You can add Oregon to the list of states that are poised to create a state-run retirement savings program — but there are a lot of details yet to be worked out.
On June 16 the state Senate passed House Bill 2960 on a party-line vote (one Democrat voted with the Republicans in opposing the measure) by a 17-13 margin, and sent the bill to Gov. Kate Brown’s desk.
Under the bill, employers that don’t already offer a qualified retirement plan to their workers (including 401(k), 403(b), or 457 plans) would have to provide an automatic payroll deduction into an IRA. However, the bill only creates a structure for deciding what the program will eventually become, leaving the details of the plan to a newly established seven-member Oregon Retirement Savings Board within the office of the State Treasurer.
Those details include the default contribution rate, procedures for automatic escalation and targets for the administrative costs of the program. No penalty is specified for employers that fail to follow the new law.
The legislation:
• Notes that that board will also direct the investment of funds in the plan.
• Directs the board to set a default contribution rate to offer default escalation of contribution levels (within the limits of the Internal Revenue Code).
• Directs the board to keep administration fees in the plan “low.”
• Allows the use of private sector partnerships to administer and invest the contributions to the plan under the supervision and guidance of the board.
The board is also directed to develop rules that employees seeking financial advice should contact financial advisers, that “…participating employers are not in a position to provide financial advice and that participating employers are not liable for decisions employees make…”
Legislation notwithstanding, many steps remain before the program’s projected launch date of July 1, 2017. Specifically, the board is directed to conduct a market analysis to:
• Determine the feasibility of the plan.
• Obtain legal advice regarding the applicability of ERISA and the Internal Revenue Code to the plan.
• Investigate whether employers that are not required to participate in the plan can nonetheless make the plan available to their employees.
• Coordinate with the efforts of other states as those states pursue legal guidance for similar retirement savings programs.
Proponents say the program would help reverse a decline in retirement savings by making it easier to save and address the current coverage “gap” among employer-sponsored programs, and would do so with only a minimal impact on employers (and employment) while allowing workers the flexibility to opt out of the program.
State Treasurer Ted Wheeler, who has championed the proposal (and whose office would oversee the newly created Oregon Retirement Savings Board), pointed out another motivation in an interview with the Oregon Statesman: that if the issue of retirement savings isn’t addressed, “…the cost to taxpayers could be staggering as more and more people rely on costly social programs.”
On the other hand, opponents say the program could add costs to businesses that have to administer payroll deductions, and could conflict with federal laws regulating private pension plans (though the legislation specifically directs avoiding that situation). They are also concerned about the cost(s) of the program. State senator Jeff Kruse told the Oregon Statesman Journal that he suspected a “conspiracy,” and that the real purpose of the plan was to eventually bail out the state’s Public Employee Retirement System.
