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DOL Set to Boost State-Run Plans

The DOL is not entirely focused on their conflict of interest rule, it seems.

In an interview with Institutional Investor, EBSA Director Phyllis Borzi discussed the expanding number of state initiatives to offer employers a public retirement plan alternative and explained the DOL’s plan to provide guidance supporting those efforts.

With access to retirement planning at work a major political issue, and perhaps realizing that the federal government is unlikely to legislatively create a plan for smaller employers, President Obama instructed the DOL in July to provide guidance to the states working on their retirement initiatives. Borzi explained that while the ultimate arbiter on whether these plans will pass federal scrutiny under ERISA will be the courts, her department will issue guidance by the end of this year.

One option is to avoid ERISA altogether by using payroll deducted IRAs, but those rules will have to be modernized, according to Borzi. And the entire IRA landscape could change as a result of the DOL’s proposed conflict of interest rule.

The other option is for states to run a multiple employer plan (MEP), acting as the service provider and taking over most of the regulatory supervision of what would, in effect, be a single plan. Borzi was clear that only state governments could be trusted to protect the interests of employers and their workers under this scenario.

The issue of access to retirement plans at work is only going to loom larger, while at the same time smaller companies seem unable or unwilling to take on the responsibilities, cost and work of complicated retirement ERISA plans. So something has to give. Are workers and employers ready for a state government-run retirement plan? Payroll deducted IRAs might be seen as less burdensome for employers than a qualified plan, providing the option for third parties to run them and offering employers a choice in an open market environment.

But if the DOL is concerned about protecting individuals in IRAs, imagine how they might feel about employer sponsored, payroll deducted IRAs.

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