The Pacific Rim, a place where it’s a bit less unusual than others for new land to explode into existence, is adding to the state-sponsored retirement plans earthquake. Add Hawaii and Washington to the states whose legislatures have or are considering legislation that would create state-sponsored retirement programs.
SB 1374, Relating to The Hawaii Retirement Savings Program, would establish a Hawaii Retirement Savings Program for private-sector employees whose employers do not offer a qualified retirement plan.
Section 1 of the bill, which lays out its rationale, says:
“The legislature finds that there is an imminent retirement security crisis in the state, as many individuals do not have access to an employer-sponsored retirement plan. Individuals without a retirement plan are at significant risk of not having enough retirement income to meet basic expenses during retirement. A retirement savings plan can help employees achieve economic security, improve economic mobility, and reduce wealth disparity.
“The legislature also finds that individuals need a lifelong savings system that provides them with the opportunity to build their assets and attain future financial stability. Providing private sector employees with access to employer-sponsored retirement plans is a reliable way to promote savings needed for a secure retirement, improve economic mobility, and reduce wealth disparity.
“The legislature further finds that approximately fifty per cent of the state's private sector employees work for an employer that does not offer a retirement plan or are not eligible for the plan offered. The lack of opportunity to participate in an employer-provided retirement plan spans all levels of education and earnings. Employees who are offered the opportunity to save through the employee's place of employment are significantly more likely to participate and make steady contributions to build retirement savings.”
SB 1374 provides for the following:
- would be required to offer employees the opportunity to participate in the program unless the employer offers a qualified retirement plan, including, but not limited to, a plan qualified under Code Sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p) or 457(b);
- could establish an alternative retirement program for some or all employees;
- would not contribute to employee accounts; and
- would not have to fulfill any duties that ERISA otherwise prohibits.
- be automatically enrolled;
- contribute through payroll deduction to an account established under the program;
- be able to maintain an account regardless of their place of employment and to roll over funds into other retirement accounts; and
- be able to opt out of the program.
- offer a default contribution rate set by the department;
- offer default escalation of contribution levels that can be increased or decreased within the limits allowed by the Internal Revenue Code; and
- be pooled for investment and be professionally managed.
- The Hawaii Department of Budget and Finance would administer The Hawaii Retirement Savings Program.
- Whenever possible, the program would use existing employer and public infrastructure to facilitate contributions to the program, recordkeeping, and outreach; however, it provides that contributions would be deposited directly with the department.
- Records and program accounts would be maintained and accounted for separately.
- Account owners will receive reports on the status of program accounts at least annually.
- The state and employers that participate in the program would have no proprietary interest in the contributions to, or earnings on, amounts contributed to accounts established under the program.
- Administration fees in the program would be kept low in order to maintain a revenue-neutral program over the long run.
- Private sector partnerships could be used to administer and invest the contributions to the program under the supervision and guidance of the department.
The legislature has wasted no time in taking action on the measure. It was introduced in the Senate on Jan. 24; its Committee on Labor, Culture and the Arts reported the bill to the Senate on Valentine’s Day, and its Ways and Means Committee reported it on March 1. The full Senate passed it four days later.
Subsequently the bill was introduced in the Hawaii House of Representatives on March 7. Its Labor and Public Employment Committee reported the measure on March 21; it is now before the House Finance Committee.
SB 5740 was introduced in the Washington State Senate on Jan. 30. The Secure ChoiceRetirement Savings Program Act would create a state-sponsored program for private-sector employees whose employers do not offer a retirement plan.
The measure spells out a similar rationale:
“The legislature finds: That large numbers of households in this state have no or inadequate retirement savings and many of those households do not have access to any savings plan at work; that this lack of retirement savings and coverage is more prevalent among low-income households; and that it is well-established that most workers will save for retirement if they are offered a workplace savings program using an opt-out approach. Washington state is deeply concerned about the retirement prospects of its citizens and the strain that large numbers of ill-prepared retirees may impose on taxpayer-financed elderly assistance programs for housing, food, medical care, and other necessities.”
SB 5740 is intended tofacilitate voluntary retirement savings by private-sector workers in Washington state by establishing an IRA savings program with automatic enrollment and requiring employers that do not offer a retirement plan to make the program available to their employees.
SB 5740 provides for the following.
- be required to offer to each covered employee an opportunity to contribute to an IRA established under the program;
- not contribute to the program or to endorse or otherwise promote it;
- be required to deposit covered employees’ withheld contributions with the trustee in a way determined by the director, provided that the employer delivers the amounts withheld to the trustee in good order within 10 business days after the date such amounts otherwise would have been paid to the covered employee; and
- be able to contract with a third party, such as a payroll service provider or a professional employer organization, for help in complying with the provisions of this measure.
- be automatically enrolled in the program;
- make contributions through withholding from his or her compensation;
- make decisions regarding allocations of assets in their IRAs;
- be able to change the percentage of their compensation that is contributed to their accounts; and
- be able to opt out.
The program would be designed and operated in a manner that will cause it not to be an employee benefit plan under ERISA. The program director would be able to establish a pilot program for covered employers to auto enroll employees into an IRA by Jan. 1, 2020. The director also may provide for a staggered rollout of the program so that covered employers are initially required to offer the program to covered employees in stages based on employee headcount or such other criteria as may be established by the director.
The program director would:
- determine the rules and procedures for withdrawals, distributions, transfers and rollovers of IRAs and for the designation of IRA beneficiaries;
- by Jan. 1, 2020, establish a program administration spending plan and a fee schedule to discharge any projected cash deficit to the account;
- select the underlying investments of each investment fund;
- be able to retain an investment adviser to select and manage the investments of an investment fund on a discretionary basis, subject to the director's ongoing review and oversight;
- be able to designate an investment fund as a default investment for the IRAs of covered employees who do not make a choice regarding how the funds in their accounts are to be invested;
- appoint an institution qualified to act as trustee of IRA trusts or insurance company issuing annuity contracts under Internal Revenue Code Section 408 of and licensed to do business in the state to act as trustee;
- establish within the trust one or more investment funds;
- be able to add, replace or remove any investment fund;
- make annual reports to the governor and the legislature outlining his or her activities and the program’s operations; and
- provide information about the program, required disclosures, forms and instructions to participating employers.
Like its counterpart in Hawaii, the Washington legislature is wasting no time on the measure. On the same day that the Hawaii Senate’s Committee on Labor, Culture and the Arts reported the bill it was considering, the Washington Senate Committee on Financial Institutions, Economic Development & Trade passed SB 5740. And in another remarkable coincidence, as occurred in Hawaii, the Washington Senate Ways and Means Committee reported the bill to the full Senate on March 1. The full Senate passed it on March 8.
The bill was introduced in the Washington House of Representatives on March 12. It is currently before the House Committee on Consumer Protection & Business.