OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http://www.cga.ct.gov/ofa

SB-249

AN ACT PROMOTING RETIREMENT SAVINGS.


OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 15 $

FY 16 $

Revenue Serv., Dept.

GF - Potential Revenue Loss

66.1 million to 165.2 million

66.1 million to 165.2 million

Labor Dept.

GF - Potential Cost

Zero to 75,000

Zero to 75,000

State Comptroller - Fringe Benefits1

GF - Potential Cost

Zero to 27,495

Zero to 27,495

Comptroller

GF - Potential Cost

Up to 2.4 million

Up to 8 million

Treasurer

Connecticut Retirement Security Trust Fund - Revenue Gain

None

See Below

Municipal Impact: None

Explanation

The bill results in fiscal impacts to various state agencies as indicated below.

Retirement Plan Administrative Costs

The bill establishes the Connecticut Retirement Security Trust Fund Board to administer a retirement plan for employees in the state. The Board is part of the Office of the State Comptroller (OSC) for administrative purposes. Funding for the market-feasibility study required in the bill and the start-up costs for the plan are not specified. However, if OSC is responsible for these expenses, the provisions of the bill are anticipated to result in a cost to OSC in FY 15 of up to $2.4 million for the market feasibility study ($1 to $2 million) and initial start-up costs for the board, including staffing ($400,000 for staff and supplies).

The financing for other start-up costs (marketing, additional staff to implement the plan and enrollment, consultants for plan designs, investment options and reporting) are not specified. If OSC is responsible for providing these resources, there will be a one-time additional cost to OSC of between $6 and $8 million. It is assumed that ongoing costs of the plan, including staff and consultants, will be paid for out of the resources of the trust fund.

It is unclear whether members of the Board would be reimbursed for travel expenses for meetings that occur prior to the establishment of the Connecticut Retirement Security Trust Fund. The source of funding for potential board expenses not otherwise enumerated is also unspecified.

Enforcement

Section 14 allows eligible employees who are prohibited by covered employers, without good cause, from participating in the plan to file a complaint with the Labor Commissioner, who may hold a hearing regarding the potential violation. Assuming the plan established under the bill is enacted, this results in a potential cost to the Department of Labor (DOL).

The degree of potential costs incurred by DOL depends on the number of complaints filed and the resources required to handle them. To the extent that any such complaints are received and investigated, there is a cost of zero to $102,495 annually. The higher estimate assumes the hiring of a Staff Attorney and associated salary ($75,000) and fringe costs ($27,495). The timing of the potential cost is dependent on the timing of the enactment of the plan established under the bill.

There is no impact to the Judicial Department from allowing any aggrieved party to appeal a commissioner's decision under the Uniform Administrative Procedure Act to the Superior Court. The number of appeals is not anticipated to be great enough to need additional resources. The court system disposes of over 400,000 cases annually.

State Income Tax

Section 17 specifies that the plan established under the bill cannot be open for enrollment until the retirement plan's Individual Retirement Accounts qualify for favorable tax treatment under the Internal Revenue Code. It is unclear how such qualification would be established, and whether that qualification would result in income being excluded from adjusted gross income (AGI) for state income tax purposes. To the extent this qualification is established and contributions to the plan are excluded from the state income tax, this results in a potential revenue loss of $66.1 million - $165.2 million annually.2 The revenue loss could be lower to the extent that covered employees decide not to participate in the plan.

Fund Management

The Office of the State Treasurer would hold the resources of the fund in a separate account that is invested, which is not anticipated to result in a fiscal impact to the agency because the bill specifies that the operational, administrative and investment costs of the fund would be paid by its assets.

There is a revenue gain to the Connecticut Retirement Security Trust Fund from investment earnings.

The Out Years

There is not anticipated to be an ongoing cost impact to the state, as expenses of the board and the retirement plan are anticipated to be supported by the resources of the fund.

The annualized ongoing revenue impact identified above would continue into the future subject to inflation.

1 The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller. The estimated active employee fringe benefit cost associated with most personnel changes is 36.66% of payroll in FY 15 and FY 16.

2 The lower estimate assumes the minimum 2.0% default contribution rate and the higher estimate assumes the maximum 5.0% default contribution rate.