An amendment to New York’s state finance law has established an IRA-based retirement savings program for the state’s private sector employers and their employees. Full establishment of the program is envisioned within 24 months.
The New York State Secure Choice Savings Program is to be a Roth IRA-based program that complies with Internal Revenue Code requirements for Roth IRAs. The program is to cover employees age 18 or older who have compensation from an employer (either for-profit or nonprofit) engaged in an enterprise in the state of New York, an employer that has not offered a “qualified retirement plan” within the two prior years. “Plan” is to include such traditional qualified plans as profit sharing/401(k), money purchase, target benefit, and defined benefit plans, as well as 403(b), SEP, and SIMPLE IRA plans, and governmental 457(b) plans.
Employees will be offered an opportunity to contribute or to decline participation. If no election is made, employees would be automatically enrolled and contributions withheld from their compensation at a rate of three percent. Employees can opt out of participation at any time or may change their rate of contribution. Other provisions of the program as identified in the state’s finance law amendment include the following.
- A governing Board is to choose available investments, with an initial default investment proposed to be a life-cycle or target date fund; future options to potentially include principal protection, growth, and “secure return” investment options.
- Investments are to be pooled to take advantage of cost savings “through efficiencies and economies of scale.”
- The Board would set minimum and maximum contributions consistent with Roth IRA rules, as well as determine withdrawal provisions.
- Employers participating in the program will “begin employee enrollment at most nine months after the Board opens the program for enrollment.”
- A website is to be established to provide information and enable participant transactions.
- Communications with employees will be provided in eight specified languages, and others as “the state comptroller deems necessary.”
- Deposits of amounts withheld from employee pay are to occur no later than the last day of the month following the month of withholding, and consistent also with an employer’s deposit requirements for income tax and unemployment insurance withholding.
- There would be no New York state funding obligation or liability.
- Employers would not be liable for employee participation decisions or governing board decisions.
The program’s governing board may delay implementation beyond the anticipated 24-month period if adequate funds to administer the program are not obtained. Funds for such administration can come from state, federal, or local government sources, as well as any individual, firm, partnership, or corporation.
President Trump signed House Joint Resolution (H.J. Res.) 66, a resolution of disapproval under the Congressional Review Act that nullifies 2016 Department of Labor (DOL) final regulations that granted states a regulatory safe harbor for automatic enrollment IRA savings programs. Several states, including Oregon, Illinois, California, Connecticut, and Maryland, are in the process of establishing such programs for employees of certain private sector employers that do not offer another type of retirement plan. More than half the states are at some stage of examining state-coordinated savings programs for their private sector workers. These final regulations were written to grant assurance to employers (and state governments) that participation in such programs would not be viewed as establishing an employee benefit plan subject to the conditions imposed by the Employee Retirement Income Security Act (ERISA).
These now-revoked regulations were issued in proposed form in 2015, and finalized in August 2016. Because of the timing of their release in final form near the end of the Obama administration, they were subject to revocation under the Congressional Review Act by majority vote of both U.S. Senate and House of Representatives, and signature by the President. On May 3, 2017, the Senate voted 50-49 to disapprove these regulations, following an earlier disapproval vote by the House. As a consequence of this action by House and Senate and signature by President Trump, no regulations substantially similar in nature may be issued by the DOL. (Similar regulations that granted large municipalities a safe harbor to establish IRA-based savings programs for private sector workers were the subject of an earlier resolution of disapproval and revocation, under H.J. Res. 67.)
Following disapproval of these regulations, states that have established such IRA-based programs—and those considering them—must now evaluate the extent to which the absence of the 2016 DOL safe harbor may influence their implementation. Several states have indicated that they will proceed without the clarifications of this safe harbor, relying instead on other guidance for any necessary exemptions.
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.
The U.S. Senate voted 50–49 to disapprove—and therefore withdraw—Department of Labor (DOL) regulations pertaining to IRA-based retirement savings programs established by states.
Under the procedures of the Congressional Review Act, the Senate voted in favor of a Resolution of Disapproval for these DOL regulations, following a similar disapproval in the House of Representatives. If signed by President Trump, these regulations are not only withdrawn, but may not be proposed in the future in substantially similar form.
The regulations were first proposed in 2015 and finalized in 2016, granting a safe harbor to states that might establish voluntary or mandatory IRA-based savings programs for certain private sector employers within their borders that do not offer another retirement plan. The safe harbor was intended to provide assurance to employers and state governments that the IRA-based savings programs they might establish would not be brought under, or found to violate the terms of, the Employee Retirement Income Security Act (ERISA). ERISA governs employer-sponsored qualified retirement plans—those multi-participant plans that generally must meet stringent nondiscrimination, contribution, and other requirements. Under the now withdrawn regulations, these requirements would have been inapplicable to state-sponsored IRA programs if certain conditions were met.
Following disapproval of these regulations, states that have established such IRA-based programs—and those considering them—must now evaluate the extent to which the absence of a DOL safe harbor will influence their implementation.
More than half of the states have already passed enabling legislation or are considering legislation to put IRA-based retirement savings programs in place. Many states have announced that they will proceed without the protections of the 2016 safe harbor, relying instead on previous guidance for any necessary exemptions.
The U.S. Senate today voted 50-49 to disapprove and thereby withdraw the DOL final regulations that granted an ERISA safe harbor for payroll withholding IRA savings plans established by municipalities for private sector workers. This disapproval was first passed in the House of Representatives, and then referred to the Senate. It must also be signed by President Trump in order to take effect, but his signature is considered a foregone conclusion.
Still pending in the Senate is a companion Resolution of Disapproval for the statewide IRA savings program regulations. That Resolution was previously passed in the Republican-controlled House on an essentially party-line vote. It is unclear at this time when, or if, the Senate will consider and vote on whether to disapprove these regulations for state-wide retirement programs. There is speculation that if the Senate does act on this Resolution of Disapproval, it might not do so until after Congress’ April recess and therefore, not until mid-April.
Such action, officially called a “Resolution of Disapproval,” is authorized under the Congressional Review Act, which allows Congress the opportunity to withdraw federal agency-issued regulations if such action is initiated within 60 legislative days after regulations issuance.
These now-disapproved regulations were intended to assure qualifying large municipalities, such as New York City, Philadelphia, etc., that IRA-based savings programs they establish for private sector workers within their jurisdictions would not be subject to certain requirements of the Employee Retirement Income Security Act (ERISA). Such programs would instead be subject to the Internal Revenue Code provisions and protections already in place for IRAs.
The DOL in December, 2016, added these municipality-specific regulations to earlier regulations granting states the same ERISA safe harbor for IRA-based savings plans. Several states, including Oregon, Illinois, and California, are well along in implementing such programs for private sector workers who have no employment-based retirement plan. More than half the states have either passed enabling legislation, or are actively considering it.
In a recent SHRM article, VP Barb Van Zomeren discusses potential benefits of state auto-enrollment IRA programs and the role they could play in addressing the nation’s retirement plan coverage issue. “Savers that are targeted to participate under government-run IRAs currently have no formal workplace retirement savings program—with or without ERISA oversight—and in all probability have little, if anything, saved for retirement,” she states. “For such employees, an IRA-based auto-enrollment retirement plan is an important first step toward a secure retirement.”
The U.S. House of Representatives has taken the first step in a congressional effort to overturn recent regulations issued by the Department of Labor that are intended to guide state governments that want to establish payroll-deduction IRA savings programs for private sector workers having no workplace retirement plans.
The House passed on an essentially party-line vote the first Resolution of Disapproval (House Joint Resolution 66) that would essentially nullify August, 2016, DOL final regulations providing an ERISA safe harbor for state-coordinated plans of this type. This safe harbor means that, while the programs would offer the protections afforded to all IRAs, they would not be subject to certain requirements specific to qualified retirement plans.
More than half the states have either passed enabling legislation or are considering legislation to put such plans in place. A second Resolution of Disapproval (H.J. Res. 67) was similarly passed and would block an amendment that extends the guidance to cover sufficiently large local units of government, such as New York City or Philadelphia.
In order to roll back these regulations, the same measures must now be passed in the U.S. Senate. Congress has the power under the Congressional Review Act of 1996 to withdraw regulations by such a procedure if done within 60 legislative days of a regulation’s publication in the Federal Register. If there are not 60 legislative days between a regulation’s publishing and the end of the congressional session, a fresh 60-day disapproval opportunity is given Congress at the start of the next congressional session. That is the case with these DOL regulations. If these Resolutions of Disapproval succeed, DOL could not issue substantially similar regulations in the future.
While the resolutions passed comfortably in the House, it is expected that the outcome in the Senate—where Republicans hold a very slim majority—is less than certain.
In a recent article for The Hill, Ascensus CEO Bob Guillocheau expresses support for state-sponsored auto-IRA programs and discusses common misconceptions. “The lack of retirement plan coverage among Americans is a major societal risk and a bipartisan issue,” he states. He asks that Americans do not support the Congressional Review Act resolutions of disapproval that were recently introduced in the House to overturn Department of Labor regulations regarding automatic enrollment IRA plans.
The Rules Committee of the U.S. House of Representatives has scheduled two resolutions to be considered on Monday, February 13, 2017. Each is what is known as a “Resolution of Disapproval,” which is a congressional action whose purpose is to block regulations issued by federal agencies during a 60 legislative-day period following their issuance. Such action is authorized by the Congressional Review Act of 1996.
This action is rarely used because a Resolution of Disapproval can be thwarted by a presidential veto, and it is uncommon for federal regulations to be issued unless they align with the policies of a sitting president. (The only time a Resolution of Disapproval was successfully executed was during the transition from Democratic President Bill Clinton to Republican President George W. Bush.)
House Joint Resolution 66 would block implementation of the DOL final regulations released on August 30, 2016, that provide guidance on state-coordinated IRA-based retirement plans for the employees of private sector employers under a state’s jurisdiction. House Joint Resolution 67 would similarly block amended final regulations released on December 20, 2016, which extended to certain local units of government the authority to establish similar plans for employees of private sector employers within their boundaries, in the absence of a statewide plan.
While August 30, 2016, is more than 60 calendar days prior to the end of the 2016 session of Congress, fewer than 60 “legislative days” elapsed before the end of the session. Thus, these regulations are exposed to a Resolution of Disapproval under the Congressional Review Act. The December 20, 2016, amendment for local government plans is clearly similarly exposed to a disapproval action. The 115th Congress that convened January 3, 2017, has a fresh 60-day period to attempt to disapprove these regulations.
If Resolutions 66 and 67 are passed in committee and by the full body of the House of Representatives, they would next have to pass by simple majority vote in the Senate and be signed by President Trump in order to block these regulations.
Watch this ascensus.com news for further developments.
Peg Creonte was recently interviewed by Emile Hallez at Ignites Magazine to discuss the new emerging state-sponsored IRA market, specifically in the state of Oregon. Creonte explains the importance of this new market by relating it to the relatively new 529 college savings market. “These programs can succeed and thrive, particularly looking at the example of 529s, which we think is very analogous,” Creonte says. “[529 programs] have grown into meaningful balances that can be profitable for administrators.”