When Pete Turner, founder of the fresh-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, even if it’s not offered at work.
Spoiler: Yes, there is a way.
“If we, as a state, can implement a system that’s easy for employers and really easy for employees, and you know nothing is ever perfect and easy, but we all need to put a little something into what we believe in,” said Turner, who would consider joining a state plan to offload the administration to someone else. “I do believe every single working American needs to do this right now because we’re all seeing the results of not doing it.”
On Friday, 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.
Read the state’s plan: Recommendations to Increase Retirement Savings in Colorado
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 of 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 but could opt in.
Kameron Haake, 23, said many people in her age group either 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. “Having graduated and quickly realizing that I don’t have any means of retirement, and neither does anyone else working at my age because it’s mostly contract work, I decided to get involved.”
Voluntary vs. mandate
After 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. There’s man hours involved. We want to be sure there’s some sort of reimbursement,” 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, pointed out Roger Hays, president of Premier Services in Englewood, who helps small businesses with their HR duties and benefits, including retirement options. 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.
“For the state of Colorado to try to do this right now, it just isn’t necessary anymore because Congress has actually finally stepped into the fray and has mandated businesses go out to the free market and purchase or contract 401(k) programs for their employees,” Hays said.
Some small business owners said they would gladly participate because setting up their own is time consuming and potentially costly.
“One of my biggest challenges as a business owner is competing with other much larger companies to get talented designers and marketers,” said Chad Coleman, owner of Denver-based marketing agency Herosmyth. “Really, any benefit I can offer to prospective employees is very helpful in not only attracting them but retaining them. I’ve lost several employees because of the benefits they can get at a larger company.”
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.
Young said he wants to help.
“We’ve made it pretty clear we want to work with businesses to minimize the impact to their processes,” Young said. “The goal at the end of the day is increased savings. And we know that the more savers we get in there, the lower fees that we have to pay to these private sector, third-party administrators and also the investment fund managers that are actually investing this money and getting a good return. The more capital they have to work with, the lower fees are.”
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.
“We knew there was a shortage of savings going on. We just didn’t know the enormity of that problem and the number of people that didn’t have access to a good workplace savings program,” Young said. “The board decided on this auto-enroll IRA plan but they also really think that financial education is an important piece of that. So it’s a part of a bigger effort that we’re looking at as part of the Office of Financial Empowerment.”
Results are already in
State 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.
In an interview with The Colorado Sun in January, Oregon Treasurer Tobias Read said the state stepped up because people just weren’t doing it, even though there are options available in the open market.
“These are people who have never saved before. They’re generally working in low-wage jobs, on average (contributing) a little over $100 a month that they’re saving. And it has, even beyond those numerical measures, a real impact if people are talking about seeing a future for themselves,” Read said.
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.
“The goal is to make the process simple, clear, and easy,” Krifka said in an email. “During each employer registration phase, the state will monitor compliance, reach out to employers, and provide technical assistance to help them meet deadlines and requirements.”
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.
“While these data are very preliminary, these accounts and account balances represent savings for retirement that almost certainly would not have been accumulated in the absence of an Auto IRA program,” the report says.
What Colorado’s plan could look like
Details 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.
Sun reporter John Frank contributed to this story.