In response to a Senate vote passing the resolution to disapprove Department of Labor (DOL) regulations pertaining to IRA-based retirement savings programs established by states, Senators Martin Heinrich (D-NM) and Chris Murphy (D-CT), along with 16 other Democratic cosponsors, have introduced the Preserve Rights of States and Political Subdivisions to Encourage Retirement Savings (PROSPERS) Act. The Act, if passed, will amend Section 3 of the Employee Retirement Income Security Act (ERISA) of 1974 to exclude individual retirement plans (i.e., individual retirement accounts and individual retirement annuities, as defined under Internal Revenue Code Sections 408(a) and 408(b)) from the definition of “employee pension benefit plan” and “pension plan” under ERISA, provided certain conditions are met. To be exempt from the “employee pension benefit plan” and “pension plan” definitions under ERISA, the Act requires individual retirement annuity and individual retirement account-based plans that are run by states or qualified political subdivisions to
- be established under state or qualified political subdivision law;
- be implemented and administered by the state or qualified political subdivision;
- require that the qualified political subdivision’s state be responsible for the security of payroll deductions, including their prompt deposit by the “earliest date on which such contributions can reasonably be segregated from the employer’s general assets”;
- require that the state or qualified political subdivision provide notice to employees of their rights under the program;
- provide that participation is voluntary for employees;
- limit the enforceability of the rights of employees, former employees, and beneficiaries to only employees, former employees, beneficiaries, authorized representatives, or the state or qualified political subdivision;
- limit employer involvement to collecting employee contributions through payroll deduction, providing notices to employees and maintaining records, providing information necessary to facilitate the operation of the program, and distributing information or publicizing the program to employees;
- not allow for employer contributions;
- require that the employer has no discretionary authority, control, or responsibility under the program; and
- require that the employer receive no direct or indirect consideration (cash or otherwise), including tax incentives or credits, that does not exceed the employer’s costs under the program.
The Act as written also allows for such programs to be directed toward employers who do not offer other workplace savings arrangements, use service or investment providers to operate and administer the program, and allow for auto-enrollment and auto-increase provisions (if employees are given adequate advanced notice), without violating the above requirements. Program eligibility would not extend to political subdivisions with populations fewer than that of the least populated state or those which overlap with any other political subdivision.
The progress of the bill will continue to be closely monitored, and updates with be provided as warranted.