Does Safe Harbor’s Repeal Stop State IRA Plans?


NJ State House

States that want to provide workers with automatic access to job-based retirement savings programs appear to be shrugging off the loss of a safe harbor that gave such programs a green light under federal law.

The programs are intended to give employees at private sector companies an easy way to save for retirement if they don’t already have access to a retirement plan at work. They require covered employers to serve as conduits for payroll deductions into individual retirement accounts established for their workers, and the Obama-era safe harbor was aimed at keeping the programs from becoming subject to the requirements of the Employee Retirement Income Security Act. However, a resolution signed May 17 by President Donald Trump repealed the safe harbor rule.

In the wake of that action, at least five states have vowed to move forward with their programs: California, Connecticut, Maryland, New Jersey, and Oregon (see related story, States Keep Up Private-Sector Pension Efforts Despite DOL Rule Loss).

For example, California was quick to confirm that it would still launch its Secure Choice Retirement Savings Program in 2018 (see related story, California to Launch Retirement Savings Plan Despite Federal Setback).

An official in Oregon also confirmed that the pilot launch of the state’s OregonSaves program remains on track for July 1, 2017.

“Oregon crafted the rules and design of OregonSaves to ensure our program meets the requirements of ERISA, with or without the safe harbor. Every Oregonian should have the option to save for their retirement security at work, and OregonSaves will make that possible,” said James Sinks, a spokesman for the Oregon State Treasury. “It will be good news for workers, for small businesses, and for the state as a whole.”

Program Details

Final rules for OregonSaves, which were approved in April by the Oregon Retirement Savings Board, offer insights into the workings of these state programs. In general, the states facilitate the plans, and private institutions manage the IRA investments. Employers don’t contribute to the accounts but handle payroll deductions on behalf of participating employees and then transfer the funds to the institutions managing the accounts.

In Oregon, covered workers will be automatically enrolled at 5 percent of pay, and the contribution rate will rise 1 percent each year until it tops out at 10 percent. However, employees can specify a different contribution rate or opt out at any time.

When employers receive notices from employees on initial contribution rates or election changes, they must retain the notices for at least three years from the date of the notice. Employers can comply with this requirement by allowing the program administrator to maintain the records on their behalf.

The first $1,000 in contributions is to be invested in a capital preservation investment selected by the Board, with all subsequent contributions to be invested in a target date fund. The program account will be a Roth IRA with contributions occurring on a post-tax basis.

Employer coverage under the OregonSaves program phases in gradually, starting with employers that have 100 or more employees. They must register with the program by Nov. 15 and will receive informational materials to pass along to employees prior to the initial enrollment date.

Although the rules issued in April cover many of the program’s operational aspects, some implementation details have yet to be fleshed out. However, the July 1 pilot launch of OregonSaves will give the Board time to identify issues that still need to be addressed.

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