States and local governments hit a major roadblock Feb. 15, when the U.S. House of Representatives approved resolutions blocking Department of Labor safe-harbor rules for their private-sector retirement savings programs.
The move might chill those efforts for some, but others vow to persevere.
“We will regroup,” said Joe Torsella, Pennsylvania's new state treasurer who campaigned on creating an automatic IRA program for private-sector employees without retirement plan access. Mr. Torsella expects last year's bipartisan legislation to reappear in the current legislative session. ”While there are (fewer) options open to us, it's not that there are no options.”
More than 30 states have considered “Secure Choice” state legislation to create programs for private-sector employees without access to an employer-sponsored retirement plan, and eight have programs in development. Washington and Oregon's programs are expected to launch this year, followed by California, Connecticut, Illinois, Maryland and New Jersey. Massachusetts has a smaller pilot program for non-profits.
Their caution about developing programs that could be pre-empted by regulators eased considerably when the Department of Labor issued the safe-harbor rules last year.
Many states and municipalities plan to use individual retirement accounts controlled by participants, not employers, whose only role would be accommodating payroll deductions. Others are considering multiple-employer plans that would be covered by ERISA or retirement provider marketplaces that match small employers with existing service providers.
Employers already sponsoring retirement plans are watching the drama closely as states design their programs, including how existing plan sponsors would be exempt.
“The rules could hurt retirement savings and participants by discouraging plan sponsorship and limiting protections for workers,” Lynn Dudley, American Benefits Council senior vice president for global retirement and compensation policy, wrote to House Speaker Paul Ryan, R-Wis.
“We want to make sure that no state goes down the path of harming the retirement system,” said Will Hansen, senior vice president of retirement policy for the ERISA Industry Committee, whose members worry about rules between states and conflicts with industry practices.
That concern became real in Oregon, an early adopter set to launch a pilot auto-IRA in July. OregonSaves program officials are now reconsidering a proposal that would have required existing plan sponsors to enroll new hires within 90 days. “Our goal is to try to align the program with the way people already do business and with existing standards,” Oregon officials said in an email message welcoming public comments.