States Flex Their Muscles on Coverage
Editor’s Note: This post is an updated and expanded version of the Legislative column published in the Fall 2018 issue of Plan Consultant magazine.
On a host of issues, the map of the U.S. is a crazy quilt, with states creating a kaleidoscope of responses to problems and circumstances — one of which is the retirement readiness of employees in the private sector. Following is an update highlighting some of the most significant developments in states that have taken steps to create state-run programs for these employees.
When it comes to implementation and operation of a state-sponsored plan, Oregon stands at the head of the line.
On June 25, 2015, Oregon Gov. Kate Brown (D) signed into law a bill creating the Oregon Retirement Savings Board (ORSB), a body that operates under that state Treasury whose job was to establish and oversee the state-sponsored savings plan — an auto-IRA program for private-sector workers known as OregonSaves. A little less than two years later, in April 2017, the ORSB approved the final rules for the program.
Starting Nov. 15, 2017, Oregon employers with 100 or more employees had to begin registering with OregonSaves, either certifying that they already offer their workers access to a qualified retirement plan or automatically enrolling them into it. Employers must register for the program if they either have a quarterly payroll of $1,000 or more, or employ one or more individuals 18 years or older for 18 separate weeks during the year.
Not all employers are swept into the OregonSaves net, however. An employer may file a certificate of exemption (which must be renewed every three years) from the program if it already offers a qualified plan — defined as a tax-qualified retirement plan such as a 401(k), 403(b), 457(b), or SEP or SIMPLE IRA — to its employees.
The pilot for OregonSaves was launched on July 1, 2017. The ORSB reported in July 2018 that in the program’s first year:
- 990 employers registered for it.
- More than 58,000 employees are participating in it — 73% of those eligible to do so.
- Participants saved an average of $46.42 per pay check, or $100.21 per month; the average savings rate is currently 5.14% of gross pay.
- OregonSaves’ assets totaled just under $4.56 million.
Implementation has come in waves. It is being phased in based upon employer size, over two and a half years. The ORSB says that it will launch the third wave on Dec. 15, 2018, targeting employers with 20-49 employees. By May 15, 2020, all employers must register with the program.
The state Treasury reported on Aug. 1 that it has begun a new round of rulemaking for the program, which will include discussions of expanding OregonSaves by:
- allowing individuals, such as the self-employed, to sign up and participate in the program; and
- adding a traditional IRA as an investment option, in addition to the Roth IRAs currently available.
The Land of Lincoln beat Oregon to the punch legislatively; its legislature enacted a bill creating the Illinois Secure Choice Savings Program three days after 2015 began, almost six months earlier. The program is now being tested; Illinois State Treasurer Michael Frericho (D) announced April 18 that employers which volunteered to participate in a pilot program are doing so.
The original measure was mandatory, requiring employers with more than 25 employees to either provide a retirement plan or participate in the state’s Secure Choice plan. The program was to begin functioning on June 1, 2017; however, a measure was later enacted that delayed enrollment of employees and specifies that full implementation is to take place by Dec. 31, 2020. It’s up to the Illinois Secure Choice Savings Board to set a precise timeline.
However, on Aug. 14, 2018, Gov. Bruce Rauner (R) issued an amendatory veto, which made technical changes to the Secure Choice program to change the meaning of the legislation. He changed wording that said employers “shall” offer Secure Choice to “may.” In the process, Rauner provided employers the option to not offer the program — a change that may make the program voluntary.
In his veto message, Rauner noted that “valid concerns” have been raised about the program, which he said could result in:
- fewer small retirement plans;
- the terminations of existing small plans; and
- concerns about the program's “viability under federal law.”
But Rauner’s action isn’t necessarily the end of things; legislators could:
- approve the change;
- let die the technical changes bill to which Mr. Rauner's action applies; or
- override the amendatory veto.
On May 11, 2016, Gov. Larry Hogan (R) signed into law legislation creating a retirement program for private-sector workers who do not have access to an employer-sponsored retirement plan. It went into effect on July 1, 2016; however, there is no specific implementation timetable.
The Maryland Small Business Retirement Savings Program and Trust creates mandated payroll deduction individual retirement accounts for employees of small businesses and an 11-member board to implement and administer the program. The program requires employers with 10 or more employees which use an automated payroll system or service and do not offer their own plan to either participate in the state program or pay an annual filing fee. It also creates a state-run auto-IRA program that businesses can offer and thereby fulfill the law’s requirements.
Employers which either participate in the program or offer a retirement savings arrangement to their employees will be exempt from the state’s $300 annual filing fee for corporations and business entities after the program becomes operational.
On Sept. 29, 2016, Gov. Jerry Brown (D) signed into law SB-1234, a measure that will implement the California Secure Choice Retirement Savings Trust Act, which created the California Secure Choice Retirement Savings Program (though it has since been renamed CalSavers), a state-run auto-IRA plan. The law went into effect on Jan. 1, 2017, but as in Oregon, Illinois and Maryland, that doesn’t mean that the program came into fruition immediately; it calls for a gradual phase-in over three years to give affected private-sector employers time to prepare.
The law provides that all private-sector employers with five or more employees must either offer their own retirement savings program or automatically enroll their workers in the state-based payroll deduction IRA program at 3% of pay. There is automatic escalation, but it is not to be more than 1% of salary per year. Employees may opt out of automatic escalation, as well as the program itself; they also may set the amount of pay they contribute to their accounts and the amount of automatic escalation.
The California Secure Choice Retirement Savings Investment Board administers the plan, including determining which entities are responsible for handling the administrative, recordkeeping, custodial and investment functions. The Board is to invest the program’s funds in U.S. Treasuries or similar investments for up to three years after implementation. The Board adopted final regulations for the program earlier this year, an important step toward implementation. On Aug. 16, the board chose Ascensus to serve as administrator of CalSavers and State Street Global Advisors to provide investment management services.
As of June 30, 2017, CalSavers had just over $1.7 million in cash and investments in the state Treasury. CalSavers is expected to start a pilot program later this year and open the program officially for statewide enrollment in 2019. It will be rolled out gradually, and will be mandatory on a phased-in basis from 2020 to 2022 for different groups of employers, based on their size: 100 or more employees in January 2020, 50-99 employees in January 2021, and 5-49 employees in January 2022.
Small Business Marketplaces
Another option some states have pursued is to set up retirement plan marketplaces for private-sector small businesses.
New Jersey. In January 2016, then-New Jersey Gov. Chris Christie (R) signed into law the New Jersey Small Business Retirement Marketplace Act, which is intended to create a retirement savings program that connects eligible employers and their employees with approved plans to increase retirement savings. It establishes the New Jersey Small Business Retirement Marketplace, which is to offer at least two types of plans for eligible employer participation, including a SIMPLE IRA and a payroll deduction IRA-type plan or workplace-based IRA open to all workers in which the employer does not contribute to employees’ accounts.
The law requires that that there be at least two financial services firms offering approved plans in the marketplace. Firms doing so must offer a minimum of two product options: a balanced fund and a target date or other similar fund.
Washington. Legislation creating a virtual retirement marketplace in Washington State was enacted on May 15, 2015; however, the marketplace wasn’t launched until March 19 of this year. The marketplace is intended to serve as “an informational hub, bringing together financial services firms, employers and employees” that will simplify retirement savings options, facilitate informed decisions about retirement and enable individuals to start building savings.
In the marketplace, financial services firms will offer low-cost retirement savings plans to businesses with fewer than 100 employees, including sole proprietors and the self-employed. At launch, the site offered five types of 401(k) plans, as well as Roth and traditional IRAs; the state’s Department of Commerce has said that more plans will be added in the future.
Participation is voluntary for both employers and employees. The Department of Commerce administers the marketplace, but private retirement plan providers handle enrollment. The marketplace is also open to self-employed, part-time and temporary “gig” workers.