Vermont poised to become latest state to set up retirement plan for small businesses

It would be the ninth state to pass legislation creating a plan, and differs from other states' auto-IRA and marketplace approaches

May 22, 2017 @ 2:33 pm

By Greg Iacurci

Vermont will likely become the latest state to create a retirement plan for its small businesses, in a play to boost retirement savings by increasing the number of private-sector employees covered by a workplace plan.

The Vermont legislature passed an economic-development bill, S.135, establishing the Green Mountain Secure Retirement Plan, a multiple employer plan available on a voluntary basis to employers with 50 employees or fewer.

Vermont intends to implement the program starting in January 2019, said Tim Lueders-Dumont, policy director for Vermont's Office of the State Treasurer. Governor Philip Scott, a Republican, is expected to sign the legislation, Mr. Lueders-Dumont said.

When signed, the bill will make Vermont the ninth state to enact legislation creating a state retirement program aimed at small businesses. California was the last state to enact legislation, in September 2016. That bill created an automatic-enrollment, payroll-deduction IRA (or, auto-IRA) program similar to those being set up in four other states (Illinois, Connecticut, Maryland and Oregon).

The bill's passage comes amid a heated debate over the role of states in trying to close the retirement savings gap. President Donald J. Trump last Wednesday signed a resolution overturning an Obama-era regulation that encouraged states to set up auto-IRAs by providing guidelines to reduce states' legal liability.

Vermont's MEP program, geared toward the more than 100,000 private-sector employees in the state who don't have access to a workplace plan, differs from these auto-IRA programs.

A state-sponsored MEP will allow participating employers in Vermont to join one common 401(k)-type plan, rather than sponsoring an individual 401(k). Unlike with auto-IRAs, the MEP would be covered by The Employee Retirement Income Security Act of 1974, have the same contribution limits as 401(k) plans and allow for employer contributions. Employees would be automatically enrolled, but employer participation in the Vermont plan is voluntary.

"From the perspective of the participant, it's a regular 401(k) plan," said Aron Szapiro, director of policy research at Morningstar Inc.

Massachusetts is the only other state to date to have enacted legislation to create a state-sponsored MEP. The Department of Labor in 2015 issued guidance to encourage states to sponsor MEPs.

But observers say the Vermont legislation goes further, because Massachusetts would only cover non-profit organizations when it goes into effect.

Relaxing some of the employer requirements related to MEPs has figured into recent federal, bipartisan efforts to boost retirement-plan coverage. However, some observers such as Mr. Szapiro question whether voluntary MEPs will do much to boost retirement-plan access.

New Jersey and Washington state have passed bills taking a different approach, by setting up retirement-plan marketplaces for small employers.

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