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Congressmen Aim to Block Obama-Era Retirement Rules

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Two Republican congressmen have introduced resolutions to block an Obama administration regulation that allowed state-administered IRA plans to avoid coverage under the Employee Retirement Income Security Act.

(Related: DOL Finalizes State-Run Retirement Plan Rules)

Rep. Tim Walberg, R-Mich., chairman of the Subcommittee on Health, Employment, Labor and Pensions, and Rep. Francis Rooney, R-Fla, each issued resolutions of disapproval under the Congressional Review Act.

Walberg’s H.J. Res 66 would roll back the Savings Arrangements Established by States for Non-Governmental Employees rule submitted in August, while Rooney’s H.J. Res 67 would block a similar rule submitted in December that extends to “political subdivisions” like cities and counties that administer savings programs for private-sector workers.

The Savings Arrangements Established by States for Non-Governmental Employees rule was proposed by the Employee Benefits Security Administration and Department of Labor in August and became effective Oct. 31. It lays out guidance in which state retirement savings programs that are funded by payroll deductions would not trigger ERISA compliance.

The Savings Arrangements Established by Qualified State Political Subdivisions for Non-Governmental Employees rule was proposed Dec. 20.

Some states, including California, Connecticut, Illinois, Maryland and Oregon, have adopted programs for certain employers that don’t offer workplace savings plans to automatically deduct a percentage of a worker’s paycheck and save them in a state-administered IRA. Employers are not required to make a contribution of their own and employees must opt out, rather than opt in.

Because the DOL has interpreted “employee pension benefit plan” and “pension plan” to include any plan established and maintained by an employer, even if the employer is only minimally involved, some employers were concerned that these state-administered IRAs would be ERISA-covered plans.

Under a 1975 safe harbor regulation, payroll deduction plans may not trigger ERISA coverage if they are “completely voluntary,” meaning the employee signs up for the plan him or herself; plans with automatic enrollment would not meet the safe harbor requirements, even if the employee can opt out.

In addition to the voluntary enrollment condition, employers must also make no contributions, must not endorse the program to employees, and may not receive consideration for their involvement beyond expenses to meet the 1975 safe harbor exemption.

A 2015 safe harbor proposal mirrors the 1975 safe harbor, but adds that employer involvement must be required by state law (but still may be “no more than ministerial”). One other significant change: employee enrollment need only be “voluntary.”

“Because the new safe harbor requires that the employer’s involvement in the program be required and circumscribed by state law, the 1975 safe harbor’s condition that employee participation be ‘completely voluntary’ has been modified to permit state-required automatic employee enrollment procedures,” according to the August proposal.

Rooney expressed concern that this could force workers “into government-run plans with fewer protections and less control over their hard-earned savings. Employers will face a confusing patchwork of rules, and many small businesses may forgo offering retirement plans altogether,” he said in a statement.

Walberg added that instead of increasing regulations to promote retirement savings, policymakers should work to “reduce costly red tape and make it easier for small businesses to band together to offer retirement plans for their employees.”

— Read 15 Best States for Retirement: 2017 on ThinkAdvisor.