Connecticut Closer to Implementing Mandatory IRA Program for Private Employers

Connecticut employers who do not offer retirement plans will soon be required to automatically enroll employees in state sponsored Individual Retirement Arrangements (IRAs). Initially, the requirement was to take effect in 2018, but delays pushed it out. The current goal is to begin rolling out the requirement sometime later this year. Progress is being made.

At its January 18, 2019 meeting, the state agency overseeing implementation appointed an executive director, Mary Fay, a former West Hartford Town Council member. The next step is to hire a financial service company to administer the IRAs. The agency plans to roll-out the program in phases rather than opening the program up for all eligible employers at once. While some time remains before compliance is required, employers should begin planning for eventual implementation.

The legislation requires qualified employers to automatically enroll eligible employees in the state IRA plan. Employers are subject to the law if they (1) do not already provide retirement benefits; (2) have been in existence during the entire preceding calendar year and remain in existence during the entire current calendar year; (3) had at least five Connecticut based employees on the payroll on October 1 of the preceding year; and (4) at least five such employees earned at least $5,000 in taxable wages during the preceding calendar year. Public employers, and private employers who only employ individuals engaged in services outlined in Conn. Gen. Stat. § 31-222(a)(5), are exempt from coverage. Conn. Gen. Stat. § 31-222 deals with the definitions of work covered by the state’s unemployment compensation program, while subsection (a)(5) delineates excluded work. Employers exempt by statute may volunteer to make the state program available to employees.

To be an eligible employee the individual must (1) have been employed by a qualified employer for at least 120 days, (2) be at least 19 years old, (3) perform services in Connecticut as outlined in § 31-222, and (4) not be performing excluded services under § 31-222(a)(5).

Once covered, an employer must provide eligible employees informational materials regarding the state plan within 30 days of hire or coverage eligibility, whichever is later, and then enroll the employee in the state plan within 60 days of hire or coverage eligibility, whichever is later. The Connecticut Retirement Security Authority is responsible for providing employers with such materials.

The employee may contribute up to the maximum amount permitted by federal law, and if no election is made the default contribution will be 3%. Employees may opt out by electing to contribute nothing. Contributions must be deposited into an individual Roth IRA account and invested in a target fund based on the employee’s normal retirement age. Employers are not permitted to contribute to the plan.

Employee contributions must be deposited into the plan no later than ten (10) business days following the date on which the employee’s contribution was deducted from a paycheck. A failure to timely deposit contributions shall be a violation of § 31-71e, which can result in damages of two times the money not deposited, plus attorneys’ fees.

Also, a failure to timely enroll an eligible employee can result in a civil suit by the employee or Labor Commissioner, with relief limited to enrollment and recovery of attorneys’ fees and litigation costs.

Employers should continue to monitor implementation developments so they are ready to comply at the appropriate time.