Labor and Public Employees Committee

JOINT FAVORABLE REPORT

Bill No.:

HB-5591

Title:

AN ACT CREATING THE CONNECTICUT RETIREMENT SECURITY PROGRAM.

Vote Date:

3/10/2016

Vote Action:

Joint Favorable Substitute

PH Date:

3/8/2016

File No.:

SPONSORS OF BILL:

Labor and Public Employees Committee

Sen. Martin M. Looney, 11th Dist.

Rep. Susan M. Johnson, 49th Dist.

Rep. Kevin Ryan, 139th Dist.

Rep. Charlie L. Stallworth, 126th Dist.

REASONS FOR BILL:

To ensure that there is a retirement plan option for private sector employees in the state who do not have access to an employer-sponsored retirement plan other types of payroll deduction individual retirement account.

***Substitute Language (LCO# 3014): Lowers the default contribution rate from 6% to 3%

RESPONSE FROM ADMINISTRATION/AGENCY:

Senator Martin M. Looney, President Pro Tempore, 11th Senate District: Supports this bill as Social Security is inadequate in these modern times as a viable retirement option. The bill would provide that retirement option that is missing in the state today. The Connecticut Retirement Security Program will consist of voluntary contributions from employees which will be deposited into a professionally-managed retirement fund. Unlike certain employer-sponsored plans such as 401(k)s, employers will not bear any fiduciary responsibility and would not be required to pay administrative fees.

Senator Leonard Fasano, Senate Minority Leader, 34th Senate District: Opposes this bill as it would only add to the cost of state government by creating a new layer of bureaucracy in the State of Connecticut at a time when the taxpayer can ill afford such a program.

Representative Joe Aresimowicz, House Majority Leader, 30th Assembly District: Supports this bill as it is the result of nearly two years of research and study by the State of Connecticut's Retirement Security Board. This program is not an entitlement but people saving for their own retirement with their own earned income.

Senator Toni Boucher, 26th Senate District: Opposes this bill as the cost of implementation is too much for the state to afford given its current fiscal outlook. The State IRA plan would compete with private industry plans and also require businesses with more than five employees to automatically enroll their employees. The businesses would have to opt-out of the program, rather than opt in.

Denise L. Nappier, Treasurer, State of Connecticut: Supports this bill, saying in her testimony that the plan is to enroll large businesses first; these businesses already have robust payroll systems in place that will allow implementation of this new program without additional expense. Subsequently, a portion of the fees generated would be used to help defray the costs incurred by small businesses to set up automatic payroll deduction – their only potential real cost associated with the retirement security program. In addition, businesses would have no obligation to provide a match.

Kevin Lembo, Comptroller, State of Connecticut: Supports this bill, saying in his testimony that the proposed program would consist of Individual Retirement Accounts (IRA) and would not require that participating employers contribute to the program, only that they provide a payroll option for employees to contribute. The program would only apply to businesses with five or more employees that do not already offer a 401K or any other workplace-based retirement savings option to all of their employees. Employee participation in the program would be voluntary, in that they would be automatically enrolled at a default contribution rate but could opt out or change their contribution at any time.

Scott D. Jackson, Commissioner, Connecticut Department of Labor: Opposes this bill as written. It isn't feasible for the Department to add to the state workforce when the Department doesn't have the resources available to implement the bill as written.

Julia Evans Starr, Executive Director, Connecticut Legislative Commission on Aging: Supports this bill as between 2010 and 2030, Connecticut's population of adults age 65 and older will increase by 57%. At least 20% of almost every town's population in Connecticut will be 65 years of age or older by 2025, with some towns exceeding 40%. Presently, Connecticut is the 7th oldest state in the nation, has the 3rd longest-lived constituency and is home to more than 1 million baby boomers.

Subira Gordon, Legislative Analyst , African American Affairs Commission: Supports this bill as it is essential for African Americans because only 59% take advantage of retirement programs at work in CT. What it means that a large percentage will not be prepared financially for retirement. This bill takes a small percentage of an individual's paycheck to help them prepare for their golden years without having to rely solely on social security dollars which are not enough to sustain a single person.

NATURE AND SOURCES OF SUPPORT:

Amanda Ballantyne, National Director, Main Street Alliance: Supports this bill as a 2012 study by the U.S. Small Business Administration Office of Advocacy found that business owners are “significantly less likely to hold retirement assets than private sector wage and salary workers,” and that “owners of smaller businesses with fewer than 25 employees are significantly less likely to invest in retirement assets and have lower amounts of retirement assets than owner of larger firms.”

Andrew J. Remo, American Retirement Association: Supports this bill as the bill would allow early access to retirement and would create a system that would make the retirement options that benefit both employer and employee at no additional cost.

Erica Dean, Policy Analyst, Connecticut Association for Human Services: Supports this bill as in 2013, 50% of workers between the ages of 25 and 64 were not covered by an employer-sponsored retirement plan. This trend poses a serious threat to currently employed individuals' future ability to be financially sound once they retire. Even more critical is that those in the bottom 25% of the income distribution will be forced to depend on Social Security and have little to no income streaming from personal retirement plans.

Kate Kleman, Vice President, American Counsel of Life Insurers: Supports this bill as it would be similar to the bill that was implemented in Washington State that would be similar in scope and participation and is a remarkable success in that state. The Washington bill is attached to their Testimony.

Laura Taylor, Owner, Artisan Soul Gallery & Market: Supports this bill, as a prospective employer she believes that offering a good retirement option available to every employee is important and thinks that the retirement board findings should be implemented as suggested.

Lindsay Ferrell, Connecticut Director, Working Families Organization: Supports this bill as the lack of a viable retirement option is disproportionally effecting those without means and setting them up for a lifetime of poverty in working and in retirement.

Lori J. Pelletier, President, Connecticut AFL-CIO: Strongly supports this bill as the bill would open up opportunities for stable retirement funds that currently do not exist in abundance for those in the private sector.

Martin Cabrera Jr., Chief Executive Officer, Cabrera Capital Markets Inc.: Supports this bill as a strong retirement is a secure retirement and adding that layer of security for the roughly 94,000 Hispanic immigrants would be nothing but a benefit.

Martin Noven, Senior Director for Government Markets, TIAA: Supports this bill as The Connecticut Retirement Security Program (“Program”) could help close the retirement readiness gap for hundreds of thousands of Connecticut workers. The Program is very well-designed, incorporating a number of industry best practices, including mandatory employer participation, automatic employee enrollment with the opportunity to opt-out, an appropriate default contribution rate, a focus on lifetime income, a long-term outlook, and the potential use of electronic communications.

Mary Moninger Elia, Secretary, Connecticut Alliance for Retired Americans: Supports this bill as the traditional investments and retirement plans proved disastrous during the 2008 financial collapse and a state insured plan would offer the security and stability the private sector cannot.

National Association of Social Workers: Supports this bill as those without a pension plan trying to find a safe investment plan without high fees is challenging. Adding that it is also difficult to know if your investments are being well placed, meanwhile simply putting savings into a bank account or certificate of deposit gives almost no return on the funds. A public retirement plan on the other hand will offer a secure way to save for retirement and offers each investor the added value of a large, pooled investment fund.

Sarah Mysiewicz Gill, Legislative Representative, AARP: Supports this bill as it stands today, one out of two households are at risk of having a financially insecure retirement. Financial insecurity does not mean missing out on a retirement of leisure or travel, but rather that middle-class households will be unable to afford food, medicine, and utilities. Adding that

According to the National Institute on Retirement Security, the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.

Stacy Zimmerman, SEIU Connecticut State Council: Supports this bill with the rest of the Connecticut SEIU.

Tom Swan, Executive Director Connecticut Citizen Action Group: Supports this bill as in preparing this testimony he decided to look at what some other organizations were saying. Noting that it was not a surprise you to hear that CBIA does not let facts get in the way of their shilling for some of the greediest industries in Connecticut. CBIA was wrong in every aspect of their testimony, outlining their falsehoods as follows.

First point –that the plan claims “employers would be forced to sell plan” – false – employers are required to offer a voluntary payroll deduction option for retirement accounts for their employees. It could be this plan or another of the employer's choosing – there is no selling. A second claim is that the plan was projected to “hit taxpayers upwards of $2 million for additional state employees and operations.” All startup costs are to be assumed by whoever is chosen to administer the program. Furthermore, they claim taxpayers will “be on the hook” if this plan fails. Again false. They imply the fee for early withdrawal is unique to this retirement plan.

Connecticut Residents who Support HB-5591:

William T. Kosturko Lawrence Wellspeak Natalie Lucia John Budd

Thomas Sennett Albert Smith Thomas OConnor Roz Hill

Robert Cave Michael Ray Scott Wakeman Garrett Berry

Jean Horn Caron Geoffrey Muggleton James Newman Elaine Werner

Flora Bertelli Karen Andrew Yolanda Castillo Maureen FitzPatrick

Barbara Schroder Maria Ortiz James Conlin

Dennis Withers Bruce Schumacher Robert Hull Sr

NATURE AND SOURCES OF OPPOSITION:

Wayne Pesce, President, Connecticut Food Association: Opposes this bill as it has a projected a multi-million dollar startup cost, plus potentially massive loss of tax revenue to the state and requires CT businesses to sell a retirement plan they know nothing about which also requires participants to enroll in a plan that the state designs, yet the state denies any fiduciary liability for participant's contributions to the plan.

Dallas Dodge, Counsel, Insurance Association of Connecticut (IAC): There is a question of whether a state-run plan is even legal under federal law, and there is a very real risk that a court would rule that the plan is preempted by the federal Employee Retirement Income Security Investment Act (“ERISA”). Erisa is a federal law that sets minimum standards for most employee sponsored pension and retirement plans, and it explicitly preempts state laws relating to private-sector plans.

David T. Bellaire, Executive Vice President & General Counsel, Financial Services Institute: Opposes this bill as their financial advisors provide group retirement plans to private employers and individual plans to employees who lack access to an employer provided retirement plan. These advisors work closely with clients to develop individually-tailored retirement plans that are much better suited to achieving the client's retirement goals than a “one size fits all” approach that a state run program would create.

Eric W. Gjede, Assistant Counsel, Connecticut Business and Industry Association: Opposes this bill saying that the startup costs of at least $2 million, with continuing operational expenses thereafter. However, there are potentially many more significant financial risks once the plan goes into effect. For example, studies conducted on the proposed plan regarding its solvency presume a low participant opt out rate, and that participants will stick with the default contribution rate of 6% of their wages. Both of these presumptions are necessary in order to reach the plan's target solvency goal of $1 billion and to ensure low plan-related fees.

Kim Chamberlain, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association: The private market for retirement savings in the state which is highly competitive and open makes a costly state option for retirement services unnecessary.

Marshall Collins, Representing the Milford, Northwest, Danbury Chambers of Commerce, CT Lumber Dealers Association, Coalition of Property Owners, Messenger Couriers Association: Creation of this program would automatically enroll private sector employees in an expensive state run program. With the massive budget deficits which Connecticut is facing, now is not the time to start expensive new programs.

Middlesex County Chamber of Commerce: The proposed bill is counter to the goals of our highlighted in our 2016 Public Policy Agenda which encouraged the state legislature to maintain a balanced and sustainable state budget that addresses long term pension/post retirement obligations and that supports critical services without raising taxes and or imposing onerous paid leave or other employer benefit mandates such as a state administered plan – on Connecticut businesses.

National Federation of Independent Business: Opposes this bill, believing it to be a major step in the wrong direction as there are concerns about operational questions and potential liability issues the legislation raises for small employers. This mandate will also require a host of educational as well as record keeping requirements for every employee, and with that, comes the risk of significant legal and/or administrative challenges for employers.

Patrick McGloin, Vice President of Government Relations and Public Policy, MetroHartford Alliance: We are opposed to the proposed legislation. Connecticut is faced with a budget shortfall of as much as $266 million in the current fiscal year. As our state struggles with continued massive budget deficits and moderate economic growth, we cannot overstate the importance of sending a pro-growth message to businesses considering investing in or relocating to our state.

Suzanne Bates, Policy Director, Yankee Institute for Public Policy:

Working men and women would be forced into the state-run retirement plan, which means they would see a percent of their paychecks disappear, unless they went through a process to opt-out. Adding further that there is no choice for the consumer in this plan and it would force businesses to compete for the State of Connecticut.

Reported by: Joshua F. Quintana

Date: 3/30/16