UPDATED TO ADD DOL CONTENT LINKS — NOV. 16, 12:50 P.M.
Secretary of Labor Thomas Perez unveiled the DOL’s proposed rule to clarify ERISA's application to state-run IRA programs Nov. 16, creating an unfair advantage for those programs over those offered by the private sector.
The proposed regulation includes a rule modifying the payroll deduction safe harbor to allow for an ERISA exemption for auto-enroll payroll deduction IRAs offered by states as a default program where there is a requirement for an employer to have a plan.
Additionally, sub-regulatory guidance in the form of an Interpretive Bulletin, effective immediately, allows states to sponsor retirement multiple employer plans (MEPs) for employers operating in the state. This stands in sharp contrast to the Labor Department’s long-standing reluctance to enthusiastically embrace the use of these so-called “open” MEPs for otherwise unrelated employer retirement plans.
The DOL has also made available a fact sheet on the proposed rule and the Interpretive Bulletin, here.
“Both pieces of guidance are misplaced attempts by the Administration to promote coverage by giving marketplace advantages to states as retirement plan providers, with no reasonably apparent policy justification to suggest states are somehow going to do a better job providing retirement plan products,” said Brian Graff, CEO of the American Retirement Association.
Politico reported (subscriber-only content) that the proposed rule left the White House Office of Management and Budget last week, where it had been since early September. In July President Obama directed Secretary of Labor Thomas Perez to publish by the end of the year a proposed rule to “provide a clear path forward for the states to create retirement savings programs.” His directive to DOL: Clarify how states can move forward with various retirement plan coverage initiatives, including requirements to automatically enroll employees and for employers to offer coverage.
Earlier this year, Illinois became the first to adopt a state-based retirement savings program for private sector employees who do not have a retirement plan at work. Similar initiatives are underway in Oregon and California. Earlier this year Washington State launched a small plan marketplace, and approximately half the states are currently considering measures to close the retirement savings gap.
The American Retirement Association has been concerned that the DOL’s proposal would create an uneven playing field, providing state-run plans with an unfair advantage by exempting them from ERISA while not extending the same considerations to similar products offered by the private sector. It looks like those fears have been realized.
