DOL issues final rule to help states establish workplace retirement savings programs

State plans would not be subject to ERISA, which some in the industry fear will give them a leg up on private plans

Aug 25, 2016 @ 12:52 pm

By Mark Schoeff Jr.

The Department of Labor released a final regulation Thursday that will make it easier for states to establish their own workplace retirement savings programs.

Introduced last November, the rule clarifies that state plans would not be subject to the federal Employee Retirement Income Security Act and could not be pre-empted by the statute as long as they met certain conditions. This move eases liability risks.

Eight states — California, Connecticut, Illinois, Maryland, New Jersey, Oregon, Massachusetts and Washington — have approved legislation that establishes state-run retirement plans. Many of them require businesses that don't offer retirement programs to automatically enroll their workers in an individual retirement account overseen by the state.

The final DOL rule came out as California is poised to pass enabling legislation that sets up its plan.

The Obama administration hopes that the regulation will encourage more states to pass their own retirement programs in order to cover the approximately one-third of workers who don't have access to a workplace plan.

“Today's rule will pave the way for states to create and implement innovative new ways for workers to save,” Labor Secretary Thomas Perez said on a conference call with reporters Thursday.

The state plans will not run afoul of ERISA as long as they are established and administered by the state, require minimal participation by employers and are voluntary for employees. Employers do not have to contribute funds to the plans but do have to set up automatic deductions in their payroll systems.

The Financial Services Institute warned of “unintended consequences” of the DOL rule.

“The financial services industry already provides numerous, reasonably priced retirement savings options for Main Street Americans, including IRAs which are readily accessible,” David Bellaire, FSI executive vice president and general counsel, said in a statement. “We are also concerned that some employers may choose to drop strong existing plans in order to reduce their costs. This would be harmful to impacted workers because state-run plans do not provide for the matching funds that are common in employer-based plans.”

Mr. Perez shot back at the assertion that state plans would crowd financial advisers out of the retirement plan market.

“I find that criticism to be patently laughable. These people who figure out a reason to say 'no' have no alternative,” Mr. Perez said, referring to groups that oppose state-run plans.

But one expert countered that allowing state-run plans to operate outside ERISA while making private plans meet ERISA requirements tilts the playing field toward the states.

“They effectively push private providers out of the marketplace, and we don't think that's a good outcome,” said Judy Miller, director of retirement policy at the American Retirement Association. “There are providers that are geared up to [offer plans] on a very cost-effective basis. Subjecting them to ERISA makes it too expensive.”

The DOL also proposed a rule Thursday that would allow cities that are at least as big as the smallest state — Wyoming — to establish their own retirement programs for non-covered workers.

“These are two important steps to putting a secure and dignified retirement within the reach of tens of millions of Americans,” Mr. Perez said.

The administration moved ahead with the rule to catalyze activity at the state level because Republicans in Congress have ignored a provision in President Barack Obama's annual budget proposal that would establish a federal-level automatic IRA, according to Mr. Perez.

Republicans have resisted auto-IRA legislation because they assert that it is a mandate on small businesses.

“The Republicans don't seem to be on the side of ordinary Americans trying to save for retirement,” Mr. Perez said.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

May 02

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

When can advisers expect an SEC fiduciary rule proposal and other regs this year?

Managing editor Christina Nelson and senior reporter Mark Schoeff Jr. discuss regulations of consequence to financial advisers in 2018, and their likely timing.

Recommended Video

Path to growth

Latest news & opinion

Cutting through the red tape of adviser regulation is tricky

Don't expect a simple rollback of rules under the Trump administration in 2018 — instead, regulators are on pace to bolster financial adviser oversight.

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

State measures to prevent elder financial abuse gaining steam

A growing number of states are looking to pass rules preventing exploitation of seniors.

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print