State-Run Private Sector IRA Comes Up Short in Centennial State

Colorado’s proposal to create a state-sponsored retirement savings program for private sector workers fell short in a Senate vote April 26.

The vote to postpone consideration of the measure indefinitely fell along party lines in the GOP-led Senate Committee on State, Veterans, & Military Affairs. It cleared the Democrat-controlled House of Representatives earlier this month, according to the Denver Business Journal.

The bill establishes the Colorado secure savings plan, an auto-IRA program for private-sector employees. Employers with five or more employees in the state without a qualified plan would eventually be required to automatically enroll their workers into the program.

The bill would have created a Board of Trustees, consisting of the State Controller, the Director of the Governor’s Office of State Planning and Budgeting, and seven additional trustees with certain experience who are appointed by the governor and confirmed by the Senate.

If, based on the required financial feasibility study, the Board determined that the program will be self-sustaining and would promote greater retirement savings for private-sector employees, the Board would recommend to the general assembly that the program be implemented. However, the Colorado General Assembly must pass additional legislation authorizing the program’s implementation.

The Proposed Program

If the program is implemented, the bill specifies the process by which the Board is required to engage an investment manager to invest the assets of the plan. The bill also specifies the investment options that the Board is required to create, creates the fund as a trust outside of the State Treasury, specifies that the fund will include the individual retirement accounts of enrollees in the plan, and allows the board to use a certain percentage of money in the fund for the administrative expenses of the plan. The money in the fund is not property of the state and cannot be commingled with state money.

The trustees on the board have a fiduciary duty to the plan’s enrollees and beneficiaries and are required to:

  • establish investment options that offer employees returns on contributions without incurring debt or liabilities to the state;
  • establish the process for allocating investment earnings and losses to individual plan accounts on a pro rata basis;
  • make and enter into contracts and hire staff as necessary for the administration of the plan;
  • conduct a periodic review of the performance of any investment vendors;
  • cause money in the Colorado secure savings plan fund to be invested with the intent to achieve cost savings through efficiencies and economies of scale;
  • establish the process for an enrollee to contribute a portion of his or her wages to the plan for automatic deposit and establish the process by which the participating employer forwards those contributions to the plan;
  • establish the process for enrollment in the plan including the process by which an employee can opt not to participate in the plan;
  • accept gifts, grants, and donations from specified entities and pursue options for bank loans or a line of credit to cover the start-up costs of the plan;
  • procure, as needed, insurance against loss in connection with the property, assets, or activities of the plan;
  • allocate administrative fees to individual retirement accounts in the plan on a pro rata basis;
  • set minimum and maximum contribution levels;
  • facilitate education and outreach to employers and employees;
  • ensure that the plan complies with all applicable state and federal laws;
  • deposit all gifts, grants, donations, fees, and earnings from investment of moneys in the fund into the fund and pay the administrative costs and expenses for the creation, management, and operation of the plan from moneys in the fund;
  • determine any nominal and reasonable assistance that may be provided to businesses to offset the initial costs of enrolling employees in the plan and complying with audits and plan implementation;
  • prepare or cause to be prepared certain annual audits and annual reports regarding the plan;
  • design and disseminate employer and employee information packets regarding the program to all employers that participate;
  • develop a process to ensure that employers are in compliance with the requirements of the plan and develop a penalty structure for employers who fail, without reasonable cause, to enroll employees in the plan;
  • conduct or cause to be conducted a financial feasibility study to ensure that the plan will be self-sustaining; and
  • conduct an analysis of relevant consumer protections available under federal law and make recommendations to the general assembly regarding additional necessary consumer protections that should be included in legislation implementing the plan.

Rolling Back Regulation?

President Trump signed legislation on April 13 that blocks the Obama-era DOL’s safe harbor exempting municipalities’ auto-IRA programs from ERISA, following passage by the U.S. Senate and House of Representatives of Congressional Review Act (CRA) resolutions. In February a similar resolution was passed by the House of Representatives to nullify the safe harbor rules designed to provide for state-run plans for private sector workers, although it has not yet been addressed by the U.S. Senate.

Under the CRA, Congress has a window of time to consider and pass legislation to overturn any significant regulation if that legislation is signed by the president. The current CRA window applies to any significant Obama-era rule that was either finalized or made effective after June 13, 2016. The DOL’s state plan rule was finalized in August 2016 and became effective in October 2016.

However, the elimination of the safe harbor’s provisions only removes certain guideline protections for these programs – it does not block them from happening, as long as they don’t run afoul of ERISA. And, with time running out, the state-run version has not yet been approved by the Senate, with a number of GOP Senators expressing concerns about federal moves that would be seen as preempting state initiatives.

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