Back in 2020, the State of Colorado passed the Colorado Secure Savings Act, a program designed to encourage more employees to save for retirement by requiring businesses big and small to offer a retirement savings plan for their employees. Effectively, this makes employer-sponsored retirement plans (like a 401k) mandatory for businesses with five or more employees.

Beyond the requirement to offer a retirement plan, the state established their own retirement savings plan that will act as a default for business that do not wish to establish their own independent plan.

The pilot program launched late last year and beginning in 2023, will require business owners to comply with this new regulation.

Unfortunately, the communication regarding the Colorado Secure Savings Program has been insufficient. From our conversations with business owners, few have heard about the program and even fewer have received any communication or notice. This leaves business owners to figure out what’s going on, else they receive a financial penalty from the state.

Here’s everything we know so far about the Colorado Secure Savings Program and what you need to do to avoid fines and stay in compliance.

The requirements for participation are fairly simple. Your business will be affected if:

These qualifications make participation mandatory, but you can still participate in the state’s program if you don’t meet all these requirements.

The law does not specify what type of retirement plan must be offered. Employers will have the flexibility to choose between a 401k plan, SEP IRA, SIMPLE IRA, defined benefit pension plan or a state sponsored retirement account.

The law will apply to all companies registered in Colorado, but not to remote employees operating in other states. This means you will need to keep track at the payroll level of required vs. non-required employees.

If you elect to not offer the state plan or setup one on your own, the penalties can be steep. According to figures from the state, non-compliance will set your business back by $100 per employee per year, with a cap of $5,000 per year.

Supposedly the state will begin sending numerous notices to businesses beginning this year, but the lack of communication thus far will leave business with a lot to do, and little time to do it.

If you already offer a retirement savings plan for your employees, your job is fairly easy. You’ll need to start by visiting the state website at https://coloradosecuresavings.com/ and following the links to certify your exemption from the program. This will require a qualified plan, which based on their website is defined as:

A qualified, employer-sponsored retirement plan includes a plan qualified under Internal Revenue Code sections 401(a) (including a 401(k) plan), qualified annuity plan under section 403(a), tax-sheltered annuity plan under section 403(b), Simplified Employee Pension plan under section 408(k), a SIMPLE IRA plan under section 408(p), or governmental deferred compensation plan under section 457(b). It does not include payroll deduction IRAs.

If you do not offer a plan for employees, you have a couple options. You can either offer the default state-sponsored retirement plan, or you can establish your own retirement plan. Each of those offer unique benefits that we will discuss below.

First, employers will need to visit the state website at https://coloradosecuresavings.com/ and enroll their business. Registration deadlines correspond to the size of the business.

Once registered, you’ll need to upload your payroll information and individual employee’s contribution levels. This is not a one-time process. You’ll need to submit payroll details every pay period and keep your employee records, contributions, and staff list up to date. You will also need to directly link your business bank account to the state and provide employee details including age, date of birth, and social security numbers.

Employers will have 180 days from the date of a new hire to enroll the employee to the plan. Employees must be 18 years old to participate.

By default, the state will set the contribution level to 5% of an employee’s gross income, deducted directly from their checks. Employees will also be responsible for plan fees. In addition to the expense ratios of their chosen investments, there are asset-based fees of 0.32% and annual account fees of $22 for the program, regardless of chosen investment options.

Once enrolled, employees will receive communication directly from the state regarding their contributions and offer them the ability to stay enrolled or opt out. Because the state administers this plan, employee contributions will “follow” them from job to job, even if they leave the state to seek employment elsewhere. Employees can use an online portal to elect their investment options, manage their contribution amounts, and handle any account maintenance.

As an employer you cannot offer any financial advice or provide any help to employees. Instead, they will need to contact program administrators at the state with any questions or maintenance needs.

The current plan is structured as a ROTH IRA with all the traditional applicable limits to both income level and age. That means some highly compensated employees may be excluded from their ability to participate. However, the state is evaluating the inclusion of a traditional IRA plan to capture those unable to participate in the ROTH. Contribution caps to ROTH IRAs apply to both state-sponsored and private retirement plans, so if an employee is contributing to an IRA outside of work, they’ll need to make sure their contributions don’t exceed the limits.

No employer contributions will be allowed, meaning you can’t offer to match an employee’s contribution or contribute any additional dollars as a way of incentivizing employment with your company.

The investment options provided by the state are rather limited in scope. As of January 2023, employees can choose from a handful of fund choices.

A full set of program rules can be found in this lengthy document from the state.

Establishing a private retirement plan can offer significantly more flexibility, broader investment options, and reduced headaches when compared to the state plan. Furthermore, legislation at the federal level including the SECURE 2.0 act, has helped to significantly reduce both the cost and complexity of facilitating a plan, all while offering the potential for tax benefits and improved savings options for employees, highly compensated employees, and the business owners.

Starting a plan can sound like a daunting task, but starts with a few simple questions and considerations:

Business owners should also be asking themselves how much they personally would like to contribute towards securing their own financial future. Pursuing a retirement plan such as a 401k or SEP IRA typically gives an owner greater flexibility to meaningfully save each year, while potentially lowering their taxable income at the same time.

Furthermore, our advisors can act not only as a singular point of contact for assistance with plan administrative tasks, but can provide employee education regarding plan features, provide the plan sponsor with investment recommendations, and even act as an investment co-fiduciary on the plan, managing your risk exposure while also addressing both the state requirements and plan requirements.

When comparing these two options, there are a few concerns that jump out to us and are worth keeping in mind.

First, how easy will it be to participate in the state’s program? Will this program run like the DMV? Will employees be waiting on the phone for answers to easily answered questions? Will the interface for uploading payroll information be easy to use?

Candidly, we wonder what the quality level will be for this program. Throwing all businesses into the same program, at the same time, sounds like cause for concern. Beyond the initial registration, how smoothly will payroll interface with what the state has to offer? There are few details on what could be a significant resource requirement for many business across the state.

Second, there are dramatic differences in how the plans are structured. This means the state plan has substantial limitations when compared to a private plan.