Oregon Moves Ahead With State-Run IRA Program
The Beaver State took another step forward this week to implement the “OregonSaves” program
, as the Oregon Retirement Savings Board approved the final rules
that will govern the operation of the program.
Starting Nov. 15, 2017, Oregon employers with 100 or more employees must begin to register with the program, either certifying that they already offer their workers access to a qualified retirement plan or automatically enrolling them into OregonSaves, the state-run auto-IRA program for private sector workers. The program will then be further phased-in based upon employer size over a 2½-year period so that by May 15, 2020, all employers that either:
1. employ one or more individuals 18 years or older for 18 separate weeks during the year; or
2. whose quarterly payroll is $1,000 or more, will have to register with the program.
The rules allow an employer to file a certificate of exemption from the program (which must be renewed every three years) if it already offers a qualified plan to its employees. A qualified plan is defined as a tax-qualified retirement plan such as a 401(k), 403(b), 457(b), SEP or SIMPLE IRA. The rules make it clear that any payroll deduction IRA program that is separate from the OregonSaves program is not a qualified plan.
If an employer does not obtain a certificate of exemption, it is required to automatically enroll all of its employees into OregonSaves within 60 days of when the employer registers for the program. Enrolled employees will automatically contribute 5% of their pay into the program, with an auto-escalation rate of an additional 1% of pay, maxed out at 10% of pay. The program accounts will be Roth IRAs, so the contributions will be made on an after-tax basis.
The first $1,000 in contributions will be invested in a Board-selected capital preservation investment, with all subsequent contributions invested in a target date fund selected by the Board.
Employees who do not wish to participate in OregonSaves can opt out of the program. Employees can also select a different initial contribution rate with or without the auto-escalation feature. Employees may also select different investment options into other funds offered by the program. Employees may also request a distribution from funds from the accounts, which would be subject to any applicable state and federal income tax obligations.
The rules specify that the Board will charge each OregonSaves account an administrative fee not to exceed the rate of 1.05% per annum, to defray the costs of operating the program. The rules give the Board the ability to review and adjust these fees if appropriate.
Earlier this month President Trump signed legislation
that blocks the Obama-era DOL’s safe harbor exempting states’ and municipalities’ auto-IRA programs from ERISA, following passage by the U.S. Senate
and House of Representatives of Congressional Review Act (CRA) resolutions. In February a similar resolution was passed by the House of Representatives
to nullify the safe harbor rules designed to provide for state-run plans for private sector workers, although it has not yet been addressed by the U.S. Senate.
Under the CRA, Congress has a window of time to consider and pass legislation to overturn any significant regulation if that legislation is signed by the president. The current CRA window applies to any significant Obama-era rule that was either finalized or made effective after June 13, 2016. The DOL’s state plan rule was finalized in August 2016 and became effective in October 2016.
However, the elimination of the safe harbor’s provisions only removes certain guideline protections for these programs — it does not block them from happening, as long as they don’t run afoul of ERISA.
Andrew Remo is the American Retirement Association’s Director of Legislative Affairs.