Colorado has enacted a new law that requires employers of at least five employees to either offer a retirement plan for their employees or to participate in the newly formed Colorado Secure Savings Program. The statute requires the state to create a new board to administer the program. Most of the program details are to be determined by that board. Colorado is targeting mid-2021 for implementing the program.
What Is the Program?
The program provides an IRA plan administered by the state for employees of employers who have enrolled in the plan. The plan requires that eligible employees be automatically enrolled in the plan with 5% of their wages withheld and contributed to the plan. The withholding rate is supposed to escalate each year of an employee’s participation under rules to be determined by the board. If employees do not wish to participate, they must elect out of the plan. Employees can elect other withholding amounts based on rules to be determined by the board.
The default investment option will be a target date fund. The annual fees charged to the individual account holders are to be set by the board. Those fees cannot exceed 1% of account balances for the first five years of the program and 0.75% of the account balances thereafter.
Which Employers Are Required to Participate in the Program?
The program has a three-year, phase-in period. In the beginning only large employers will be covered. Employers are phased in on the following schedule:
- If an employer had at least 100 employees at any point in the prior year, they are covered by the program in the first year.
- If an employer had at least 50 employees at any point in the prior year, they are covered by the program in the second year.
- If an employer had at least five employees at any point in the prior year and has been in business at least two years, they are covered by the program in the third year.
What If I Want to Allow My Employees to Participate Even Though I’m Not Required?
The board is instructed to provide procedures that allow employers to elect into the plan even if they are not required to participate.
What Happens If I Don’t Enroll in the Plan When Required?
Although employers that meet the employee levels described above are required to participate in the program, the enforcement of that requirement is limited. The board is to set the level of fines, but they cannot exceed $100 per employee or $5,000 in a calendar year. In addition, the fines do not apply until at least a year after the employer was scheduled to enter the program. Also, the employer cannot be fined until three months after they are given a notice of noncompliance.
We expect that if the state does not get the level of compliance that they expect, they will likely make changes to the limits on fines to give the enforcement more teeth.
Will the State Offer Any Help to Employers to Adopt the Program?
The board is supposed to create a grant program to incentivize compliance with the program and defray the costs of small businesses with five to twenty-five employees.
In addition, the board will develop all the materials to be used for enrolling employees in the program.
What is My Potential Liability for the Program?
The program is not an employer-sponsored retirement plan. As long as employers follow the guidelines for enrolling in the plan, withholding from employee paychecks, and properly remit the funds to the program, there is not employer liability.
Future Changes
The legislature delegated the authority for determining the details of the plan to the board. As such, there are numerous details that will need to still be determined. WhippleWood CPAs will keep you posted as more details are forthcoming. Contact Steve Barkmeier or Mitch Clark.