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  2. DEFINED CONTRIBUTION
December 19, 2016 12:00 AM

DOL rules clear cities to start private-sector retirement programs

Hazel Bradford
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    The Department of Labor on Monday issued final rules allowing some cities and counties to set up payroll-deduction IRA accounts for private-sector workers who do not have access to workplace retirement savings programs.

    The rules, which closely track ones issued Aug. 25 for states, remove concern over being pre-empted by federal regulators by clarifying that such programs would not be covered by ERISA.

    “This is good for workers and families trying to build their nest eggs, and good for the long-term strength of the economy,” Labor Secretary Thomas E. Perez said in a statement.

    To qualify, a city or qualified political subdivision cannot already have a statewide payroll deduction program in place, must have experience sponsoring a plan for its employees and have a population equal or larger than the least populated state, which as of the 2013 census was Wyoming, with less than 600,000 residents. It must also be authorized under state law to mandate a payroll deduction.

    Like states, cities and counties may implement and administer the programs or contract with private-sector firms, but they must be responsible for investing or selecting investment options for employees, who must be able to opt out of auto enrollment.

    DOL officials estimate that it will apply to “a limited number” of cities and other political subdivisions. New York, Philadelphia and Seattle have publicly expressed interest.

    “The guidance is very welcome in many cities around the country. Many people have been waiting. I think it will help galvanize some of the efforts around the country,” said John Scott, director of Pew Charitable Trusts' retirement savings project, in an interview.

    The rule, which goes into effect 30 days after its Dec. 20 publication in the Federal Register, will be available on the Federal Register's website.

    A fact sheet is available on the DOL website.

    “The Department of Labor's ruling provides a strong foundation that will help solve the looming crisis of retirement security for Philadelphians,” City Controller Alan Butkovitz said in a statement. “Our goal is to provide all families with access to programs that they can use to build a healthy and dignified retirement.”

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