Deferred compensation plans play by different rules than 401(k) and other ERISA plans, and perhaps the most frustrating is the absence of a federal law that allows these plans to offer auto enrollment.
That means public-sector DC plans, which aren't covered by ERISA, must rely on state and municipal laws to get approval for auto enrollment. However, about half the states don't allow auto enrollment due to laws that prohibit wages from being withheld from paychecks without consent of individual employees. Even though these laws weren't enacted with defined contribution plans in mind, the best practices strategy of auto features has become collateral damage.
Citing a need for plan executives to educate each other about ways to improve, the National Association of Government Defined Contribution Administrators embarked on extensive research to survey the legal landscape.
The result is an interactive map, showing what states are doing — or not doing — to help plans add auto enrollment. This effort merited an honorable mention from the judges of the Excellence and Innovation Awards.
"This is a one-stop shop for information," Cindy Rehmeier, the immediate past president of NAGDCA, said in an interview. "We're looking for any way to improve."
NAGDCA began conducting research in mid-2018, but officials ran into assorted roadblocks: Different states have different laws and different laws have different interpretations.
So, NAGDCA enlisted two long-time members, ICMA-RC, the Washington-based non-profit financial services company, and the Philadelphia-based law firm of Morgan, Lewis & Bockius LLP to examine how each state allowed or prohibited auto enrollment.
In early 2019, NAGDCA staff members developed the web tool to create the interactive map.
When the map was first posted on the NAGDCA website in April, 28 states prevented government DC plans from offering auto enrollment. Twelve states permitted partial use of auto enrollment; for example, allowing some public employees to take part. Ten didn't place restrictions. Today, 24 states still block auto enrollment, 16 have laws allowing partial use of auto enrollment and 10 have no restrictions.