Less than three months after Gov. Jared Polis signed into law the Colorado Secure Savings Program, Treasurer Dave Young found himself in Aspen touting the benefits of the plan — on track for an October 2022 implementation — that will create an automatic Independent Retirement Account (IRA) with an opt-out option.
The program, he emphasized, does not target businesses already offering retirement plans, but rather those with at least five employees otherwise without a plan available to them.
“When we start talking about upwards of a million people here in the state of Colorado that would be impacted by this — not all of them are going to stay in it, but a large proportion of them are — this is really significant work,” Young said in an interview last week.
According to a study commissioned by a committee chaired by Young, the “do nothing” response — that is, if the state were to not respond to the fact that roughly half of Colorado workers do not currently have any retirement savings — would ultimately carry with it about a $10 billion price tag over the next 15 years.
That’s a blow the state budget couldn’t sustain, Young said.
“I was on the joint budget committee when I was in the House, so I had a pretty deep look at the budget,” he said, referencing his time in Denver’s Capitol from 2011 until becoming treasurer in 2019. “I know for a fact that our budget can’t withstand that, so something had to be done. We had a recommendation come out of this study group that I led to run a bill to establish a program similar to what we saw in Oregon, Illinois and California.”
The idea is one focused on simplicity, he said: many small businesses don’t have the legal and financial resources necessary to offer a retirement program for their employees, regardless of how much they may desire to do so. And for many individuals, the idea of navigating the myriad IRA and Roth IRA options that exist on their own, without financial education or guidance on the matter, often leads to choice paralysis and inaction.
As a result, more than 900,000 Coloradan workers do not have any meaningful retirement savings, Young said.
The idea of this program, then, is to eliminate some of those obstacles and instead empower workers to start at whatever savings level they decide is comfortable in order to capitalize on the benefits of compound interest, if they’re starting young, or just getting started at all.
“We have a board that manages this and private-sector record keepers and fund managers that will actually manage all the detailed work, so the business owner doesn’t have to worry about that,” Young said. “All we do with them is just say allow us to use payroll deduction so the saver can actually pull money out. Again, if they don’t think they can afford it, they can certainly opt out of it. But sometimes, you’d be surprised at what you can afford … if you save a little bit.”
And unlike traditional employer-sponsored employment options, the private-public partnership behind the Colorado Secure Savings Program creates an IRA that is attached to the individual, so those who remain in the option wouldn’t have to worry about updating accounts every time they change jobs.
“So really, there’s no onus on the business outside of just allowing us to use the payroll deduction. Again, if they have a retirement savings plan, we’re not going to superimpose this on top of it; we’re just trying to get more people saving,” Young said.
The idea, he stressed, is to get as many people saving as possible — there’s no time better than today to start, he underscored — so that retirement becomes a legitimate option to more people, and for those who were always going to retire, they can do so more comfortably. Social Security creates the defined benefit, but it’s not as well-funded of a system as it was originally intended, so it’s critical that people be able to supplement with savings in order to avoid falling into needing social safety nets, he said.
“I think everybody understands they want to have retirement — how to actually make that happen is often not clear to people,” he continued. “This is why we have so many people that aren’t saving, because they just haven’t really sat down and figured out what are my real costs in retirement? And when you’re 25, it’s a little hard to forecast that out.”