Colorado’s SecureSavings program isn’t the only option for small business

In July 2020, Colorado Governor Jared Polis signed the Colorado SecureSavings Program (“CSSP”) into law. Intended to provide a retirement program to workers in Colorado without one – a number estimated to be about 40% of the state’s workforce – CSSP sets up an Individual Retirement Account for the worker.

The good news is CSSP has been by far the fastest and most successful program per capita compared to other state-sponsored retirement programs across the country.

According to the Colorado State Treasurer, whose office oversees CSSP, more than 14,000 employers have enrolled from the Program’s inception January 1 of 2023, 26,000 employers have verified they offer a retirement savings plan, and 51,814 savvy Centennial State workers have been enrolled in the program.

The better news might be that a growing number of business owners, many of whom were most likely not considering the implementation of a retirement plan prior to CSSP, are considering traditional retirement plan alternatives.

The best news: Workers and small businesses win with either approach.

What are alternatives?

 While more than 50,000 enrollees are hardly close to the state’s original estimate of one million deemed to have no access to a work-sponsored retirement plan, we’ll suggest the results of the program are altogether positive. Why? Because many companies added their own 401(k) plan instead of joining the state’s program. According to the Treasurer’s office, private plan adoptions increased 45% in calendar year 2023.

 Today, there are clearly a good number of business owners who would prefer to take a more active role in their company’s retirement plan. Fortunately, there are a few traditional retirement plans designed to create a comfortable retirement for employees with a minimum amount of employer involvement:

• 401(k) plans are available for all private-sector employers, regardless of size. These plans allow for both participant and employer contributions, with annual maximums much higher than IRA maximums.
• SIMPLE IRAs are available to employers with 100 or fewer employees. Employers are required to make contributions for all eligible employees, either a dollar-for-dollar match of up to 3% of pay or a 2% non-elective contribution.
• SEP IRAs require only the employer contribute to participant accounts. Contributions are capped at 25% of a participant’s compensation.

Besides the assumption of a more active role, there is another factor that may encourage small employers to take a close look at sponsoring their own retirement plan: the SECURE 2.0 Act of 2022. Essentially, the Act incentivizes startup plans. Employers starting their first-ever retirement plan may qualify for a federal tax credit up to $5,000 a year to defray startup costs. The credit can be used for up to three years after the plan’s launch. Additionally, employers with up to 100 employees will be eligible for a credit for contributions on behalf of employees, up to a per-employee cap of $1,000.

 Retirement planning can use retirement advice

 We’ll not be the first to suggest that Colorado’s SecureSavings Program is initiating a slight shift in retirement planning at the retail level. But there’s another story here as well: Into that shift will come an increasing demand for financial professionals to help guide employers through the alternatives and help them create the appropriate plan for their business – state sponsored or self-administered.

From the employers’ perspective, the need for education and assistance will be considerable. Complying with state mandates or creating a customized retirement program consistent with the needs of the business and its employees is challenging. Retirement plan professionals with the right tools and resources will assuredly make the experience much easier.

And that just might be one of the most important consequences – intended or not – of Colorado’s SecureSavings Program.

Alyssa Zagrobski, AIF, CPFA, is director of retirement plan services at Shelton Capital Management