Proposed rules from the Department of Labor that give the green light to states to consider creating retirement savings programs for some private-sector workers are raising concerns among service providers, from record keepers to asset managers.
They worry a perceived DOL endorsement would give state plans an unfair advantage and, worse, could lead to lower savings rates for participants.
On Nov. 16, Secretary of Labor Thomas E. Perez announced the rulemaking initiative at a Chicago event with Illinois Treasurer Michael Frerichs, whose state is considered a trailblazer in this area, along with California, Connecticut and Oregon. While a new Illinois law gives the state two years to implement an individual retirement account plan for small companies, “we could not get up and running without this proposed regulation today,” Mr. Frerichs said at the event. “It puts us on a path to move forward.”
DOL officials bundled the proposal with interim guidance aimed at encouraging states to consider other defined contribution programs that would be covered by the Employee Retirement Income Security Act, yet still under state control, such as multiple employer plans and retirement plan marketplaces.
Together, the proposed rules and interim guidance are being seen as a green light to states eager to provide easy ways to attract more retirement savers through the workplace, targeting small employers.
Until now, state officials were concerned their programs would be subject to ERISA. Continued reluctance until the rules are finalized is most likely to mean more states considering a simple, payroll-deduction IRA program that keeps small-business owners away from ERISA.
But as the prospect of more state programs for private-sector workers grows, so does resistance from retirement service providers concerned the DOL could wind up giving states an unfair advantage over private-sector offerings.