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As a small or medium-sized business owner in Colorado, you are constantly juggling priorities. From managing day-to-day operations to keeping your employees happy and productive, ensuring their long-term financial well-being might not always be at the forefront of your mind. When you finally decide to explore retirement plan options for your business, we are here to help evaluate and implement the best path forward.
According to The Bell Policy Center, nearly one million private sector employees in Colorado do not participate in a workplace plan. About 80% of these employees do not have access to a qualified retirement savings plan at the workplace. The Colorado SecureSavings program was launched to address the growing need for retirement savings options for employees who lack access to employer-sponsored plans.
While this is a commendable initiative, offering benefits to employers as well as employees, the program has its limitations. A traditional pre-tax retirement program such as a 401(k) plan is typically what we recommend as a standard benefit.
This article aims to provide you with all the information you need about both types of retirement plans, empowering you to understand the implications for both your business and your team.
The Colorado SecureSavings program offers a convenient way for employees to save for retirement through automatic payroll deductions. The program is mandatory for all Colorado businesses with five or more W-2 employees who have worked for you for at least 180 days and are not already covered by a qualified retirement plan (401(k), 403(b), etc.). Exceptions include newly established businesses with less than one year of operation and those categorized as religious organizations.
The default savings rate for the SecureSavings program is 5% of the employee’s gross pay, and the amount is to be deducted from the paycheck after taxes. The contribution limit for 2024 is a maximum of $7,000 for employees under the age of 50 and $8,000 for those 50 and older.
While the state provides documentation and information, working with a PEO company like Obsidian HR can simplify some related HR admin, like payroll deductions and reporting.
A 401(k) is an employer-sponsored retirement savings plan that may be offered as part of a job benefits package. Its provisions enable employees to save a portion of their salary in an individual 401(k) account under the plan, usually with annual limitations. Employers can offer matching contributions as an incentive to encourage employee participation.
One prominent feature of a 401(k) plan is its tax-deferred status. This means that federal income taxes are to be paid on investment earnings from 401(k) plans only when the funds are withdrawn from the account.
Employees get to determine how the funds are to be invested. With a 401k plan, they get a tax break for setting aside a portion of their salary for retirement.
Several types of 401(k) plans, such as traditional, safe harbor, and SIMPLE, are available to employers. If a participating employee switches jobs, they can roll over or transfer the funds to an Individual Retirement Account (IRA), or the new employer’s retirement plan.
Maximum contributions to 401(k) plans by employees and employers are adjusted periodically to account for inflation. For 2024, the annual limit on employee contributions to 401(k) plans is $23,000 annually for workers aged 50 or less.
For older employees, there is the option of a $7,500 catch-up contribution. The upper limit on employee-employer contributions for workers under 50 is $69,000, but the limit is set at $76,500 when the catch-up contribution is included.
Offering access to a retirement savings plan can be a significant perk for attracting and retaining top talent. The Colorado SecureSavings program is mandatory, and the cap on contributions is quite low compared to other retirement plans. So, it does not provide a competitive advantage for recruitment. However, more robust retirement plan options like 401(k)s can provide companies with an edge in Colorado’s competitive job market.
At first glance, the Colorado SecureSavings program appears to be an ideal solution to the state’s employee retirement conundrum. However, it is a relatively new retirement plan program, and some concerns, such as administrative and reporting requirements, still need to be addressed.
For instance, while the registration and enrollment process seems simple enough, it remains to be seen whether the payroll interface will run smoothly. Similarly, the program’s quality level can be gauged only after it is implemented by many businesses. As of November 2023, only around 13,000 of about 115,000 eligible employers have enrolled in the SecureSavings program since its launch in January 2023.
Meanwhile, 401(k) plans have been available for decades, making them a tried and tested option. These plans also afford great flexibility for the employer while ensuring maximum employee savings.
At Obsidian HR, we understand navigating the intricacies of employee benefits programs can be challenging. Our team of HR experts is here to help you understand the 401(k) retirement plan in detail and evaluate it against the Colorado SecureSavings program. The more you understand the impact and benefits of different options, the more you can make well-informed decisions for your business and ensure a secure future for your team.
Reach out today to schedule a quick phone call with one of our experts.
