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DOL Advances State-Based Retirement Plan Rule

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As directed by President Barack Obama, the Department of Labor filed Tuesday with the Office of Management and Budget its proposed rule designed to make it easier for states to offer their own retirement plans without running afoul of ERISA.

The action was noted in a filing on OMB’s website.

During the White House’s Conference on Aging, held in July, Obama directed Labor Secretary Thomas Perez to publish a proposed rule to “provide a clear path forward for the states to create retirement savings programs,” and to do so by year-end. 

The rule, Obama said, should clarify how states can move forward with state-based plans, including with respect to requirements to automatically enroll employees and for employers to offer coverage.

Obama noted his disappointment in Congress’ failure to act in approving a national automatic IRA program for workers without access to workplace retirement plans. He noted that “the good news is that states are stepping up” and “we want to do everything we can to support these efforts.”

The president’s fiscal 2016 budget proposal set aside $6.5 million in funding for DOL, along with waiver authority, to support state efforts to implement state-based automatic enrollment IRAs or 401(k)-type programs, according to the National Association of Plan Advisors, a branch of the American Retirement Association.

DOL’s rule proposal filed at OMB is likely “to speed adoption of the state-based retirement initiatives underway in more than half the states, most of which have an explicit acknowledgement of the intent to avoid running afoul of ERISA’s pre-emption.”

Once signed into law, “these programs would likely enjoy a competitive advantage over ERISA programs, due to their lower administrative costs, and lack of fiduciary requirements imposed on employers,” NAPA says.

Indeed, Brain Graff, ARA’s CEO and executive director of NAPA, says that ARA is “concerned that the potential guidance could create an uneven playing field, giving state retirement programs a competitive advantage over retirement plans offered by the private sector.”

ARA, Graff said, “will definitely be weighing in on this issue.”

Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath in Los Angeles, agrees that the issue of allowing state-based plans “creates a tension between the private sector and the state and federal governments,” because the private sector “generally believes that it should provide retirement services and investments to companies to use for their employee retirement plans.”

ERISA, Reish continues, “generally supports that view and would pre-empt arrangements where states would require businesses to establish or maintain retirement plans. As a result, the guidance from the DOL is critical.”  

While DOL “may rule that government required plans are permissible, the devil is in the details,” Reish adds. For instance, ”some states might just require that plan sponsors only facilitate IRA contributions by employees. Those arrangements, properly done, are not ‘plans’ and therefore do not implicate ERISA.”

But exactly what’s in DOL’s rule proposal won’t be unveiled until the OMB releases it for publication, probably in 30 to 60 days, Reish says.


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