Last year, President Obama directed the U.S. Department of Labor (DOL) to clear a path for state retirement plans by exempting states from Employee Retirement Income Security Act (ERISA) regulations. In November, the DOL published a proposed rulemaking adding an ERISA safe harbor for state savings programs. While the rulemaking is not yet final, it invigorated states to develop their own retirement programs. Payroll professionals play a role in transfers of deductions to employee retirement accounts. They also may help prepare lists of employees eligible for state programs, distribute information to employees, and collect initial or program entry forms, such as opt-out records.
Four states did not wait on federal government action - California, Illinois, Connecticut, and Oregon. California created the Secure Choice Retirement Savings Investment Trust. Illinois' program is similar. Both Connecticut and Oregon created boards to research and develop plans. Each of the state plans is an employer mandate. Employers in these states are required to perform certain tasks. They include:
- Furnishing information about the program
- Auto-enrolling workers in retirement savings accounts
- Automatically taking deductions
States are not requiring participation for employers already offering a qualified retirement plan. However, some state laws are drafted broadly to include many workers who do not qualify for an employer's retirement plan. For example, part-time, contingent, and seasonal or temporary workers.
The pressure to develop these programs Is not entirely altruistic. Helping people live better in retirement is a noble cause. But, the drain on state budgets for people dependent on state welfare after retirement is significant.
The data shows the potential problem for states:
- 45% of working households do not own retirement accounts
- Of those working-age households that have accounts, the median account balance is only $14,500 for those workers near retirement
The American Payroll Association (APA) is watching these state program developments closely. APA's position is to minimize the burden on payroll professionals by curtailing the role of employers in state plans and pushing for single state recordkeepers. Employers should not act as mediators between financial institutions and employees, should not track employees' retirement deductions across multiple employer situations, or decide between state plans when employees live or work in more than one state.
APA is part of a coalition - the State Retirement Plan Administrators Work Group - that was established through the National Payroll Reporting Consortium to assist states in developing retirement plans. Some states mentioned that consistency across state programs is important to them. They want to know what other states are considering. Many states are still in the early stages of thinking about program development, but virtually all states are watching the lead states closely.
A key goal of APA is to establish best practices and uniform standards, such that multistate employers are not faced with scores of diverse state mandates in addition to their ERISA qualified plan.
The discussion among payroll and retirement interests is whether similar protocols and definitions are possible; that is, can states agree to a uniform approach? If full program agreement cannot be accomplished, then participants may still seek uniformity in those areas where agreement can be reached. Some level of standardization will make programs easier for both employers and employees to implement and understand.
Do you have a thought on state retirement plans? If so, let me know in the comments section and check back with Pay News Now for more updates on this topic.