Proposal Should Help States Duck ERISA, Borzi Says

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By Sean Forbes

Oct. 20 — Proposed rules expected by the end of the year should help states that want to take an “avoid ERISA” approach in developing and implementing their initiatives for expanding retirement coverage to private-sector workers, said Phyllis C. Borzi, assistant secretary for the Department of Labor's Employee Benefits Security Administration.

The proposal will include a provision allowing certain types of payroll deductions for automatic enrollment individual retirement accounts—or a safe harbor—that “more directly addresses some of the issues the states have raised with us,” because the current safe harbor in DOL regulations calls into question some of the things states have been doing, Borzi said.

Borzi spoke Oct. 20 at the annual conference of the American Society of Pension Professionals and Actuaries.

The proposal will be accompanied at about the same time by subregulatory guidance for states that want to “embrace” the Employee Retirement Income Security Act, “maybe” allowing them to offer plans along the lines of master and prototype plans or multiple employer plans, Borzi said. These would be options in which the states would be in essence the service provider to employers that want to use these types of plans. Borzi said she couldn't specify what form the guidance will take.

A master and prototype retirement plan is a form of plan preapproved by the Internal Revenue Service and offered by a sponsoring institution. A multiple employer plan is a tax-qualified plan maintained by more than one employer.

States that are taking the avoid-ERISA approach include California, Illinois and Oregon, while more than 20 other states are also looking into how to develop their private-sector employee retirement initiatives.

Automatic plan features have proven successful at expanding retirement plan coverage, which is why more employers and the states are taking this approach. In a 2015 Deloitte survey, 62 percent of plan sponsors said they offered auto-enrollment, up from 55 percent in the 2013-2014 survey, and 70 percent of plan sponsors said auto-enrollment had a positive impact on average contribution rates, up from 56 percent previously.

The DOL sent the proposed rule on state-run plans to the Office of Management and Budget for review in September. President Barack Obama in July directed the department to develop such rules.

The proposal is intended to fulfill one of the DOL's primary objectives, which is to expand retirement plan access to more Americans, Borzi said. About 68 million Americans lack access to workplace-based retirement plans, she said.

The president's directive has come in for a drubbing by some financial industry and congressional opponents, who claim that the states' initiatives could be anti-competitive with private providers. ASPPA, however, supports Illinois's approach, which it says isn't anti-competitive because it includes an opt-out provision.

Fiduciary Proposal

Because no employee benefits conference can avoid discussing the DOL's fiduciary rule proposal (RIN 1201-AB32), Borzi turned to the topic briefly, although she said there was “absolutely nothing I can say in terms of substance” while the department is “trying desperately” to dig through the feedback it's received on the proposal.

However, she said that the “idea that people haven't had their opportunity to speak their piece about this rule”—the DOL has received more than 3,000 comments letters, had four days of public hearings and held about 100 stakeholder meetings—isn't true, she said.

Borzi said the most helpful comments have been the ones that aimed at how to simplify or streamline the rule, such as simplifying the best-interest contract; the types of investments that should be subject to the rule; and offering suggestions on other changes. And while the final rule should prove that the DOL paid attention to the multitude of comments it has heard, Borzi said, it wouldn't necessarily please everyone.

“Do I think that everybody will fall to their knees in grateful thanksgiving about the changes that we're going to make? Of course not,” she said. “But I really do appreciate and want to thank sincerely all the people who participated in the comment process. I thought it was a very constructive process.”

Form 5500 Deadline

Also discussed was a retirement plan provision in the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, a three-month extension of the Highway Trust Fund enacted in July. That provision directs to the Treasury Department to modify its regulations on the submittal deadline for Form 5500s.

The law directs the Treasury Department to modify its regulations to provide for a 31/2-month extension for plan years beginning after Dec. 31, 2015, which means that administrators of calendar-year plans will now have until Nov. 15, 2017, to submit a plan’s 2016 Form 5500. Under current rules, administrators of calendar-year plans generally have until July 31 to submit the Form 5500, but can obtain a one-time 21/2-month extension to Oct. 15.

ASPPA members also didn't want the provision.

Brian H. Graff, ASPPA's executive director, said that administrators generally “aren't happy” about the provision because it would delay getting the information needed to get their work done, and that the extended deadline makes workflow more difficult because of the notices and other items that are tied to that date.

“Oct. 15 was sort of the spot holder for the Form 5500,” he said.

He asked Borzi whether she would be open to efforts to bring the extended deadline back to no later than 21/2 months after the main deadline.

“Yes, we would,” Borzi said, to a huge round of applause. “We were unaware of this until after it passed. We were very concerned about it, and it moves in the wrong direction, we think,” she said.

The Government Accountability Office and the DOL's Inspector General also agree about leaving the deadline where it was, she said, so “anything that can help to get Congress to move it back to where it was” would be appreciated.

To contact the reporter on this story: Sean Forbes in Washington at sforbes@bna.com

To contact the editor responsible for this story: Phil Kushin at pkushin@bna.com