The Colorado Secure Savings Program is a state-facilitated retirement savings plan designed to help Colorado workers save for their future retirement. The program was established by the Colorado General Assembly in 2019 and is set to launch in phases starting in 2021. The program will help workers without access to employer-sponsored retirement plans save for their retirement through a payroll deduction system.

The Colorado Secure Savings Program requires eligible employers to automatically enroll their employees in the program unless they choose to opt out. The program aims to provide a simple, affordable, and low-cost retirement savings option for employees who work for employers that don’t offer retirement plans. The goal of the program is to help employees accumulate savings for their retirement years and reduce the likelihood of them relying solely on Social Security benefits.

Under the Colorado Secure Savings Program, employers with at least five employees who have been in operation for at least two years are required to either offer an employer-sponsored retirement plan or participate in the state-facilitated program. Employers who already offer an employer-sponsored retirement plan are exempt from the program requirements.

Employers who participate in the Colorado Secure Savings Program will need to facilitate the program by:

  1. Registering for the program: Employers will need to register for the program online through the Colorado Secure Savings Program website.
  2. Providing employee information: Employers will need to provide employee information such as name, social security number, and contact information to the program. This information will be used to set up employee accounts.
  3. Setting up payroll deductions: Employers will need to set up payroll deductions for employees who have enrolled in the program. The payroll deductions will be sent to the program on behalf of the employee and invested according to the employee’s chosen investment option.

The Colorado Secure Savings Program has been rolled out in phases starting from July 2021. The initial phase of the program is voluntary, and employers who wish to participate can do so voluntarily until December 31, 2022. After December 31, 2022, employers who meet the program requirements will be required to offer the program to their employees.

The Colorado Secure Savings Program offers employees two investment options: a target-date fund or a fixed interest account. Employees who don’t make a choice will be automatically enrolled in the target-date fund. Employees can also choose to opt-out of the program or change their investment option at any time.

The program’s fees are capped at 0.5% of assets annually, making it a low-cost retirement savings option for employees. Employers who participate in the program will not be responsible for the program’s administrative or investment fees.

In conclusion, the Colorado Secure Savings Program is a state-facilitated retirement savings plan designed to help Colorado workers save for their retirement. Employers who meet the program requirements are required to offer the program to their employees, and employees will be automatically enrolled in the program unless they choose to opt-out. The program offers employees low-cost investment options, and the fees are capped at 0.5% of assets annually. The program’s phased implementation is set to be fully implemented by January 1, 2024.

Colorado SecureSavings deadlines & details

The Colorado Secure Savings Program (Senate Bill 20-200) was signed into law by Governor Jared Polis in July 2020. All eligible employers in Colorado are required by law to facilitate the program by the following dates if they don’t offer a retirement plan:

  • Employers with 50+ employees: March 15, 2023

  • Employers with 15-49 employees: May 15, 2023

  • Employers with 5-14 employees: June 30, 2023

The program will impact every private-sector business with five or more employees that have been in business for at least two years. If you offer a 401(k) or another qualified retirement plan, you’re exempt from having to offer the Colorado Secure Savings Program to eligible employees (certify your exemption here). Additionally, there are exemptions for employers who have sponsored the following during the last two years:

  • A qualified retirement plan under Internal Revenue Code Section 401(a), 401(k) or 403(a)

  • A 403(b) tax-sheltered annuity plan

  • A 457(b) deferred compensation plan

  • A simplified employee pension (SEP) plan

  • A savings incentive match plan for employees (SIMPLE 401(k) or IRA plan)

Penalties for businesses found in non-compliance

Employers found to be non-compliant will be fined up to $100 per eligible employee per year, not to exceed an aggregate amount of $5,000 in a calendar year. Enforcement of fines will not begin until at least one year after the program is established or one year after an employer is scheduled to enter the program, whichever is later.

Why your company should skip the state-run plan and start its own retirement program

So the question comes down: should small and micro-business employers in Colorado just accept the state-run plan, or should you now take the opportunity to create your own, competitive and customized retirement plan?

There are some definite advantages for companies to start their own retirement plan instead of participating in the Colorado Secure Savings Program:

  • Flexibility in Plan Design: One of the main advantages of starting their own retirement plan is that employers have the flexibility to design a plan that meets their specific needs and the needs of their employees. This includes choosing investment options, setting contribution limits, and determining vesting schedules.
  • Investment Options and Professional Support for Employees: Colorado offers two options for employees – a target-date fund (a mix of investments generally suitable for the employee based on their age), or a fixed-interest account. In this era of market volatility and sticky inflation, the target-date funds will just passively rise and fall with market conditions, and fixed-interest accounts won’t keep up with the rate of inflation. Providing a plan managed by a professional firm, like nVest Advisors, will offer your employees many more investment options, plus the ability to work with a financial advisor as market conditions change.
  • IRAs have limits that other employer plans do not: The Secure Savings program places your employee’s money in an IRA account. This makes it subject to the same rules and limits as standard IRA accounts.  For example, IRA contribution limits are the lowest of any retirement plan – just $6,500 in 2023 for most workers ($1,000 more if you’re over age 50). Contrast that with the 401(k), which allows for $22,500 in contributions for each worker, with an extra $7,500 if you’re over age 50.  SIMPLE IRA plans allow up to $15,500 per year, plus $3,500 more for people over 50.  The Colorado plan also does not offer loan features – the only option for employees if they need to withdraw funds in a financial emergency, they must do so by paying income taxes (and an early withdrawal penalty).
  • Employer Contribution Options: An employer-sponsored retirement plan can allow employers to contribute to their employees’ retirement savings. Employer contributions can be a powerful tool for attracting and retaining talent, and they can also help employees accumulate savings more quickly.
  • Tax Benefits: Employer-sponsored retirement plans offer tax benefits for both the employer and the employee. Contributions made to the plan are tax-deductible for the employer, and contributions made by the employee are made with pre-tax dollars, which can lower their taxable income.
  • Better Retirement Outcomes: Studies have shown that employer-sponsored retirement plans can lead to better retirement outcomes for employees. These plans typically offer higher contribution limits than individual retirement accounts (IRAs), and they often provide access to professional investment management.
  • Employee Engagement: Offering an employer-sponsored retirement plan can increase employee engagement and satisfaction. Employees appreciate when their employer invests in their long-term financial security, and it can improve employee loyalty and retention.

The state government is picking winners and losers

Perhaps this is a bit of bias on our part, but we feel it is fundamentally wrong for the state to mandate participation in a plan like the Secure Savings plan, but then also pick which companies will benefit from that new mandate. In the Colorado plan, only a few investment firms were selected to implement this program, in which 1,000,000 Colorado employees will be now forced to save money. This fundamentally created a conflict of interest between the state regulators and the investment companies selected.

The state also selected an extremely limited selection of investment options for the affected workers, completely eliminating the vast majority of investment assets (and no way at all to create a customized portfolio or move between strategies as market conditions change).

We believe you as the employer should have the right to decide what plan features, types and professionals will best meet the retirement savings needs of you and your employees, not a state bureaucrat.

Employer tax benefits for offering a retirement benefit plan (and foregoing the state plan)

The state plans to establish grants to help defray costs and encourage small businesses—only those with five to 25 employees—to implement retirement savings plans. Grants will not exceed $300 for a single employer. In contrast, the tax benefits available to eligible employers for starting a 401(k) or other qualified retirement plan are higher. The SECURE Act 2.0 expanded tax credits to cover the following:

  • A tax credit for starting up a retirement plan: Businesses with up to 50 employees may be eligible for a tax credit to cover 100% of plan start-up costs (up from 50%), capped annually at $5,000 for three years (a total of $15,000). Eligible businesses with 51-100 employees may be eligible for a tax credit to cover 50% of plan start-up costs, capped annually at $5,000 for three years.

  • A tax credit for offering employer contributions: Businesses with up to 50 employees are eligible to receive a new tax credit based on a percentage of employer contributions, up to $1,000/employee for those making less than $100,000. Additionally, employers with 51-100 employees qualify for a phase-in credit (click here to learn more).

  • A tax credit for auto-enrolling employees: $1,500 total, or $500 per year for three years.

The bottom line

Small businesses not only can have an affordable, personalized, and professionally-managed retirement plan, they should do so. The state-run plan has a purpose, but it places unnecessary limits on workers’ retirement funds and is ripe with conflicts of interest.

Your company CAN have a retirement plan, even if you are a single-person company, a family business, or has only a few employees. Let us show you the options.

As a small business ourselves, nVest Advisors is deeply committed to helping small businesses and their teams thrive and prosper. From financial planning for both the owners and employees of the business to fiduciary management of your SEP IRA, SIMPLE IRA, 401(k), 403(b), HSA, college savings plans, and other benefits options, we strive to be an integral part of your team’s financial well-being. And being a small company ourselves, we’re small enough to develop a close working relationship with your company and have the resources and investment partners to handle even the largest 401(k) needs.

If your company would like to receive a competitive bid from us for your current programs, or if you need to start a new benefits plan from scratch, we’d love to partner with you. Feel free to schedule a complimentary one-hour due diligence meeting with CEO Jeremy Torgerson, to discuss your needs.