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Oregon on July 1 is set to become the first state to launch a program expanding retirement savings to private-sector workers whose employers don’t sponsor retirement plans.
The program, like similar ones set to launch later in California, Connecticut, Illinois, and Maryland, is strongly opposed by prominent business groups like the U.S. Chamber of Commerce, the Financial Services Roundtable, and the American Council of Life Insurers.
Those opposed cite lack of federal law protections, and no confidence in states to run investment programs. They also claim that these programs aren’t voluntary for employers and employees, despite the fact that employees can opt-out at any time.
Lisa A. Massena, executive director of Oregon’s Retirement Savings Plan, also known as OregonSaves, disputed these claims and told Bloomberg BNA that she is “trying to make the program simple and burden free” for employers.
The program is likely to face legal challenges. Employers in Oregon “may in the next few months go to court” to stop the program from being implemented, Will Hansen, senior vice president of retirement policy for the ERISA Industry Committee, told Bloomberg BNA. ERIC, which advocates for large employer plan sponsors, believes the program violates the Employee Retirement Income Security Act because it requires employers that offer ERISA-covered plans to report such coverage to the state to receive an exemption, he said.
The program has plenty of supporters as well.
It’s a win-win for employers and employees, Saleem Noorani, owner of the Cork and Bottle Shop, with locations in Corvallis and Eugene, Ore., told Bloomberg BNA. He said the program will permit him to compete for employees with large businesses that offer retirement plans to their workers.
“It’s an incredible opportunity for small business to have access to low fee, pooled and professionally managed funds to help them save for the future,” Joyce DeMonnin, communications director for AARP Oregon, in Portland, Ore., told Bloomberg BNA. “This is a great program for 1 million Oregonians” who lack access to a retirement plan at work, she said.
For months, these programs have been in the cross hairs of Congressional Republicans. Congress passed resolutions repealing an Obama-era Labor Department rule that would have given these programs safe-harbor protection from attacks that they were preempted by ERISA. President Trump signed the resolution dealing with state-run programs on May 17, and the DOL on June 27 officially revoked the rules applying to both state- and city-run programs.
Despite the repeal of the DOL rules, Oregon will be making good on its pledge to forge ahead with its program when it implements a trial-run pilot on July 1. Under the pilot, 11 Oregon employers, including Noorani, have volunteered to register early for the program. They will begin making transfers from payroll on behalf of 151 employees to professionally managed individual retirement accounts established and sponsored by OregonSaves.
Providing 401(k) plans to employees can be expensive for small business owners. To provide a plan for his 12 employees, Noorani said, would have entailed prohibitive start-up costs of about $1,000 per employee, plus the requirement to match employee contributions. In addition, he said the fees charged on the plan’s investments would have been too high.
Under OregonSaves, employees will pay a 1 percent annual expense ratio on plan investments.
The program is being implemented in phases, with employers of 100 or more workers required in the first phase to register by Nov. 15 and to have payroll deductions flowing into employee accounts by Jan. 1, 2018.
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