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California officials are drafting a plan to launch a state-sponsored retirement savings program for private sector workers if Congress repeals Obama administration rules that cleared the way for it.
Members of the Secure Choice Retirement Savings Board said existing provisions of the Employee Retirement Income Security Act could make retirement accounts exempt from the act if Congress passes H.J. Res. 66. The measure would repeal Department of Labor regulations that explicitly exempted Secure Choice and similar programs in other states from ERISA.
The Senate could take up the resolution as early as March 3 following the House of Representatives’ approval of the measure Feb.15.
“It doesn’t mean it’s the end of the road,” David E. Morse, an attorney with K&L Gates LLP in New York, who advises the Secure Choice board, told members by phone during their meeting Feb. 27.
Board members said they would be on solid ground if they rely on a safe harbor dating to 1975 that exempts employers from ERISA’s fiduciary requirements if they provide an individual retirement account to employees. They are preparing to move forward with Secure Choice without the safe harbor and federal endorsement the DOL rules provide.
The board is sticking with plans to have Secure Choice up and running by mid-to-late 2018 and to start taking contributions in 2019 for large employers. Smaller employers will be phased in over the following two years. They haven’t decided yet on plan details such as investment options and who would manage the system.
Board members include Gov. Jerry Brown’s (D) Department of Finance Director Michael Cohen, State Treasurer John Chiang (D) and State Controller Betty T. Yee (D), as well as appointees of the Legislature and governor.
Chiang is one of 19 state treasurers and fiscal officials who sent a bipartisan letter Feb. 22 to Senate Majority Leader Mitch McConnell (R) asking the Senate to reject the resolution, along with a companion measure that would apply to local governments. The measures give states flexibility to address the lack of retirement savings for 55 million workers who don’t have access to employer-sponsored plans, they said.
“We insist that states be allowed to maintain their constitutional rights to implement such legislation,” they said.
Signatories included Republican treasurers from Kentucky, Louisiana, Idaho, Utah, Indiana and Mississippi in addition to 11 Democratic treasurers and two independents.
If the House resolution passes, board members said they will likely need legislation to move ahead with the program because the 2016 law giving Secure Choice the authority to launch is tied to enactment of the DOL regulations.
Staff members also advised the board that after fighting the House resolutions or launching California’s program with modifications, California is likely to face legal challenges from investment and business groups that oppose Secure Choice.
“This is a fight for the long term,” Ruth Holton-Hodson, senior policy advisory to Chiang, told the board. “If we win this, the investment community isn’t going to stop.”
Financial services groups have opposed Secure Choice and similar programs in other states, saying consumers would be better served by consulting with accredited financial advisers, and the state-run programs would be anti-competitive with private sector providers.
To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at LMahoney@bna.com
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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