Colorado retirement plan launches for those without one, including self-employed, gig and farm workers

A new program for Colorado workers who don’t have access to a 401(k) or other retirement plan at their job has officially launched after years in the making. 

The Colorado SecureSavings program was designed to help nearly 1 million workers with no retirement plan to start one at no cost to the employer. Companies with existing plans must be exempted by the state. Others with at least five employees must enroll in what state Department of Treasury officials called a “10- to 15-minute” process. 

“This is about how (to help workers in) Colorado sustainably retire with dignity on their own terms,” state Treasurer Dave Young said. “Instead of being tied to an employer, like a traditional retirement plan, the Colorado SecureSavings Program travels with the employee (to a new job). … This allows small- and medium-sized businesses a broader compensation package.”

Members of the Colorado Secure Savings Plan Board included (L to R) Colorado State Treasurer Dave Young, Kameron Haake and Pete Turner, founder of Illegal Pete’s, on Feb. 26, 2020 after a board meeting. The board spent 10 months studying whether Colorado should adopt a retirement plan for workers who don’t already have one. (Tamara Chuang, The Colorado Sun)

SecureSavings essentially sets up a Roth Individual Retirement Account for the worker and is open to all-sized businesses, including the self-employed, gig workers and farm laborers. After an employer enrolls, their workers are added to the portal so they can then choose to opt out or stick with it. After 30 days, 5% of a worker’s paycheck after taxes is deducted and placed into the retirement account. Vestwell Holdings manages the program for the state while BlackRock and State Street Global Advisors manage the investments.

The first notices to employers about the program’s launch were sent Jan. 11. So far 129 employers have enrolled while 226 were ruled exempt because they either had an existing plan, had fewer than five employees or aren’t defined as employers under the statute, Sheena Kadi, communications director for the Department of Treasury, said in an email.

“Our data shows that approximately 115,000 businesses fall under the requirements, and will either need to enroll or facilitate a private option. We have already trimmed our list down based on who we know has an existing plan, and will be sending notices to about 85,000 employers at multiple points throughout the year,” Kadi said.

On Wednesday, a treasurer’s office news conference featured two employers involved in the 25-employer pilot program, which started in October. They said their workers welcomed it.

“We had looked at a 401(k) program for our staff for years and every time I asked for bids, the bids came back incredibly expensive — thousands to enroll in a program and thousands every year to administer the program. And that wasn’t possible for us,” said Chrissy Strowmatt, general manager for Blue Bonnet Restaurant in Denver. “We wanted to be part of the pilot so we could get in as quickly as possible. … Most of my employees are long-term employees and have been needing something like this for a very long time.”

Colorado SecureSavings Program

What is it: A retirement plan if you don’t already have one

How does it work: Employers enroll with the state and add all employees. Workers have 30 days to opt out (they can do this at any time) before 5% of their paycheck becomes regularly deducted and placed into a Roth IRA. 

For companies: Employers must register the business, add all employees, update their payroll system to regularly submit a portion of each worker’s check into the program. Employers cannot match the worker’s contribution.

For workers: Employees can adjust the deduction, choose investments or opt out in the SecureSavings portal. Money can be withdrawn at any time though any earnings face early-withdrawal fees and taxes. 

Benefits: Automatic savings for retirement and the plan moves with the worker if they change jobs in Colorado. There are no fees for employers beyond time and effort to set it up. The administration fee for worker plans is capped at 1%.

Deadline: Employers with 50 or more employees must register by March 15, with staggered deadlines for companies with fewer workers. June 30 is the final deadline. Employers who already offer a retirement plan or have fewer than five workers can opt out.

More details:

Lee Wood, co-owner of Wood’s High Mountain Distillery in Salida, said the setup and administration was simple for such a major benefit to his eight-person staff.

“When you make this available and with this subtle change of saying it’s an opt out rather than an opt in, what a difference it makes in terms of our employees willingness ability to participate,” Wood said. “Of the eight employees who are taking part of the program, we’ve had some that have upped their percentage withholding.” 

Workers can adjust the deduction and pick their investments. They can also stop contributing or withdraw the money at any time. But only the money added from their paychecks can be withdrawn tax free and without penalty. Withdrawals from the interest earned on the account would face the normal early withdrawal fees of up to 10% plus applicable taxes.

The program has been in the works since at least 2019 when state legislators passed a bill to research the need for a statewide retirement program. The ensuing report found that nearly 1 million private sector employees in Colorado didn’t have access to a retirement plan mainly because their employers didn’t offer one. And the best way to get them in one was to make it auto enrollment. While it would take funds to set up a state program, the report forecasted that it would reach breakeven for the state in four years. The state legislature passed a law in 2020 to implement the program and limited fees to administer the program to 1%.

“For a lot of people, this is going to be a life-changing bill,” said Kerry Donovan, a former state senator from Vail who was also the bill’s prime sponsor. “We know by looking at national studies and Colorado trends that many people have less than a year’s worth of savings in their account. And in other nonprofit work I do, I see people that have savings of $60, of $45. … This is a game changer. People can set aside that 2% or 3% or more if they want and have confidence that they will have professionals managing that money in a smart and responsible way.”