Navigating the Rules and Regulations of Colorado's Retirement Plan Mandate

What Is the Colorado Secure Savings Program?

The Colorado Secure Savings Program was created to meet the challenge of providing retirement security for employees in Colorado who do not have access to a retirement savings plan through their employers.

Colorado is one of several states across the country that require private companies in their jurisdictions to offer employees a retirement savings plan either through setting up their own company plan or enrolling in a state-run program like Colorado Secure Savings.

Just like in other states, the Colorado Secure Savings Program involves automatic enrollment with an employee opt-out, a default salary deferral percentage with subsequent employee modification, no employer match, little to no setup costs, and penalties for noncompliance.

It is managed by the Colorado Secure Savings Board. 

How the Colorado Secure Savings Program Works

Employers who choose to adopt Colorado Secure Savings as their company's retirement plan are able to offer their workers a Roth individual retirement account (IRA), which means that contributions are made with after-tax dollars, and earnings grow tax-free.

Employees are automatically enrolled in the program and given a choice to opt-out anytime. The initial employee contribution is set at a default 5% of annual salary, which can be modified later up to a maximum of $6,500 in 2023, subject to age, marital status, income, and yearly adjustments.

Workers 50 and older are also allowed an additional $1,000 as catch-up contributions. Employee accounts also feature portability, meaning employees can take their contributions with them if they change jobs.

Colorado Secure Savings comes at no cost and has easy administration features. Employers merely manage payroll deductions and submit the contributions monthly to the program administrator.

Colorado Secure Savings is administered by a third-party financial institution, Vestwell, which allows employers to minimize their involvement in the everyday management of the plan. Employers do not have a fiduciary responsibility over worker accounts and plan investments.

Who Needs to Comply With the Colorado Secure Savings Program?

The state legislation covers all private businesses with at least five employees that do not sponsor a retirement plan and have been in business for at least two years. Such companies must either sponsor their own plan or enroll under the Colorado Secure Savings Program.

Private businesses with 50 or more employees must comply with the state mandate by March 15, 2023. Those with 15 to 49 workers must comply by May 15, 2023, while those with 5 to 14 employees must do so by June 30, 2023.

Employers who already offer 401(a) and 401(k) plans, 403(a) and 403(b) annuities, 457(b) deferred-compensation plans, Simplified Employee Pension (SEP) plans, and Savings Incentive Match PLan for Employees (SIMPLE) 401(k)s or IRAs are exempted from the state legislation.

All workers who are at least 18 years old, earn taxable income in Colorado, and have been with a participating employer for a minimum of 180 days are automatically enrolled in the Secure Savings Program.

Benefits of the Colorado Secure Savings Program

The Colorado Secure Savings Program benefits both employers and workers.

Employer Benefits

The main advantage for companies revolves around providing a retirement benefits package to workers at no cost, a simple setup process, and minimal administration if they elect to enroll under the Colorado Secure Savings Program.

Other benefits include tax credits to cover costs related to setting up a retirement savings plan other than what is offered by the program. Companies meeting certain requirements can get up to $5,000 a year for the first three years of their retirement plan.

Businesses can also qualify for an additional $500 in tax credits if they offer automatic enrollment to their own retirement plan. Other tax credits are available for plans offering employer contributions, which vary depending on the number of employees involved.

By offering a retirement savings plan to employees, companies can benefit from the ability to attract and retain top talent. Employers can increase worker morale and boost productivity with a competitive retirement benefits package, leading to improved overall business performance.

Employee Benefits

Participating workers can save for their retirement years with the Colorado Secure Savings Program, with minimal time and effort because of automatic enrollment features. Employees can access the Roth IRA of Colorado Secure Savings or another employer-sponsored plan.

If the employer opts for the state-sponsored Roth IRA of Colorado Secure Savings, they also enjoy portability and customization. The initial 5% default contribution can be modified according to an employee's wishes later. They can also take their accounts with them if they transfer jobs.

Lastly, participation is voluntary. Employees are given 30 days to opt out of the automatic enrollment to Colorado Secure Savings. They can also re-enter anytime.

Noncompliance Penalties of the Colorado Secure Savings Program

Eligible employers must offer their own retirement plan or enroll workers under the Colorado Secure Savings Program. Noncompliance will result in penalties of up to $100 per eligible employee, capped at $5,000 per year.

Noncompliance fines will be imposed one year after the schedule discussed above.

How Small Businesses Can Prepare for the Colorado Secure Savings Program

Eligible companies can prepare by analyzing their financial situation and goals and whether they will offer their own retirement savings plan or enroll under Colorado Secure Savings.

Companies must remember that the Roth IRA of Colorado Secure Savings allows lower maximum contributions compared to other retirement plans. They may also differ in terms of rules for employer match or profit-sharing contributions. 

For example, while Colorado Secure Savings is easy to set up, requires little administration, and comes at no cost, small businesses may consider other options if they want to make matching contributions to their employees' accounts.

Employers must also consider factors such as payroll integration, third-party service providers, administrative costs, and potential tax benefits.

Finally, businesses must remain vigilant in ensuring ongoing compliance with the law. A proactive approach towards understanding new rules and regulations and regularly reviewing existing policies is essential to avoiding any penalties due to noncompliance.

Final Thoughts

The Colorado Secure Savings Act requires all private companies operating for at least two years in the state and with a minimum of five employees to offer a retirement savings plan. It aims to ensure that all workers in Colorado have access to secure retirement savings options.

Eligible employers can either sponsor their own plan or enroll workers in the state program not later than June 30, 2023. Failure to do so can mean penalties of $100 per employee, capped at $5,000 in aggregate fines per year.

Benefits to employers include the ability to attract and retain top talent, boost employee morale and productivity, and potential tax credits and deductions. Businesses participating in the Colorado Secure Savings Program pay no cost and enjoy minimal administration requirements.

Small businesses must consider factors such as financial situation, goals, and employee roster when deciding between Colorado Secure Savings or sponsoring their own retirement plan. Employers must also consult a qualified financial advisor for further guidance. If you would like a sustainable 401(k) plan that offers climate-friendly portfolios aligned with your mission, this is another consideration. 

Navigating the Rules and Regulations of Colorado's Retirement Plan Mandate FAQs

What is the Colorado Secure Savings Program?

Colorado Secure Savings is a state-mandated program that requires private companies to offer a retirement savings plan to employees. It aims to give all workers in the State of Colorado access to retirement savings.

Who does the Colorado Secure Savings Program mandate apply to?

It applies to all private companies operating in Colorado for at least two years with a minimum of five employees that have not yet sponsored their own retirement savings plan.

What are the penalties for non-compliance with the Colorado Secure Savings Program?

Eligible employees who fail to comply with the state mandate will be charged $100 per employee, with a maximum of $5,000 in aggregate fines per year.

Can employees opt-out of Colorado Secure Savings Program?

Yes. While Colorado Secure Savings features automatic employee enrollment, workers can opt out of the program anytime. Re-entry is also assured.

What are the benefits of the Colorado Secure Savings Program?

Employees get access to a retirement savings plan either through the Colorado Secure Savings Program or their own company's plan of choice. Employers reap the benefits of attracting top talent that leads to increased competitiveness and overall business performance boost.