The Beacon LOCKTON ® RETIREMENT SERVICES AUTHOR SAMUEL A. HENSON, JD Vice President, Director of Legislative & Regulatory Affairs DOL PAVES THE WAY FOR STATE-RUN RETIREMENT PLANS The United States Department of Labor (DOL) has released guidance allowing more than two dozen proposals for state-run private employer retirement plans to move forward. The proposed DOL rules allow states to mandate employers not offering qualified retirement plans to enroll employees in individual retirement accounts funded by payroll-deduction. Those accounts would not be subject to Employee Retirement Income Security Act (ERISA). The guidance also allows states to create multiple-employer retirement plans (MEPs) that are compliant with ERISA. Many questions remain unanswered, but it is clear that even employers offering qualified plans will be impacted. State Initiatives The President has long wanted to encourage private sector retirement plan coverage. Unable to achieve major federal level changes, he embraced state initiatives. Knowing this, more than 24 states began enacting their own legislation, generally adopting one of three approaches, two of which required additional guidance to resolve challenges (see detail summaries on this page and the next): 1. Payroll-Deduction IRAs—employees not covered by qualified retirement plans must be enrolled in payroll-deduction IRAs using a state-mandated process. As a result, employers with eligibility waiting periods may need to enroll employees in the state plan until they become eligible for the qualified plan (California, Illinois, Oregon). The Proposed Regulation Summary on the next page explains more. 2. State-Sponsored Plans—states would design, establish, and run qualified multiple employer plans which private employers could voluntarily adopt (Massachusetts). See the Summary of Interpretive Bulletin 2015-02 for more detail. 3. Retirement Marketplace—a state-created marketplace would connect employers with retirement plan providers. This plan is not mandated, and employers could choose various retirement plan features (Washington). Summary of Interpretive Bulletin 2015-02 Under current law, ERISA does not allow unrelated employers to join multiple employer plans (MEPs). With Interpretive Bulletin 2015-02, the DOL creates an exception. As a result, states could create and run open MEPs. The MEP allows completely unrelated participating employers to pool their assets into a single plan, making it “open.” To address the issue of connection between employers participating in a MEP, the DOL creatively said that the employers’ common relationship is a joint goal with the state to promote citizens’ health and welfare.
Transcript
The Beacon
LOCKTON ® RET IREMENT SERV ICES
AUTHOR
SAMUEL A. HENSON, JDVice President,
Director of Legislative & Regulatory Affairs
DOL PAVES THE WAY FOR STATE-RUN
RETIREMENT PLANSThe United States Department of Labor (DOL) has released guidance
allowing more than two dozen proposals for state-run private
employer retirement plans to move forward. The proposed DOL rules
allow states to mandate employers not offering qualifi ed retirement
plans to enroll employees in individual retirement accounts funded by
payroll-deduction. Those accounts would not be subject to Employee
Retirement Income Security Act (ERISA). The guidance also allows
states to create multiple-employer retirement plans (MEPs) that are
compliant with ERISA. Many questions remain unanswered, but it is
clear that even employers offering qualifi ed plans will be impacted.
State InitiativesThe President has long wanted to encourage private sector retirement plan coverage. Unable to achieve major federal level changes, he embraced state initiatives. Knowing this, more than 24 states began enacting their own legislation, generally adopting one of three approaches, two of which required additional guidance to resolve challenges (see detail summaries on this page and the next):
1. Payroll-Deduction IRAs—employees not covered by qualifi ed retirement plans must be enrolled in payroll-deduction IRAs using a state-mandated process. As a result, employers with eligibility waiting periods may need to enroll employees in the state plan until they become eligible for the qualifi ed plan (California, Illinois, Oregon). The Proposed Regulation Summary on the next page explains more.
2. State-Sponsored Plans—states would design, establish, and run qualifi ed multiple employer plans which private employers could voluntarily adopt (Massachusetts). See the Summary of Interpretive Bulletin 2015-02 for more detail.
3. Retirement Marketplace—a state-created marketplace would connect employers with retirement plan providers. This plan is not mandated, and employers could choose various retirement plan features (Washington).
Summary of Interpretive Bulletin 2015-02Under current law, ERISA does not allow
unrelated employers to join multiple
employer plans (MEPs). With Interpretive
Bulletin 2015-02, the DOL creates
an exception.
As a result, states could create and run
open MEPs. The MEP allows completely
unrelated participating employers to pool
their assets into a single plan, making it
“open.” To address the issue of connection
between employers participating in a MEP,
the DOL creatively said that the employers’
common relationship is a joint goal with
the state to promote citizens’ health
and welfare.
The communication is offered solely for discussion purposes. Lockton does not provide legal or tax advice. The services referenced are not a comprehensive list of all necessary components for consideration. You are encouraged to seek qualifi ed legal and tax counsel to assist in considering all the unique facts and circumstances. Additionally, this communication is not intended to constitute US federal tax advice, and is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending any transaction or matter addressed herein to another party.
This document contains the proprietary work product of Lockton Financial Advisors, LLC, and Lockton Investment Advisors, LLC, and is provided on a confi dential basis. Any reproduction, disclosure, or distribution to any third party without fi rst securing written permission is expressly prohibited.
Securities offered through Lockton Financial Advisors, LLC, a registered broker-dealer and member of FINRA, SIPC. Investment advisory services offered through Lockton Investment Advisors, LLC, an SEC-registered investment advisor. For California, Lockton Financial Advisors, LLC, d.b.a. Lockton Insurance Services, LLC, license number 0G13569.
deduction IRAs from ERISA under the following safe
harbor conditions:
The IRA is established and administered by a state.
A state selects and monitors the plan’s investments.
A state secures and protects the payroll deductions.
A state notifi es employees of their rights under the program and enforces those rights.
Employees participate voluntarily and are notifi ed of their ability to opt out.
Employees can withdraw their money under normal IRA rules without cost or penalties.
The employer need only facilitate payroll deductions, asset transfer to the IRA, information distribution, and appropriate records maintenance.
There are no employer contributions.
The DOL will take public comments on the proposed
regulation through January 19, 2016, and will likely
fi nalize and enact a fi nal regulation prior to the 2017
Presidential election to avoid political challenges from a
new administration.
Lockton’s PositionThe new guidance comes as no surprise. The President had very clearly instructed the DOL to fi nd a way for states to move forward. But, with this guidance, the DOL may have opened unintended fl oodgates. How employers will navigate the potential impact of 50 separate and distinct retirement programs (some mandated) in each state where they have operations, remains to be seen. The President previously proposed several federal payroll-deduction IRA programs with little success, and pressure on both sides of the aisle could still force a political compromise to avoid 50 distinct programs, in the form of a federal mandate.
In the meantime, employers should closely monitor the states where they operate to determine what type of program is in place. In the private sector, the DOL has been unreceptive to this plan design. But here, in one fell swoop, they have carved out an exception to their prior guidance allowing states to move forward. Allowing employers to join MEPs based on a common concern for citizens’ well-being creates a double-standard and shows a bias for the state run plans. Hopefully, the DOL will reconsider its position and equally apply this position to all employers, regardless of whether the state is involved.
There remain far more questions than answers at this
point, but we will continue to monitor state progress
and keep you informed. If you have questions, please
