DOL Regulation on State-Run Plans at OMB

By Nevin Adams • July 28, 2016 • 0 Comments
State-run retirement programs for the private sector — and those who might be affected by them — could soon get some additional clarity from the Department of Labor (DOL).

That would come via the final DOL rule intended to clarify that state savings initiatives would not be subject to ERISA regulations, if they meet the conditions set forth by the rule.

Coverage Concerns

In recent years, state governments have become focused on increasing access to retirement plans for private sector workers. Connecticut, Maryland, Illinois, Massachusetts and Oregon have all embraced programs that incorporate an automatic payroll deduction (Roth) IRA, that must be offered by employers of certain sizes to their workforce (it varies by state). Employers are not required to contribute, and workers are allowed to opt-out. Approximately half the states are currently considering measures to close their retirement coverage gap.

About a year ago, President Obama directed Secretary of Labor Thomas Perez to publish by the end of 2015 a proposed rule to “provide a clear path forward for the states to create retirement savings programs.” The DOL did just that last November.

Concerns Linger

However, in facilitating those state-run programs, there has been concern that the regulations, as initially proposed, could create an unfair playing field and lead to widespread confusion over ERISA preemption, as well other potentially damaging changes.
The proposed rule outlined three different structures; a marketplace approach (as has been adopted in Washington State and New Jersey; a prototype plan approach (adopted in Massachusetts); or a multiple employer plan (MEP) approach.

Back in January, the American Retirement Association (ARA) submitted a comment letter to the DOL with respect to those proposed regulations. In the comment letter, the ARA made the following recommendations:

  • That the non-ERISA safe harbor under the proposed rule be expanded to apply to comparable payroll deduction programs established and administered by private sector providers.

  • That the non-ERISA safe harbor under the proposed rule be available to any payroll deduction IRA program without regard to whether it is mandated by a state law (or offered under a state established IRA Program).

Alternatively, the ARA recommends that the final rule include an amendment to the non-ERISA safe harbor contained in ERISA Regulation Section 2510.3-2(d) to permit automatic enrollment features.

The final rule developed by the DOL, titled “Savings Arrangements Established by States for Non-Governmental Employee,” was submitted to the Office of Management and Budget (OMB) for review July 22, 2016.

At this point we don’t know what has been submitted to OMB, or what might emerge from that review. But we should know in a matter of weeks.