Congress Acts to Trim Safe Harbors for State, Local Government Auto-IRAs


Obama-era Labor Department rules meant to encourage state and local governments to require private sector companies to enroll their employees in retirement savings plans took another hit this week.

In a 50 to 49 vote on March 30 the Senate approved a resolution rejecting the DOL’s “safe harbor” for city-run plans under the Employee Retirement Income Security Act.

The move follows a vote in February by the House of Representatives to kill a similar safe harbor for private plans run by state governments.

The safe harbors were meant to give these governments some assurance that their plans wouldn’t be deemed employee benefit plans subject to regulation under ERISA. The rules would have employers act as a conduit for payroll deductions into individual retirement accounts set up by their workers. The employers would not have to make contributions themselves.

Now that protection will disappear altogether assuming that the measures clear both houses of Congress and President Trump signs them into law.

“Assuming the President signs the measure into law, and the White House has indicated he will, the rollback of the Obama-era safe harbor rules related to city and county auto-IRAs introduces significant uncertainty for these arrangements and indicates that the safe harbor rules related to state auto-IRAs may meet the same fate,” said Dominic DeMatties, a partner in Alston & Bird’s Employee Benefits & Executive Compensation Group and a former attorney-advisor in the Office of the Benefits Tax Counsel at the Department of the Treasury.  “The next move will be what the states do in response.”

See related story, Senate Votes to Block City-Run Private-Sector Retirement Plans.

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