A proposal to create a government-run retirement plan for private employees would ultimately hurt the very people it aims to help, according to testimony from Kim Chamberlain of the Securities Industry and Financial Markets Association before the Labor and Public Employees Committee.
The American Retirement Association, which supports a public retirement system, testified they could not support this legislation “in its current form.” The group labeled the proposed bill “confusing and costly.”
The retirement mandate bill, HB 5591, would automatically enroll workers into a retirement plan overseen by a quasi-public state agency called the Connecticut Retirement Security Authority. The CRSA board would consist of political appointees and have no fiduciary liability, meaning responsibility for any mismanagement would fall on state taxpayers.
Connecticut would be the first state in the nation to implement a government-run retirement plan for private employees but Chamberlain warned that companies could drop the retirement packages they currently offer in favor of the state-supported plan. This would save companies from having to match employee contributions but would cost employees thousands in lost savings.
Chamberlain was not the only representative of the financial sector that cast serious doubts on the bill. David T. Bellaire, executive director of Financial Services Institute, which represents independent financial firms and advisers, said the plan “will disrupt the pre-existing market of retirement plan providers already serving businesses of all sizes, including self-employed and non-profit organizations.” He added that the market is already “robust, healthy and competitive.”
The Connecticut Business and Industry Association also testified that this plan will hurt Connecticut’s financial sector. “There are tens of thousands of Connecticut citizens that make their livelihoods in the state working for the financial services industry,” said Eric W. Gjede, assistant counsel at CBIA. “If this plan becomes the default option for any employee that does not have a retirement plan, it will push those private-sector businesses selling competing products entirely out of the market. This will result in a loss of jobs and revenue to the state.”
The Connecticut Retirement Security Board predicted startup costs of $2 million. The Office of Fiscal Analysis estimated the program would cost up to $10 million annually depending on the ratio of Roth IRA and traditional IRA participants.
There would also be costs to employers who would have to create a payroll deduction for all their employees. While individual employees could opt out of the program, the law requires employers to participate if they don’t offer a retirement plan.
The financial sector of Connecticut’s economy remains one of the biggest drivers of the state’s economy despite a recent reduction in size, according the to a recent report released by the Commission on Economic Competitiveness. Despite the warnings, the bill passed out of committee with a 8 to 5 vote along party lines with Democrats voting in favor and Republicans objecting.
NOTE: The House passed this bill at 2:58AM Tuesday morning. It will now go to the senate