Special Alert: The Colorado Secure Saving Program: What You Need to Know
Colorado will be enacting a new retirement savings plan in 2023- the Colorado Secure Savings Program (CSSP). Nearly 940,000 Colorado workers do not have access to a retirement plan at work, so the state decided to step in & create its own program.
Is My Business Affected By The New Program? All employers are required to auto-enroll employees into the CSSP if the business has five or more employees; has been in business for two or more years; and doesn’t already have an existing, qualifying retirement plan. Qualified retirement plans include: 401(k), 403(b), SEP plan, or SIMPLE IRA. To clarify: if you have 0-4 employees; if you have been in business less than two years; or if you already offer your employees one of these retirement plans- then you will not be required to participate in the CSSP.
How Will It Work? Let’s say your business is required to participated in the CSSP. The CSSP will set up a Roth IRA for each employee; you, the employer, will automatically enroll your employees into the CSSP, and set up auto-deductions, which will begin at 5% of employee pay. You’ll track & send those contributions to the state fund every two weeks. Employers who do not comply with the plan- and who are not established as exempt- will pay a penalty of $100 per employee, up to $5,000 per year.
Is the CSSP a Good Idea? It’s a great idea in theory- we agree that everyone should have access to a retirement program. The CSSP is not all bad, but it already has a few serious flaws- the biggest ones being that employees have no control over how their money is invested once it’s deducted; and, the state takes no responsibility for any losses incurred.
In the current economic environment- where stock markets are down 15% or more this year, and economists predict the same or worse next year- this is a serious issue. Why should employees be forced to put their money away, knowing that they’ll be losing some of their hard-earned money right off the bat?
Are There Any Alternatives? Yes. An employer (and their employees) can be exempted from forced participation in the CSSP if they offer any of the above retirement plans.
Some employers don’t want to offer a 401(k) because it can be very expensive to implement & maintain. However, there are 403(b), SEP, and SIMPLE IRA options that charge the employer zero fees to set up or maintain. Setting up any of these programs will exempt your business from forced CSSP participation.
If you like the idea of saving money in fees, you might want to consider shifting your current retirement plan towards one of these zero-fee options.
And when it comes to losing your shirt in the market, you have an alternative there, too. There is a type of asset called an indexed account, which protects your money against losses. (These are not the same as an "indexed fund”, which is a stock market investment). Indexed accounts allow you to participate in the upside of the market, while protecting you completely against the downside.
How do indexed accounts protect you? In a down year, you wouldn’t lose a dollar; that feature is built-in to your account and will never change. Then, when there is a good year in the market, your savings get to grow too. So... what’s the catch? Well, when there is a fantastic year in the market, there is a cap on your growth. Caps are generous, and those who have these accounts are happy to give up some of the upside potential, so that they never have to participate in the downside.
Indexed accounts can be set up as any of the above types of retirement plans- and they are a fantastic place to safeguard the money that you and your employees can’t afford to lose.
What’s My Timeline Here? If you’re required to participate, the state will start reaching out to employers in Q1 and Q2 of 2023 to ensure that you are either complying with the CSSP, or exempt from the program. We recommend that you start looking into your options now, over the holiday season, so that your chosen plan can be in place around Q2 of next year.
What Should I Do Next?
If you think you might be required to participate in the CSSP;
If you want to stop paying excessive administration fees on your current employer-sponsored retirement plan; or
If you/your employees want to stop losing money in the market;
Then contact Lisa Price or Melissa Timberman to discuss your options:
Lisa Price | 720.949.7733 | lisa@pricewiseaccounting.com
Melissa Timberman | 303.417.1273 | melissa@smartmoney.works