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How the Colorado Secure Savings Program Will Affect Small Business Owners

Sarah Caruso, a Financial Planner with Prudential, and Simon Zryd, Community Builder with Network in Action talk about how the Colorado Secure Savings Program will affect Small Business Owners in the upcoming years.



Simon: Hi, everyone, this is Simon Zryd with Network in Action, and today I am talking to Sara Caruso. She's a financial adviser with Prudential and we're talking about the Colorado Secure Savings Program.


Simon: It's a new program that is coming down the pipe. A lot of business owners have heard about it at this point and have questions about it. Today, we're going to talk a little bit about what is it? What does it mean for small business owners? What are some of the impacts that it will have on their business and themselves? When does it go into effect? And why should a small business owner talk to Sarah about it and how she can help them navigate whatever is going to come their way?


Simon: Hi Sarah. So I'm super happy to talk to you about that because I know a lot of our clients have talked and asked about it. And it's like one of those things, like some legislation gets made at some point. But then till it trickles down to the small business owner, there's a lot of speculation, rumors and questions that that build up over time. So happy to have this conversation.


Simon: Let's start out with what is it what is the Colorado Secure savings program exactly?


Sarah: Yeah. So the Colorado Secure Savings Program was actually signed into legislation in July of 2020. And what it is, is it's trying to create more access for the average Colorado worker to be able to participate in a retirement plan. So overall, it's generally a really good thing for the average Colorado worker and it will allow each person to participate in an individual IRA. So an independent retirement account or individual retirement account that they can contribute part of their paycheck to go towards it. So that kind of big picture is what it is, but it is going to be run by the State and mandated by the State on how it goes into effect.


Sarah: Ok, so there's this balance overall, it's addressing a problem that is a real problem that we need that needs to be addressed, right? But it is regulated by the state. So there's going to be some tension there between what is presumed best. Business Owners always want to have their own Say-So about things. Right. And so what does that mean for a small business owner like even small business? I know the definition is very broad. And most small business owners in the eye of the state is with some small business owners would consider a large business with like 50 employees or more. Right. But so who is it? Who does it affect initially?


Sarah: Right. So it's going to go into effect in 2021. As of right now, it's going to be July of 2021. The legislature does have the option to change that and push it back for one year. So as of right now, we haven't heard any different. That will go into effect in 2021


Sarah: It will be for any employers in the state of Colorado who don't currently offer a retirement plan. So a 401K, a simple IRA, a SEP IRA, some sort of employer based retirement plan, and you have to have over one hundred employees. So that's where it's going to start in 2021. As of right now it'll start in 2021 over one hundred employees, with no current retirement program in place. You have then one year to get into compliance. So you have until 2022 to get into compliance at the one hundred plus level.


Sarah: So they are giving a little bit of leeway to get into compliance and what it means for the employer as far as what they have to contribute: The employer actually does not have to contribute anything, but they do have to make sure that all of their employees are auto enrolled into the program and it's going to start at five percent.


Sarah: So the individual employee will have the control to either increase that amount or not participate in it at all. But the onus is on the employer to auto enroll every employee that they have into the program.


Sarah: So that's where the the fines and the regulations are going to come into play. The fines right now are one hundred and fifty dollars per employee, up to a maximum of five thousand dollars per year. If the employer isn't in compliance by the compliance date, which will be one year past the time that they have to start auto enrolling their employees.


Simon: So what does that mean for business owners to auto enroll people, logistically speaking? Is that a phone call or is that a very cumbersome process like what do I have to do?


Sarah: So that's one part that we're not 100 percent sure on yet. As we understand it, as I understand it and looking through everything is it's going to be the onus, again, is on the employer to work with their payroll company to do like an auto draft or a bank draft into the separate account. Because at the end of the day, it's the employee's account to the employee owns it. They can take it to whatever employer they want to go to. There's nothing that restricts them employee wise where to go. The employer, on the other hand, the business owner, will have to coordinate with their payroll company. And that's where I expect the added costs to come in, because there's a fee that's going to be charged to be able to put those different percentages into the other accounts, just like any payroll company charges now. Typically, you're going to have a maximum of either one to two direct deposit accounts. This is going to be similar to that, except it actually has to be a payroll deduction because it is going to come off the top of their income for the individual.


Simon: So 2021, we're talking businesses, small businesses with 100 or more employees. What happens after that?


Sarah: So it's a three year phase in. So after twenty twenty one, then starting and again presumably July of 2022, any employers that have anywhere between 50 and 99 employees will then have to enroll. And same thing, automatic enrollment for every employee that's currently there and any new employee that comes on will have to be auto enrolled into the Colorado Secure Savings Program. Then they have one year from compliance at that point to get into compliance. So they'll have to get into compliance by 2023.


Sarah: Then in July, again, presumably July of 2023 any employers that have five or more employees, pretty much five up to up to forty nine will be required to auto enroll. And so that will start in 2023. Again they have one year to get into compliance before those fines start being levied.


Simon: So by 2024 any small business with five or more employees is going to be enrolled in the program.


Sarah: Yes, they'll have to be enrolled in the program or have an exemption to the program, which again, that would be any type of current qualified retirement plan.


Simon: Obviously, it is a win for the employees. There is a structure in place where there are some savings going to go into, which is good. The retirement savings, the employees can adjust that number however they want to adjust it. What opportunities open up for business owners through that, from your perspective?


Sarah: So I think the business owners really have a unique position to put themselves in with this. It doesn't make sense for every employee or to offer some type of qualified retirement plan. It might be cost prohibitive to them or just generally the amount of time that their employees spend. They're not there for very long, so it just doesn't logistically make sense. So now they have a recruiting opportunity to be able to bring in good employees and let them know that they're still going to be saving in some way, shape or form for their retirement, which is great.


Sarah: My concern comes in with the fact that there's still not a lot of education around: What does that actually mean for the individual's future cash flow? Are they going to have enough money in retirement? Are they going to be able to live the lifestyle that they're expecting and with the Colorado Secure Savings Program? The maximum that someone can contribute a year is six thousand dollars, unless they're over 50, then they can contribute seven thousand dollars.


Sarah: So percentages are great, but that's the maximum that you can contribute. And even if you started this year, while it would be helpful, six thousand dollars a year, isn't going to get you most likely to where you need to be in retirement when we factor in other things like health care and overall inflation.


Sarah: So the business owners really have the opportunity to come in and help educate their employees on their finances and really bring them a different level of financial education than just simply, "we have a retirement plan, But what does that actually mean for you as the individual?" And I think that's where businesses can start to set themselves apart in this time frame of saying, hey, not only do we offer the Colorado Secure Retirement Savings Program, we also are providing some level of financial education.So you can really understand what that means for your future and different things that you could potentially be doing and tweaking in addition to what they're already providing. So that's where I think the opportunity is.


Sarah: Those employers then breed that employee loyalty where their employees are going to stay with them even when times are tough and we don't know what the road ahead looks like. I'm going to venture to guess it's not going to be perfect. It's probably going to have some bumps in the road, right? And that's OK. That's to be expected. So being able to have employees that are going to stay with you when times are tough, that's important. And that's employee loyalty versus just having employee retention. But now your bottom line is a little bit better because you're not having to train new people to come in and do a job where it takes productivity and return on investment for an individual two years typically is what it takes to have that return on investment for a new employee.


Sarah: And that's just I mean, again, that's a blanket average across every industry, but that's what it is. So that's where I think the employers really have the opportunity to present themselves in a place where they're going to have great people coming to them also.


Simon: Yeah, so really speaking into. The employee is thinking "OK, I'm putting my money aside, whatever my my allocation is, I don't need to worry about retirement. It's taken care of." Which, as you're saying, is probably not going to be sufficient. And as a as a business owner, I really have an opportunity to partner through education with my employees for long-term success and really provide that additional value, benefit of the education and the planning for a long term retirement strategy, essentially,


Simon: Because usually they wouldn't access that. I mean, the other thing is. People know they should learn more about retirement planning, but they're not reaching out because they don't know where to go, it's cumbersome, all these obstacles that are in the way. But now, as a as an employer, you can actually make it very accessible, very easy, very convenient for people to get the right education, right?


Sarah: Absolutely. And that's that's exactly it. And the nice part that comes with all of that is not only to get into a loyalty. What's one of the easiest ways to get more business in the door is to have your employees bringing that into you. And if your employees are happy and they're confident with who you are as an employer and the things that you're providing them because of financial education, I mean that I offer it. There's a lot of other companies that offer it as well. And but we're not offering it from our companies. I'm like, this is yours. Like, take this and let's run with it. And let's make this an employee benefit that you can offer, because then those employees say they love their employers, they recruit good people, they stay, but they're also then you're walking advertisement. When people are proud of where they work, they'll tell everyone about it. I mean. Right. How many times have you been at a party or, well, in the past, I should say, at a party and know that you meet someone and talk to them about what they do.


Sarah: And they love their employer and they're like, oh, my gosh, this place is the best place to work if you ever need. You know, if you ever need plumbing done, this is call my company. They're the best of the best hands down versus you talk to someone who doesn't enjoy working for the company because just perceptional wise, whether or not it's true, they don't feel that their employer cares about them. So typically the next words out of their mouth is, I work here, I'm always open, I'm always looking around. They never said you're a bad company or anything like that. But to me, I'm like, oh, well. Why would I why would I look at that company if they can't even keep their employees? And that's not going to be the same for everyone. And you're always going to have a couple of those disgruntled people. But in general. Right, if you can utilize the way for marketing, for employee loyalty, I mean, you're going to increase your bottom line, which is based on that.


Simon: Yes. In this conversation, really what stands out to me is how you're looking at this really through the lens of the business owner and the business. And I know that's one of the areas that you really specialize in. There's there's financial advisers that have different areas of expertise, but you really focus on working specifically with small business owners and small businesses and their employees.


Simon: So what what would that look like if I'm a business owner that that falls somewhere I know within the next three years? This is a conversation that I need to have. I guess my question is, how would I reach out to you, would you come in and help me educate my team? What does that look like if I say, hey, this is something that I'm interested in? I understand the benefit and the value of what you're providing, or I'd like to learn more about how do I get started working with you?


Sarah: Absolutely. So what I do for any business owner and or business. Right. That wants to have this conversation is our first meeting really you can reach out to any number of ways, right? I'm on LinkedIn. I'm on Facebook. I'm with Network in Action. So literally type in Sarah Caruso Denverand you'll find me and my cell phone number. But call me. But what I like to do is I like to set up an introductory meeting and really figure out where can I be of highest value to a business owner, because if you already have a 401K plan set up, well, then this actually doesn't apply to you. The Colorado Secure Savings Act doesn't apply to you. You don't have to worry about it.


Sarah: However, there's ways that we could potentially leverage it all together because most 401K plans are going to have a certain limit where they say, OK, you have to be here for six months before you can contribute or before you can participate. You can actually also participate with the Colorado Secure Savings Act. So you can you can do some really interesting things. But that first meeting, I like to go through those business owners and really just find out where can I be of highest value. I look at it all from the revenue perspective and a cashflow perspective, because I think at the end of the day, the businesses that I work with, I know one of the thing that's always top of mind for them is cashflow.


Sarah: What is our cashflow equation? Are we going to have enough to make payroll? Are we going to have enough to do our expansion? Are we going to have to hire more people to take off the burden, the workload of what's going on currently? So I really look at it from that perspective, where can we find ways to add cash flow back into the business? Starting there, and then as we look at that and kind of determine what's going to make the most sense, because every business is a little different. If you're a service based blue collar business, you know, you have men and women that are out in the field. They're very hard to get in touch with for a lunch and learn. So we need to strategize and do something different.


Sarah: If you're a dual marketing company, you have a very specific way that the business is structured. So you can't really even talk about doing a qualified retirement plan or employee benefits that are very traditional. You have to think outside the box for that. And so we usually have one meeting where I really determined am I a good fit for the company? Because honestly, there sometimes are not a good fit for the company and that's OK. But that's what we determine first. Does it make sense to even move forward then?


Sarah: That second meeting is really figuring out, if it makes sense to move forward, what is the best way to do that is that financial education is going to be based at your company lunch & learn on the eventually once you learn on location, or is it something where I need to hop on a team call for ten minutes in the morning to give a high level overview of what some of the benefits are and then reach out to everyone individually because that's just how the time is going to work. There's people on call, there's people not available. And that's what we really do in the second meeting.


Sarah: And then by the third meeting is figuring out is there some level of employee benefits that would be 401K actual qualified retirement plan based on the structure of the company, based on the cash flows that the company has, where maybe it makes sense to put that in place instead of going with the Colorado retirement savings plan or program.


Simon: Good, and the time to have this conversation is really now, starting now.


Sarah: It's starting now. Whether or not the legislature decides to push it one more year, it's coming. I mean, it's here. It's just whether or not it's this July or next July. I have seen no indication as of right now that they're going to move it to next July. The structures are in place. The fines to the employers are in place. How the employees actually are going to seek restitution against the companies are in place. They can actually just sue the companies for it. But that is all included in there. So they're now just working out a couple of little pieces, actually, with the payroll companies to ensure that the streamline is there.


Sarah: And most of these payroll companies are already set up to do that because they work with 401Ks and simple IRAs and SEP IRAs already. This is an easy thing for the payroll company to transition into. So it's here and having the conversation now, we can help prepare those businesses for what's to come and when to start the communication with their employees.


Sarah: Because if you start communicating to employees now and it does get pushed for another year, well, that could be a problem. So I would definitely not do that yet. But these are the conversations that we have if you've got a small business with five employees. Well, again, does it make sense to do qualified retirement plan? Maybe, maybe not. And we can have those conversations and really start to get in depth and control that cash flow inside of the business.


Simon: Great, Sarah, thank you so much. This was a very informative conversation. I know there's a lot of business owners out there that have questions about it. If it was not on their radar, now it is on their radar. And, of course, we're going to put your contact information on this video as well. And I know they're going to reach out to you and get great help.


Sarah: Yes, absolutely. I'm just here to provide guidance on how much I appreciate the opportunity to speak about this. Thank you. Thank you so much.




You can reach Sarah Caruso via email at: sarah.caruso@prudential.com or via phone at 720-299-4958. To learn more about Network in Action, please contact Simon Zryd at simon@networkinaction.com.

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