Colorado Secure Savings Program Requires Employers to Offer Retirement Plan Options

There are almost 40 million employees working in the private sector in Colorado who do not have access to a retirement plan with their employer, according to the U.S. Bureau of Labor Statistics.* On July 21, 2020, Colorado moved to help reduce that by one million. The passage of the legislation establishing the Colorado Secure Savings Program mandates businesses with at least five employees offer access to an individual retirement account (IRA) funded by automatic payroll deductions. Employees will be enrolled automatically but can opt out

Businesses that currently do not offer a retirement savings plan will be obligated to do so through the Colorado state treasurer and under the guidance of an advisory board. The program was implemented in early 2023 ahead of its scheduled launch date.

Why are state-mandated retirement plans becoming popular?

Studies over the past decade have shown that the retirement-readiness of the average household with working adults has worsened. Although data vary from study to study and year to year on the amount households have saved, all studies agree on a similar conclusion: private-sector employees either do not have enough saved for retirement or they aren’t saving at all.

A 2021 consumer spending report from the U.S. Bureau of Labor Statistics showed that the average American spent almost $4,136 a month on basics (food, housing, transportation, health care). The average Social Security retirement benefit was about $1,191 for eligible couples at that time. An individual’s retirement savings is supposed to make up the difference.

Realizing the crisis facing residents of their state, Colorado joins nearly a dozen others that have enacted legislation for state-mandated retirement plans by private employers for employees.

What Employers Should Know about the Colorado Secure Savings Program

Employers must register for the Colorado Secure Savings Program on May 15 of the year after meeting the employer requirements, which include if they have:

• Five or more employees at anytime during the calendar year
• Been in business at least two years, and
• Not offered a qualified retirement plan in the preceding two years

Employers are not required to make contributions to this program, plus employers with 5 to 25 employees might qualify for a $300 program grant. Also, self-employed individuals may voluntarily participate in the program.

Employers can face a penalty for noncompliance such as failure to enroll eligible employees, of $100 per eligible employee per year (up to max of $5,000 annually). 

What Employees Should Know about the Colorado Secure Savings Program

The Colorado Secure Savings Program provides a portable retirement plan for employees who are 18 years of age or older, have been employed by a Colorado employer for at least 180 days, and who earn taxable wages in Colorado.

They will be enrolled automatically in the program but can opt out, and the default rate that will be withheld from each paycheck will be 5 percent with an auto-escalation each year of 1% with a cap of 8%. Participants will be able to change the percentage withheld after enrolled.

Looking forward

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.

Colorado businesses can open a retirement plan such as a 401(k) through a provider such as Paychex to satisfy the mandate. No matter where you are in the process, make sure to stay up-to-date on state retirement plans for the most relevant information.

*Consumer Expenditure Survey, 2021