so.
Timeline and program details
The Colorado Secure Savings Program Board still has to determine most of the details of the plan, including final deadlines—although implementation of the program is slated to begin in October 2022. The group has looked at state-facilitated plans in Illinois, Oregon, and California, to see how other states have approached the task of creating a retirement savings plan.
A key feature of the Colorado Secure Savings Program is its decision to partner with New Mexico to offer the first-ever multi-state IRA program. Retirement portability helps prevent participants from cashing out critical retirement funds when faced with the need to liquidate and transfer money between accounts. While cashout leakage usually impacts people changing jobs, it also becomes a factor for state-facilitated IRA participants who move states. The decision to partner together could reduce costs and increase portability for individuals who move between the two states.
Employers and employees should stay tuned for updates as the Board fleshes out the implementation plan, but based on information obtained from the bill, here’s what we know so far:
Rollout: The roll-out will be staggered, ultimately affecting every private-sector business with five or more employees that has been in business for at least two years.
Exemptions: If you offer a 401(k) or other qualified retirement plan, including a legally compliant multiple employer plan (MEP), you are exempt from having to enroll in the Colorado Secure Savings Program.
Employers are exempt if they have sponsored during the last two years:
A qualified retirement plan under Internal Revenue Code Section 401(a), 401(k) or 403(a)
A 403(b) tax-sheltered annuity plan
A 457(b) deferred compensation plan
A simplified employee pension (SEP) plan
Does your Colorado business qualify for 401(k) tax credits?
Learn if starting a plan comes with tax incentives.
Employer Tax benefits for offering a retirement benefit
The state plans to establish grants to help defray costs and encourage small businesses — only those with five to 25 employees — to implement retirement savings plans. Grants will not exceed $300 for a single employer. In contrast, the tax benefits available for starting a 401(k) or other qualified retirement plan are a lot higher: With the SECURE Act, employers, including those with up to 100 employees, can qualify for up to $16,500 in tax benefits:
A tax credit for starting up a retirement plan: Your company could be eligible for the greater of: (1) $500, or (2) the lesser of: (a) $250 for each employee of the eligible employer who is not a non-highly compensated employee and who is eligible to participate in the eligible employer plan maintained by the eligible employer, or (b) $5,000. The credit applies for up to three years and the credit is 50% of the taxpayers ordinary and necessary eligible startup costs.
A tax credit for auto-enrolling employees: $1,500 total, or $500 per year for three years.
Employers found to be non-compliant will be fined up to $100 per eligible employee per year, not to exceed an aggregate amount of $5,000 in a calendar year. Enforcement of fines will not begin until at least one year after the program is established or one year after an employer is scheduled to enter the program, whichever is later.
Employer administrative burden with every pay period
As it is written so far, employers will have 14 days to send employees’ contributions to the program administrator (the board of the Colorado Secure Savings Program). The board will be establishing a process for withholding contributions from employees’ wages and remitting withheld amounts into their Colorado Secure Savings account. It’s not yet clear if the program will offer any integrations with payroll providers to facilitate the timely deposit of contributions.
The Colorado Secure Savings Program Board was created by legislation passed in 2019 to study the costs to the state of Coloradans’ retirement savings crisis and identify the best approach to increasing those savings as well as to administer the state program, choose investments, etc.
Very small businesses:
Employers with fewer than five employees may participate in the program if they want.
Who is affected: Employees who are 18 years of age or older, have been employed by a Colorado employer for at least 180 days, and who earn taxable wages in Colorado will be enrolled in their employer’s retirement plan, or the state IRA plan if their employer doesn’t offer a plan.
How much is taken from your paycheck: The employee’s state IRA will be funded through an automatic payroll deduction, starting with a 5% deferral rate.
Withdrawals: Employees will be allowed to withdraw money without penalty from their savings program account for at least the first two years of enrollment within the program.
Investment options: TBD
Income restrictions: Like any other Roth IRA account, the amount that you can contribute depends on your age, income, and marital status. In 2021 and 2022, you can make the maximum contribution ($6,000 if you’re under age 50 or $7,000 if you’re age 50+) provided that your income Modified Adjusted Gross Income is…
|Single||Married filing jointly|
|Modified Adjusted Gross Income (MAGI)||Less than $139,000||Less than $206,000|
What else do you need to know about Roth IRAs? Read more here
Colorado small businesses: Get ready
Now is the time for employers to start thinking about whether they want to offer their own program, or whether the state-facilitated IRA would best suit their needs and those of their employees.
Colorado businesses that will be adding retirement planning options and services for workers should be ready to communicate with employees and to launch the savings program sometime in 2022.
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How to get ready in 2022
1. Consider whether implementing a retirement plan makes sense. Rather than participating in the program, employers can choose from a number of other retirement plans to fulfill the requirement laid out in the Bill. Retirement benefit options include offering a 401(k), 403(b), SEP, SIMPLE, etc. You’ll need to determine what makes sense for your workforce, based on the flexibility, features, and tax benefits you’re looking for.
Read more about your options: Which is right for you? 401(k) vs. solo 401(k) vs. SIMPLE IRA vs. SEP-IRA
2. Ensure your payroll system is ready. Once the state program is announced, you can check to see if your payroll system will integrate with the state plan. Alternatively, you can look at other retirement plan providers for payroll integrations. We integrate with 100+ leading payroll providers, or another type of retirement plan, if you choose to opt out of the state program.
3. Remember that non-compliance can be costly. Failure to comply with program requirements can result in a fine of up to $100 per employee not to exceed $5,000 total in a year. While enforcement won’t go into effect until at least one year after the Secure Savings Program’s start date, you won’t want to find yourself in a bad situation.
Considering a retirement plan for your employees but not sure where to start? We can help.
The Human Interest Team
We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers.