HARTFORD, Conn. — Connecticut officials are seeking to be the first state to offer a low-cost 401(k) plan designed for small businesses.
The comptroller's office has proposed that a bill be introduced in the Legislature to create a 401(k) plan for small businesses that can't otherwise afford to offer such retirement plans.
Investment options would mirror the 20 options in Connecticut's 401(a), 457 and 403(b) plans. Those plans, administered by ING Retirement Services, Hartford, have institutionally priced mutual funds and fees consistent with government-sponsored plans.
“The fees associated with 401(k) plans have a disproportionate impact on people who work for small businesses. The majority of these employees don't have 401(k) plans and at the same time, the small businesses are at a competitive disadvantage when it comes to recruiting workers,” said Thomas Woodruff, director of retirement and benefit services for the state's defined contribution plans.
Roughly 75% of Connecticut employers with fewer than 100 employees do not offer retirement plans, said Mr. Woodruff. He added that the lower fees available through a state-sponsored plan could provide an incentive for employers to join the proposed plan.
Defined contribution experts are hoping Connecticut will succeed, opening the door for other states.
J. Mark Iwry, a non-resident senior fellow for the Brookings Institution, Washington, said this is a very significant move, not just for the state of Connecticut but the industry as a whole.
“We have a chronic pension coverage and savings problem: A majority of American workers have no employer-sponsored plan (even more than the number who lack health coverage), we've tried for decades to crack that barrier, and we're undersaving as a nation,” he said.
“This is an exciting development, designed to help expand retirement savings,” added Mr. Iwry, who has drafted proposed legislation for about a half-dozen states considering similar proposals. In addition to Connecticut, the state-assisted saving concept is coming onto the radar screen in Washington, Maryland, West Virginia, New Hampshire, California and other states, said Mr. Iwry.