Overview of the Connecticut Retirement Security Program

By Leonard G. Brown, FSA, MAAA, Pension Benefit Consultants, Inc.
Member, CTCPA Employee Benefit Plans Interest Group


In 2016, the Connecticut legislature enacted Public Act No. 16-29, an Act Creating the Connecticut Retirement Security Program (the “Program”). The Act, as amended by Public Act 16-3 (codified as C.G.S. §31-410 to 31-429), is intended to help private sector employees in the state who do not have access to a workplace based retirement plan save for retirement. This is accomplished by establishing and maintaining an individual retirement account for each Program participant. Employers without a workplace retirement plan can make automatic or elective payroll reduction contributions from their employees’ regular payroll and remit the funds to the Program. The Program assets will be held in trust or custodial accounts meeting the requirements for individual retirement accounts.

While the law provides for a statutory effective date of January 1, 2018, the Connecticut Retirement Security Authority (CRSA) has determined that immediate implementation of the Program is not feasible. The CRSA board of directors have decided that a realistic project deadline, including a projected implementation date, will be announced later this year (2018).

Which employers doing business in the state of Connecticut will need to cover their employees under the Program?
Private sector employers, whether for-profit or not-for-profit, with five or more employees, that do not provide a workplace-based retirement plan will need to cover their employees under Program.

Which employees are counted for purposes of determining if an employer has five employees?
All employees, as of October 1st of the preceding calendar year, who:

  • perform services in Connecticut, and
  • received at least $5,000 of taxable wages in that preceding calendar year.

What types of retirement plans are “workplace-based retirement plans” that would exempt an employer from needing to cover their employees under the Program?
Exempt workplace-based retirement plans are defined in §219(g)(5) of the Internal Revenue Code, and include: 

  • A tax-qualified retirement plan, such as a 401(k) plan, employer profit sharing plan, defined benefit plan, etc.
  • A Section 403(b) tax sheltered annuity plan
  • A SEP-IRA
  • A SIMPLE-IRA

If an employer sponsors a workplace-based retirement plan but has employees who are not eligible to participate because they have not yet met the plan eligibility requirements, does the employer need to be cover them under the Program?
No.

If an employer sponsors a workplace-based retirement plan that is closed to new participants and no contributions are made to such plan, do the employees need to be covered under the Program?
Yes, but not before the first day of the calendar year following the calendar year the retirement plan was closed to new entrants and contributions to the plan ceased.

Will employers be required to make contributions to the Program in addition to the participant payroll reduction contributions or collect fees from the participants?
No.

Are employers permitted to contribute to the Program?
No. Only participant payroll reduction contributions, and potentially rollover contributions, are permitted.

Are participant contributions to the Program made to a traditional IRA or a Roth IRA?
All contributions are made to a Roth IRA as that term is defined in Internal Revenue Code Section 408A.

How much may a participant contribute to the Program?
A participant may contribute any whole percentage of compensation or a specific dollar amount up to the annual IRS dollar limit on contributions ($5,500 in 2018; $6,500 if age 50 or older). Absent an affirmative election by the participant, a contribution of 3% of pay must be automatically deducted from the participant’s paycheck and contributed to the Program. A participant who does not wish to contribute to the Program must complete an enrollment form and elect to contribute 0% of pay.

By what date must the employer remit participant contributions to the Program?
Contributions must be remitted as soon as administratively feasible, but not later than the tenth business day following the date upon which contributions were withheld from the participant’s paycheck.

How will participant contributions be invested?
A participant’s account will be invested in (i) an age-appropriate target date fund, or (ii) such other investment vehicle as determined by the CRSA. A lifetime income investment option may be added if feasible and cost effective.

How frequently will participants receive reports on the amounts held in their accounts?
At least quarterly. Participants will receive a statement including information pertaining to their account balances, investment options, and fees deducted from their accounts.

When may a participant withdraw their account balance from the Program?
Generally, distributions are permitted in accordance with applicable provisions of the Internal Revenue Code. The CRSA board of directors will establish rules and procedures governing the distributions of funds from the Program.

 

Leonard G. Brown, FSA, MAAA is an actuary and a Vice President of Pension Benefit Consultants, Inc. and oversees client consulting and compliance for all types of pension and profit sharing plans. His responsibilities include providing actuarial consulting services for defined benefit and cash balance plans and administrative services for all types of defined contribution plans, including profit sharing and 401(k) plans. He is a member of the CTCPA Employee Benefit Plans Interest Group and has spoken at CTCPA events.

He can be reached at 203-497-9148, ext. 15 or lbrown@penbens.com.