One third of all workers do not have access to retirement savings plans through their employer. That’s why in every budget since taking office, President Obama has proposed federal legislation to automatically enroll workers in an Individual Retirement Account if they don’t have access to a workplace savings arrangement. In the absence of congressional action, several states have made strides in creating savings opportunities for residents. But uncertainty about federal law has discouraged other states and municipalities from moving forward with payroll deduction IRA programs.
The U.S. Department of Labor’s Employee Benefits Security Administration is making public a final rule that assists states that create IRA programs for workers who do not have access to workplace savings arrangements. At the same time, in response to public comments, the department is making public a proposed rule that could facilitate a limited number of cities and other local governments doing the same.
“For workers without access to savings arrangements through their employers, this rule means a new way to secure their financial futures,” said Secretary of Labor Thomas E. Perez. “More access to retirement investments equals more saving and a bigger piece of the American dream for workers and families in the decades ahead.”
“There is no silver bullet when it comes to solving the retirement savings issues facing workers and the nation, but increasing access to savings opportunities is a crucial step,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “Increased access, improved transparency, and reduced conflicts of interest in investment advice are all critically important tools. This agency and this administration have set a course for success in these areas, and we are confident that worker savings will grow as a result of our actions.”
Eight states have already enacted legislation to create retirement savings programs for private-sector workers. Most of those laws require employers that do not offer workplace savings arrangements to automatically enroll their employees in payroll deduction IRAs administered by the states, while other state laws create a marketplace of retirement savings options geared at employers that do not offer workplace plans. Although other states are considering similar measures, uncertainty over the application of the Employee Retirement Income Security Act’s preemption provisions has proven to be a roadblock to broader adoption of such programs.
The final rule announced today provides guidance for states in designing programs by providing a safe harbor from ERISA coverage to reduce the risk of ERISA preemption of the relevant state laws. Importantly, the rule also protects worker rights by ensuring they have the ability to opt out of auto-enrollment arrangements. The rule will go into effect 60 days after its publication in the Federal Register.
The proposal to expand the safe harbor to include a limited number of larger cities and counties in response to comments received from members of the public will be open for 30 days of public comment after its publication in the Federal Register.
Both the final rule and the notice of proposed rulemaking will be published in a forthcoming edition of the Federal Register and can also be viewed on the EBSA website, www.dol.gov/ebsa.
They are also available here:
Final Rule: https://www.dol.gov/sites/default/files/ebsa/temporary-postings/savings-arrangements-final-rule.pdf