OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 ↓ (860) 240-0200

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

sHB-5591

AN ACT CREATING THE CONNECTICUT RETIREMENT SECURITY PROGRAM.

OFA Fiscal Note

State Impact:

Note: GF=General Fund

Municipal Impact: None

Explanation

Explanation

The bill establishes the Connecticut Retirement Security Authority (CRSA), a quasi-public state agency governed by a board of directors, which may be supported from administrative fees charged to participating members. The authority is tasked with establishing and implementing the Connecticut Retirement Security Program (CRSP).

The bill specifies that the retirement accounts established under the CRSP be either Roth (default) or traditional IRA, both of which offer tax-advantaged status under federal and state income tax law. Based on the assumptions regarding opt-out rates and covered population included in the market feasibility study of the CRSP, this results in a potential annualized General Fund revenue loss of zero to $10 million beginning as early as FY 17 (timing is dependent upon when the program is actually implemented). To the extent all plan participants utilize the default Roth IRA option; there is no revenue impact through FY 21.¹ To the extent all plan participants utilize the traditional IRA option; there is an estimated annualized revenue loss of up to $10 million due to the immediate deductibility of CRSP contributions against the Personal Income Tax.

The bill is not anticipated to result in a cost to the state in general from the CRSA/CRSP as (1) the authority is not considered a state agency and therefore its employees are not considered state employees, (2) the state is not liable for benefits payable to account holders, (3) the state and municipalities are not considered qualified employers and therefore not subject to the participation requirements of the bill, and (4) any funds borrowed by the authority are to be borrowed in the name of the authority and payable from revenues of the authority. The source of working capital funds and other necessary start-up costs are not specified in the bill. The estimated start-up cost for the CRSA/CRSP is estimated to be at least $500,000 to $1 million, and a commiserate amount annually thereafter to run the CRSA.² At a 3% contribution rate, it is anticipated the CRSA/CRSP may be financially self-sustaining three to four years after the program starts. Therefore, any start-up capital may be repaid within five to eight years after the program is implemented.³ There may be cost to the state to the extent that the state provides the start-up funds for the program. However, the bill does not require the state to participate financially in the program.

The provisions of the bill relating to the State Treasurer, Attorney General, State Comptroller and Auditors of Public Accounts do not result in a fiscal impact to those state agencies as the bill's provisions are within the agencies' scope of duties. There is not anticipated to be a cost to the Department of Labor (DOL) as the bill does not establish reporting requirements or another relationship between the department and participating employers.

The Out Years

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

¹ Contributions to Roth IRAs are not deductible for income tax purposes at the time the contribution is made, but earnings and qualified withdrawals are not taxed. Generally, earnings withdrawn within five tax years of the contribution are subject to penalty and taxation.

² The estimate assumes the authority is physically within an existing state agency. To the extent the authority procures separate office space there will be an additional cost. (Connecticut Retirement Security Board: Market Feasibility Study, January 1, 2016)

³ Ibid., 1, p. 37