Colorado’s Senate Bill 20-200 estimates that about 40% of working Coloradans are without an employer-sponsored retirement plan, with young and minority workers, and lower-wage workers, more likely to lack access to a plan. Just 19% of small employers are able to offer a retirement plan, despite many wanting to. The Colorado Secure Savings Act is a state law that was passed in 2019 to establish the Colorado Secure Savings Plan.
The Act was designed to help more Colorado workers save for retirement by providing a low-cost, easy-to-use retirement savings option, and requires certain employers to participate in the Colorado Secure Savings Plan.
Under the plan, employees will be able to make contributions to a Roth Individual Retirement Account (IRA) that is managed by the state. The contributions will be made through payroll deductions, and employees can choose how much they want to contribute, up to the annual IRA contribution limit. Employers will not be required to make contributions to their employees’ accounts.
The Colorado Secure Savings Plan is intended to help more workers save for retirement, particularly those who may not have access to traditional retirement plans through their employers. It will provide a low-cost, easy-to-use savings option that can help more Coloradans build a secure financial future for themselves and their families.
What Employers Need to Know
Eligibility:
- Employers with at least five employees at any time during the calendar year
- Have been in business at least two years
- Do not offer a qualified retirement plan
Phased Rollout:
- March 15, 2023: Employers with 50-plus employees
- May 15, 2023: Employers with 15 to 49 employees
- June 30, 2023: Employers with 5 to 14 employees
Automatic Enrollment:
- Employers will be required to automatically enroll eligible employees in the Colorado Secure Savings Plan. Employees can opt out of the program or change their contribution rate at any time.
Payroll Deductions:
- Employers will need to set up payroll deductions for employee contributions to the plan. Employees will be able to contribute up to the annual IRA contribution limit, which is currently $6,500, or $7,500 for anyone aged 50 or older (2023 limits). Employers will not be required to make contributions to their employees’ accounts, and employee may opt out or change their own contributions at any time.
Reporting:
- Employers will be required to report certain information about their employees and their participation in the plan to the state.
Penalties:
- Employers who fail to comply with the Colorado Secure Savings Plan mandate may be subject to penalties and fines of $100 per eligible employee per year (up to a maximum of $5,000 per year). Enforcement of this rule is set to begin one year after the employer enrollment date mentioned below.
Exemptions:
- Employers who offer a 401(k) or other qualified retirement plan are exempt from having to offer the Colorado Secure Savings Program.
- Click here to certify your exemption by the deadline given for your company size.
Benefits of the Program
One notable advantage for small businesses is providing a benefit similar to larger companies, acting as a perk to attract and retain younger employees and help them start building a retirement savings, without having to pay for or administer an employer-sponsored plan.
The Colorado Secure Savings Plan also allows a participating employer to forego the responsibility and liability of running a retirement program. Employers are not required to be a fiduciary of the program, meaning that they bear no responsibility for the administration, investment, or investment performance of the program.
Also, Colorado employers who are not covered by the Secure Savings Program and self-employed people may voluntarily participate in the program.
Employers with 5 to 25 employees may qualify for a grant of up to $300 to encourage small businesses to implement retirement savings plans.
Colorado businesses do not have to wait for the program to launch and can open a retirement plan such as a 401(k) through a provider to satisfy the mandate. The SECURE 2.0 Act, which President Biden signed into law on December 29, 2022, created significant tax benefits for small businesses, including:
- Doubling tax credits for new plans
- Expanding eligibility for the start-up tax credit
- Adding new credits for employer contributions
- Maintaining tax credit for using auto-enrollment
What Next?
All Colorado employers should be on the lookout for a notification from the state with a code. You must then either register your business or apply for exemption from the plan.
Visit the Colorado Secure Savings website for more information on the program, FAQ, and resources and communications to provide to your employees.
Need help navigating this new mandate? Reach out to our experts at any time.