Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...
Aug. 25 — The Obama administration is hoping to give Americans a retirement savings boost as it finalized regulations that allow states to set up their own retirement programs for private sector workers.
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 workplace retirement plan. Eight states, among them Connecticut, Illinois, Oregon and Washington, have passed laws establishing their own retirement savings programs to try to fill this coverage gap.
The final rules, issued Aug. 25, along with related proposed rules for cities and other “political subdivisions,” were constructed to support states and localities that want to move forward with establishing their own retirement programs to help more workers save for their later years, Labor Secretary Thomas Perez said during a call with reporters.
The guidance clarifies “the status” of state efforts by addressing concerns that these state-run retirement programs would face preemption by the Employee Retirement Income Security Act. The rules also will help more states create their own retirement programs, Perez said.
Regulations supporting state-based initiatives also are a way to circumvent the political stalemate the Obama administration has been in with Republican members of Congress. For workers who don’t have access to a workplace retirement plan, President Barack Obama has proposed automatically enrolling them in individual retirement accounts. That proposal has been part of every one of Obama’s budget plans since he took office, but Congress hasn’t acted on the proposals, Perez said.
“The challenge we have at a federal level is we don’t have a dance partner,” Perez said. “So we are working with states who are innovating” to come up with retirement vehicles for the one-third of workers who don’t have access to a workplace retirement plan, he said.
The final rule “largely adopts” the “general structure” of the proposed version of the rule, the DOL said in the guidance. This means that under ERISA, the terms “employee pension benefit plan” and “pension plan” don’t include an individual retirement plan that is established and maintained through a state payroll deduction savings program if several conditions set out in the rule are met, the DOL said. This makes it less likely that courts would find that such programs were preempted by ERISA, the department said.
While the proposal is mostly unchanged, there were modifications made based on public comments, Perez said. One change gives states more freedom when it comes to designing their programs, while another strives to prevent retirement plan “leakage,” meaning account withdrawals for major expenses, plan loans or cashouts when leaving a job.
“People told us that a condition in the proposal would have prevented states from addressing their legitimate concerns about people withdrawing their assets too early, so we removed it,” he said.
The final rules also modify a provision allowing states to reimburse employers for expenses incurred while participating in a state program to make it more flexible, Perez said.
“We also heard from commenters who weren’t sure if the language in the proposal captured our intent to allow states to contract with the private sector for help in carrying out these programs, so we broadened the language,” he said.
The proposed rule, issued along with the final rule, would enable some cities and other “political subdivisions” to create their own retirement savings programs.
The proposed rule was crafted in response to feedback the DOL received from large cities—many that have larger populations than some states—interested in establishing their own retirement program, Perez said.
New York City was the first municipality to explore such plans, with initiatives launched by the city’s public advocate and comptroller. The Philadelphia City Council is also exploring such plans and others may not be far behind.
Hours after the DOL’s rules were announced, the California Assembly approved a bill to create a retirement savings program for private sector workers (see related story).
The final rules will be effective 60 days after the scheduled Aug. 30 publication in the Federal Register. Comments on the proposed rules are due 30 days after publication in the Federal Register.
To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)