Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Sept. 30 — Efforts to encourage localities to establish retirement programs to help their citizens save more for their golden years could multiply the headaches for employers providing retirement plans to their employees.
While many large employers offer some form of a retirement plan, whether it be a 401(k) or a traditional pension plan, many workers still lack access to a plan. To alleviate that coverage gap, the Department of Labor finalized regulations in late August allowing states to start retirement programs for workers who don’t currently have access through their employer and proposed rules that would do the same for localities of a certain size.
Comment letters from employer and retirement groups indicate an apprehension on the part of employers to have to engage with both state-run plans and locally established plans because it would add costs and complexity.
The DOL estimated in its proposed rule that 88 cities and municipalities could qualify to establish their own retirement programs for private-sector workers if their states didn’t set up a program. Almost 50 other localities were disqualified from the rule because they are in one of the states that have already passed laws to set up their own programs.
Most recently, California Gov. Jerry Brown (D) signed his state’s retirement savings program into law, clearing the way for the Secure Choice Retirement Savings Investment Board to turn the outlines of the program into reality by 2018. Several other states, including Connecticut, Illinois, Maryland, Oregon and Washington, also have passed laws establishing their own retirement savings programs.
Extending the opportunity for localities to step in and set up retirement programs when states have barely gotten started might be too much, too soon, the American Retirement Association said in its comment letter.
The DOL “should be patient and give the states time to consider statewide programs,” the group said.
Opening up the rules to localities when state programs are in their nascent stages would subject employers to “the chaos of different rules and programs of state political subdivisions,” the letter said.
The American Benefits Council also had misgivings about giving cities and localities the chance to set up retirement savings programs.
“We are very concerned that the recently finalized safe harbor for state-run arrangements takes a significant step backward by facilitating state laws that undermine the current retirement system by increasing the costs and complexity for employers that maintain retirement plans,” the group said.
Unless adjustments are made to the final rules for state-run plans, expanding the rules to localities would “subject existing plan sponsors to even more cost and complexity and further discourage new plan sponsorship,” the group said.
Both the ARA and the ABC asked the DOL not to extend the rules to cities and localities.
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