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A Federal Case


Lawmakers in our nation’s capital may have been focused on shutdowns, declared emergencies and “new” deals, but in state capitals across the nation, legislators and regulators have been proposing, passing and implementing change that could dramatically impact your practices and your practice.

Most pressing – and concerning – to advisors is the emergence of a number of initiatives to implement new state based fiduciary standards. States are moving ahead with these efforts, ostensibly to fill the gap created by the Fifth Circuit’s dismissal of the Labor Department’s 2015 initiative, without regard to the possible implications for retirement plan advisors or the potential conflict with ERISA.

As you know, NAPA has long supported a federal fiduciary standard for advice given in connection with ERISA-covered retirement plans. And yet, the comment period has just closed in Nevada on draft regulations to implement a 2017 law requiring financial planners operating in Nevada to have a fiduciary obligation to their clients in the state. These draft regulations do not exempt any advice given to plan sponsors or participants in ERISA-covered plans, and provide for a state-based private right of action. 

NAPA believes that the Nevada regulations should not apply to ERISA-covered plans since they are already subject to a federal fiduciary standard, and we are forcefully making our case in Nevada and several other states that are engaged in similar initiatives.

Following in Nevada’s footsteps, a bill was reintroduced in the Maryland legislature this year that, like Nevada’s initiative, grants authority to the state’s Commissioner of Financial Regulation to adopt regulations imposing a fiduciary standard for financial service professionals operating in Maryland. The legislation requires that they adhere to a fiduciary duty to act in the best interest of a customer without regard to the financial or other interest of the person of firm providing advice. 

New Jersey is also actively engaged in a regulatory project that would subject financial service professionals to a fiduciary standard of conduct with respect to recommendations of investments. In October 2018, the New Jersey Division of Consumer Affairs issued a pre-proposal for amendments to the New Jersey Administrative Code to make broker-dealers, agents, investment advisers and investment adviser representatives subject to a fiduciary duty. A month later, the New Jersey Bureau of Securities held two informal conferences to take testimony from interested parties to gather facts to inform a rulemaking. 

NAPA is actively engaged in Maryland and New Jersey to make it clear that advice in connection with ERISA-covered plans should not be subject to these state-based fiduciary standards. 

State Auto-IRA Programs

While the nation’s private retirement system has many accomplishments to celebrate, those achievements largely belong to those who have access to a retirement plan at work. Despite the industry’s efforts, the percentage of full-time workers with access to those plans has barely budged in a generation. Not surprisingly, states are stepping into the void.

Since 2012, 43 states have acted to implement, study or consider legislation to establish state-based retirement plans. In the past year alone, at least 16 states and cities introduced legislation. Ten states and the city of Seattle have enacted some type of retirement program for private-sector workers. Oregon has had a program in place for more than a year now; Illinois has moved past its pilot phase; and California’s CalSavers program is slated to open in July.  

Meanwhile, a bill establishing the New Jersey Secure Choice Savings Program, the structure of which mirrors the Illinois program, awaits the signature of New Jersey Gov. Phil Murphy (D). The program, which requires, at minimum, that employers automatically enroll their employees into a payroll deduction IRA program. Like Illinois, the New Jersey program applies to private sector employers with 25 or more employees that do not already offer a plan. 

We have become increasingly concerned about the compliance headaches caused by these mushrooming programs, particularly for employers that operate in multiple states. As an industry, we’ve long benefited from the consistent set of federal standards established by ERISA. While the coverage gap is real, and should be addressed, that should be done at the federal level.

Fortunately, the new Chairman of the House Ways & Means Committee, Rep. Richard Neal (D-MA), agrees. A prominent voice in retirement plan policy, in late 2017 he introduced the Automatic Retirement Plan Act (ARPA). ARPA would have required employers with 10 or more employees to maintain a 401(k) or 403(b) plan that covers all eligible employees, exempting governments, churches and businesses not in existence for three years. The bill also allowed for multiple employer plans (MEPs) and increased the start-up credit for small employers.

In sum, it purported to do at a federal level what is at the heart of these state initiatives – but provided a coverage solution at a federal level, rather than the patchwork quilt that is emerging. Importantly, unlike the state-based initiatives, the ARPA legislation did not create a federally run retirement savings program, but instead relied solely on private-sector solutions. We have been closely working with Chairman Neal and his staff, and fully expect a modified version of ARPA to be introduced in this Congress.

As your advocacy voice, NAPA and the American Retirement Association are actively engaged with state regulators and the various legislative bodies as we work together to construct effective solutions to these issues. 

It’s time to make a federal case for a federal solution – and your continued support and involvement is essential not only to our long-term success, but also to the success of America’s retirement system!

Brian H. Graff, Esq., APM, is the Executive Director of NAPA and the CEO of the American Retirement Association.