Nearly 70 million workers lack access to an employer-sponsored retirement plan. Many states are seeking ways to expand savings options for these workers. It is against this backdrop that the Department of Labor (DOL) has published a notice of proposed rulemaking and an interpretive bulletin meant to guide states as they create programs that help more workers save for retirement, and that do not run afoul of the Employee Retirement Income Security Act (ERISA).
The proposal and bulletin were announced during a press conference in Chicago. Department officials joined state elected officials, members of the financial services industry and advocates in making the announcement.
“Many workers across the country are not saving enough for a secure retirement. This is not only a potential financial crisis for these individuals and their families, but a critical economic issue for the nation,” said Secretary of Labor Thomas E. Perez. “Today’s guidance is another plank in the economic security platform that President Obama and this administration have been building to help create new savings options, ensure workers are getting sound retirement advice, and bolster bedrock programs such as Social Security.”
The proposal announced today would provide a new safe harbor from ERISA for state-sponsored IRAs that conform to certain provisions. The proposal would adopt a standard stating that state-sponsored payroll deduction IRA programs must be “voluntary” for workers, rather than “completely voluntary” as defined in a 1975 rule. This will allow for automatic enrollment of employees in such programs so long as they are given the ability to opt-out, and employers are minimally involved.
For instance, employers would make the automatic deductions from employee paychecks, but the employees and states would retain control of the program and IRA accounts. Employers could not prevent workers from declining to participate in the program.
The department has also published an interpretive bulletin regarding the creation of state-based ERISA-compliant 401(k) plans that are open to businesses and workers. In addition to payroll deduction IRAs and state-based 401(k)s, the bulletin gives several examples of approaches to creating state retirement savings programs that may avoid being preempted under ERISA.
Both automatic IRAs and state-based ERISA plans have been created, or are being considered, by various states. A lack of clarity of this area of the law has made other states reluctant to move forward with plans to create additional retirement savings opportunities for workers. The department’s guidance is meant to give states clear information as they move forward in creating programs.