Seattle Mayor Steps Up With Auto-IRA Plan for Private Sector Workers
One might have thought that the momentum behind municipality-run auto-IRA programs for private sector workers was undermined by legislation signed by President Trump in April that blocked the Obama-era Department of Labor’s (DOL) safe harbor exempting states’ and municipalities’ auto-IRA programs from ERISA.
Instead, Seattle Mayor Tim Burgess sent legislation to the Seattle City Council on Oct. 10 that would establish the Seattle Retirement Savings Plan, which he said “creates a framework to give Emerald City workers whose employers do not offer a workplace retirement savings plan an easier way to save for retirement.”
Last December the Obama administration’s DOL made some changes to the final regulations regarding state-run retirement programs for private sector workers – opening the door, subject to some specific criteria for any governmental unit of a state, including city, county or similar governmental body to create such a plan. At the time, the DOL noted that it had then received written letters of interest from representatives of Seattle, Philadelphia and New York City.
As outlined by Burgess
, the Seattle Retirement Savings Plan only applies to workers within the Seattle city limits whose employers do not offer their own workplace retirement savings plans (though the post acknowledges that there may be “additional requirements established to make the Plan administratively feasible”). Covered employers would perform what is described as “a limited administrative function”: processing payments of eligible employees to a private, third-party plan administrator through their payroll systems. The post notes that federal law prohibits employers from matching employee IRA contributions.
Workers would be automatically enrolled in the plan, and could choose to opt out or stop participating at any time. Default options would be initially set for contribution rate (expected to be 3% to 5%, according to Burgess) and investment product, but employees could make changes at any time. The menu of investments would be offered by financial firms “screened and selected” by a Seattle Retirement Savings Plan Board, which would be created if the plan is adopted by the City Council. Employees would initially be assigned a default investment product that is appropriate for their age and corresponding risk profile, such as a low-fee target date mutual fund.
Mayor Burgess says that the city will conduct a market feasibility and legal analysis to determine how best to proceed with the plan, which is anticipated to cost the city $200,000. He notes that the plan will also have one-time start-up costs and ongoing costs that will be borne by the plan, and that plan costs would be covered by a “small administrative fee automatically deducted from each employee account,” which he says will make the plan “self-sustaining” after an initial period.
Seattle is, of course, in Washington State, which has announced plans for a Washington State Small Business Retirement Marketplace that is expected to be operational in 2017. This marketplace is just that: a web portal and search tool that connects small businesses in the state that would like to establish their own retirement savings plans with appropriate financial services firms. Burgess notes that the Seattle Retirement Savings Plan “complements the State Marketplace by providing eligible employees an efficient and cost-effective plan facilitated by the City that employs qualified financial services firms for plan administration and investments.” He explains that at any time, employers could still choose to establish their own retirement savings plans instead of participating in the municipal plan.
If it is approved by the City Council
, the Seattle Retirement Savings Plan is expected to begin enrollment on Jan. 1, 2019.