Originally published: May 12, 2023 (distributed by Andrews McMeel Syndication)
If your employer does not offer a 401(k) or other retirement plan for employees, you are not alone.
For example, in Connecticut, my home state, more than 600,000 private-sector employees do not have access to an employee-sponsored retirement savings plan.
On a nationwide basis, 57 million Americans (nearly half of the private sector workforce aged 18 to 64) work for companies that do not provide retirement plans, according to a 2022 AARP Public Policy Institute fact sheet (tinyurl.com/2s3sr7xb). If you focus on smaller companies (fewer than 10 employees), about 78% lack access to a retirement plan.
Sixteen states want this to change. California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Vermont, Virginia and Washington have enacted programs for private-sector workers, with nine of these states having active programs, according to Georgetown University's Center for Retirement Initiatives (tinyurl.com/474jt7f3).
In California, which had a full statewide launch of its program in July 2019, there were more than 420,000 funded accounts in the CalSavers Retirement Savings Program at the end of April 2023 (tinyurl.com/y4dpjrds). In Illinois, the Secure Choice program, which launched in 2018, had more than 122,000 funded accounts as of April 30, 2023 (tinyurl.com/m8ta7vme).
Keep in mind that each state has different rules.
Connecticut employers with more than five employees (who make $5,000 a year or more in taxable wages) are required to provide a retirement plan, either directly on their own or through MyCTSavings, a program run by the Connecticut Office of the State Comptroller (tinyurl.com/2p8nwyb3). Employers have until Aug. 31, 2023, to set up the plan. Firms that don't will have to deal with a penalty, which is yet to be determined.
Once employees are enrolled in the plan, MyCTSavings automatically deducts 3% of gross pay and deposits those funds into a Roth IRA account in the employee's name (tinyurl.com/2knrs6r7). Employees contribute post-tax dollars instead of pre-tax dollars (401(k)s are typically pre-tax contributions).
One complication is that an employee will need to review the Roth IRA contributions he makes on his own to compare with the MyCTSavings payroll deductions. Why? To make sure he doesn't overfund his Roth IRA for the year. The Roth IRA contributions he makes on his own together with the MyCTSavings payroll deductions cannot exceed the IRS annual maximum, which for 2023 cannot be more than $6,500, or $7,500 if you are age 50 or older.
Likewise, Roth IRAs are not available to you if your modified adjusted gross income (MAGI) is above certain limits (see tinyurl.com/2eje9w4f). For example, if you are single and your MAGI is less than $138,000, you can contribute up to the limit. However, if your MAGI is equal to or greater than $153,000, you cannot contribute anything.
The participation in MyCTSavings is voluntary for employees but mandatory for employers. However, there is no requirement (or mechanism) for an employer to make an employer contribution.
You, the employee, can opt out at any time.
MyCTSavings has a standard investment option, where your contributions go into a cash preservation fund for the first 60 days after the initial contribution, and then a target retirement date option for any existing savings and any future contributions. Other options can be viewed at tinyurl.com/mrds8hhu.
Plan participants pay for administrative and operating expenses through a $26 yearly account fee, which is billed at $6.50 quarterly, along with a yearly asset-based fee of approximately $0.26 for every $100 in their account (tinyurl.com/t7d4ka32).
If you are a Connecticut employer who hasn't set up a MyCTSavings Employer Account, the quickest way to get going is to use this resource: tinyurl.com/abybw8vx.
The phone number for additional help is 1-833-811-7435, and the email is firstname.lastname@example.org.
If you are one of the millions of Americans whose employer does not offer a retirement plan, you may have another option -- provided your state has created one. Be sure to check the National Association of State Treasurers' map of participating states (tinyurl.com/ywj42a5f).