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Lawmakers Try to Stop State-Sponsored Retirement Plans

Posted by Corey F. Schechter | Feb 21, 2017 | 0 Comments

Contributing Author: Dianne Schechter

California legislators are fighting a resolution in Congress that could derail plans to create a state-run retirement plan for private-sector employees who don't have one at work.

Two Republican congressmen, Rep. Tim Walberg (R., Mich.) and Rep. Francis Rooney (R., Fla.), have introduced measures that would effectively prevent small businesses from automatically enrolling workers in individual retirement accounts under state or local government sponsored retirement plans.

Eight states—including California, (for my prior article regarding California's adoption of a new state-sponsored plan, click here), Connecticut and Oregon—have recently enacted retirement-savings programs for residents without access to a workplace plan—and dozens more are considering similar measures. Most of the measures allow employers to automatically deduct as much as $5,500 a year—or as much as $6,500 for workers older than 50—from employees' paychecks for deposit into an Individual Retirement Account (“IRA”). New York and Philadelphia are also considering the enactment of similar plans in their respective cities.

The first of these state-run programs is expected to start in 2017, according to AARP, the advocacy group for older Americans. The group estimates about 55 million full- and part-time private-sector workers in the U.S. lack access to retirement-plan coverage through work.

The first Labor Department ruling, issued in August 2016, clarified that state-sponsored retirement programs with auto-enrollment wouldn't be covered by the federal Employee Retirement Income Security Act of 1974, which sets not only minimum funding and reporting standards but numerous other minimum requirements for employer-sponsored retirement plans. That ruling effectively removed a concern on the part of some states that their programs would be pre-empted by federal regulations—and paved the way for states to set up plans that allow for payroll deduction IRA-type savings vehicles.

The second Labor Department regulation, completed in December 2016, allowed cities and counties above a certain size to sponsor their own auto-enrollment plans; however, many conservative lawmakers worry that the state plans would discourage small businesses from offering private sector plans and ultimately limit workers' options for saving as well as the protections afforded them under ERISA — charges that the advocates of the concept sharply dispute.  Moreover, a concern of the congressmen sponsoring the proposal is that employers who operate in more than one state will be subjected to different requirements in each state

The ultimate goal of the congressmen's efforts is to scrap the two Labor Department rulings issued late last year that paved the way for state or local auto-enrollment programs.Their measures are being proposed under the Congressional Review Act, which allows Congress to block resolutions passed in recent months from taking effect.  Will Hansen the Senior vice president at the ERISA Industry Committee (which advocates for large employers on health, retirement and compensation policies) said the use of the act is common when there is a change in administration.The resolutions' chances of passing both the House and Senate are not entirely clear at this time.  However, given the Republican-held majority in both Houses, passage is likely,

Be sure to follow our blog page for continuing developments on this interesting topic.

About the Author

Corey F. Schechter

Corey Schechter practices in the areas of Employee Benefits, Employee Stock Ownership Plans, Pension and Profit Sharing Plans, ERISA, ERISA Litigation, Business Law, Qualified Domestic Relations Orders (QDROs), and Employment and Labor Law.

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