The Department of Labor is seeking to make it easier for states to fit within the framework of ERISA in their efforts to establish state-run retirement plans for the private sector, says Phyllis C. Borzi, head of the Employee Benefits Security Administration.
Borzi spoke at an Oct. 20 session of the 2015 ASPPA Annual Conference in National Harbor. Md.
In embracing ERISA in the effort, Borzi said, a state “in essence becomes a service provider to employers that want to participate in that plan.”
“The states are moving ahead in a variety of ways,” Borzi said. Many, she noted, are doing so in a way that avoids ERISA by crafting laws that are similar to the federal "MyRA" auto-IRA approach; others follow a different tack premised on the notion that if they do avoid ERISA, still they eventually will have to incorporate consumer protections.
“States want greater certainty into what they can do,” Borzi said. To that end, she noted that the DOL has proposed a rule that will assist the states in designing plans and would create a new payroll deduction safe harbor, and that the rule is at the Office of Management and Budget now for its review. In addition, the DOL is preparing regulatory guidance. The DOL will be issuing guidance on state-run retirement plans “no later than year’s end,” she noted.
These efforts fit within the broader theme Borzi outlined. “Most particularly we’re all focused on two big challenges: expanding coverage and improving adequacy,” she remarked.
Graff: ARA Seeks 'Level Playing Field'
The impending rules may create an unfair playing field and widespread confusion over ERISA preemption, as well other potentially damaging changes, says NAPA Executive Director Brian Graff. Joined by Judy Miller, the American Retirement Association's Director of Retirement Policy, the two discussed the rules in an Oct. 18 general session at the conference.
The rules are in two parts, Graff noted:
- Modifications to the rules governing payroll deduction IRAs providing that state programs are not subject to ERISA if the employer is required to participate in the plan — even though private payroll deduction IRA proigrams would be. "This would create a 'non-level' playing field," Graff said.
- Guidance that will allow state to create open MEPs that would operate as if they were closed MEPs. Massachusetts and several other states are looking at this approach, Graff noted.
The ARA wants this inequity issue to be addressed, Miller noted, seeking "at least" a level playing field for private sector plans. Formulation of the rules "is evidence that the President can't get a legislative solution," said Miller.
The IRA piece must be in the form of a proposed reg, Miller noted, so it must go through a review and comments period. Since the Obama administration wants the rule to be finalized before the end of 2016, "it's on a fast time schedule." The MEP guidance will be effective right away, said Miller.
She also questioned the efficacy of MEPs in expanding coverage and access. "I don't believe for a second that if all of a sudden we have many more MEPs, that will move the needle on coverage," she said.
How would multiple state regulatory schemes — all free of ERISA — impact the private retirement system? Several questioners in the audience noted that various issues, such as ERISA preemption, multistate employers, state of incorporation, and employees who work live and work in different states, would result in widespread confusion in the market.
Miller noted a 2013 ASPPA proposal highlighted open MEPs using a designated service provider approach. The essence of that proposal was picked up in the SAFE Act and the USA Accounts bills introduced in the 113th Congress. "We will continue to lobby for a level playing field," she asserted.
Said Graff, "We don't want the government in our soup. We believe that any significant role of the public sector in the private retirement system will degrade the system and result in lower performance, lack of innovation and higher costs in the long run. In that scenario, the American worker loses."
