COLORADO RETIREMENT PLAN MANDATE: HELP BUSINESS OWNERS BENEFIT
In July of 2020, the Colorado Secure Savings Program was signed, mandating businesses with at least five employees must offer access to individual retirement accounts. Since this ruling was signed in 2020, many employers may forget the requirements. Now that the program will be upheld and implemented in 2022, here is a reminder of what the program entails and how to prepare your business for it.
Those who haven’t yet adopted an employer-based plan have two choices:
- Adopt their own retirement plan
- Register for CO Secure Savings Program, the state-sponsored retirement savings program
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What You Should Know
The deadline for compliance for the Colorado Secure Savings Program is 2023, but the pilot program will launch in October 2022. Employers aren’t currently responsible or being held accountable for anything just yet.
As an employer, you will be required to implement this program if:
- You have five or more employees
- Have been in business for two or more years
- Don’t have an existing qualifying retirement plan
Employees can voluntarily participate in the retirement plan if they are 18 years of age or older, employed by a Colorado employer for at least 180 days, and earn taxable wages.
Employers do NOT have to provide contributions to the retirement accounts — that is a voluntary option. Employers also don’t have to be the fiduciaries of the program.
Larger businesses will likely have to meet earlier deadlines while smaller businesses will be given more time. Regardless, the program is eventually going to happen and Colorado employers should prepare to be compliant or face up to a $5,000 fine.
Enforcement won’t begin until at least one year after the program is established — or one year after an employer is scheduled to enter the program based on the number of employees or years in business. The pilot program is set to begin in October 2022 with official enrollment starting in 2023.
CO SECURE SAVINGS OR CUSTOMIZED PLAN?
CO Secure Savings is a basic, one-size-fits-all retirement savings program for businesses that do not wish to sponsor a plan for their own employees. Yet there are many businesses that would be better served with a plan from TRA that’s customized to their needs.
|CO Secure Savings Program||Custom 401(k) from TRA|
|Pre- and Post-Tax Deferrals||Roth IRA w/ auto after-tax payroll deduction||Pre-tax or Roth elective deferral contributions|
|Contributions||Initial default rate of 5% of gross pay. Beyond this, deferral rates may vary based on how much employees want to save, as well as age, marital status & income. Details not yet released.||Lesser of 100% of compensation or $20,500|
|Catch-Up Contributions||Determined by IRA contribution limits||$6,500 annually for those age 50 and older|
|Employer Match||Not available||Available|
|Income Limit||Determined by Roth IRA contribution limits||No income limits|
|Investment Choices||Details not yet released. Typically, state-sponsored plans offer less than five investment choices||Can provide a wide variety from top asset managers|
|Automated Payroll Integration||Available||Available|
|Customizable for businesses||Not customizable||Yes – Plans are designed to meet the employer’s needs – Traditional 401(k), Safe Harbor, Profit Sharing, Cash Balance|
|Tax Credit||No tax credit for start-up costs||Yes – 100% of the expenses paid up to the greater of $500 or the lesser of $250 for each non-HCE’s. A maximum tax credit of $5,000 per year would be available for 3 years.|
TRA Plans to Consider
For Colorado businesses who want to sponsor a retirement plan, some plans to consider include:
• Safe Harbor 401(k)
• Cross Tested Profit-Sharing Allocation
• 401(k) plus Cash Balance Plan
Other alternatives to Colorado Secure Savings Program include SIMPLE 401(k) Plans, Group 401(k) Plans (MEPs, PEPs and Aggregation Programs), and 403(b) Plans (for non-profits).
Working closely with you, TRA will create a customized plan that meets your client’s business. We partner with top recordkeepers and investment managers around the country and deliver exceptional client service. We also offer 3(16) Plan Administration Relief Services (PARS) to relieve business owners of day-to-day plan administration responsibilities and manage their fiduciary risk.