Oregon is the first state to implement a state-sponsored auto-enrollment individual retirement account program, OregonSaves, continuing to move forward despite the resolution President Donald Trump signed in May that took away “safe harbor” regulations for these state-run plans.
According to James Sinks, director of communications and stakeholder relations for the Oregon State Treasury, the recent administration’s actions “didn’t really do anything except take us back to the beginning.”
In mid-May, Trump signed H.J. Res 66 into law, which in effect invalidated the Department of Labor’s “safe harbor” regulations on savings arrangements established by states for nongovernmental employees. The resolution closed a regulatory loophole created by the Obama administration that would allow states to offer government-run retirement accounts to private-sector workers without the consumer protections provided by the Employee Retirement Income Security Act.
However, Oregon passed legislation for its state-run retirement program in 2015 and had started building its plan before the safe harbor was created at the federal level.
“I think that there’s been some confusion and coverage that somehow this congressional action cut the legs out from under this program,” Sinks told ThinkAdvisor. “It didn’t. It just took away … a safe harbor at the U.S. Department of Labor that wasn’t there at the beginning and isn’t there now.”
According to a letter written by Tobias Read Oregon’s state treasurer, the safe harbor clarified that “state-administered plans are not employer-directed. As such, employers have no oversight over the plan or investment options, no ability to match contributions, and no fiduciary obligations.”
There are still safe harbors under ERISA, enacted in 1974, that OregonSaves is following, Sinks explained.
“The elimination of the federal safe harbor didn’t really change a whole lot because we were all following the ERISA laws that were there anyway,” Sinks said. “With our legal counsel, we are confident that we are within the guidelines of the ERISA laws before.”
In California, state Senate leader Kevin de Leon and Treasurer John Chiang have also stated that “the California Secure Choice program stands on firm legal and statutory ground and will proceed without delay.”
The OregonSaves program entered a pilot phase on July 1 with 11 employers and a combined 156 employees, of which 21 have opted out of the program. A second pilot group will roll out in October with more than 40 businesses already signed up before the Aug. 15 deadline.
The program will become more widely available starting in 2018. In January, full implementation will be done in waves, starting with the largest employers and adding more every quarter.
OregonSaves will automatically enroll workers, enabling them to save part of their pay into their own IRAs, which will be managed by State Street Global Advisors. Workers can opt out.
Participants in OregonSaves will invest via a menu of low-cost index funds managed by SSGA including target date funds, an S&P 500 Index Fund and a money market “capital preservation” fund option.
The State Street funds available to OregonSaves participatrs are a suite of Target Retirement Funds, the State Street Equity 500 Index Fund and the State Street Institutional U.S. Government Money Market Fund.
SSGA was selected after a competitive bid process that considered investment strategy, fees, performance and other factors.
Unless they opt out or choose a different savings rate, employees are automatically enrolled in the OregonSaves program at 5% of gross pay with an automatic increase of 1% a year until the savings rate reaches 10%.
The first $1,000 will be invested in the Oregon Saves Capital Preservation Fund, and savings over $1,000 will be invested in an OregonSaves Target Retirement Fund based on the worker’s age.
There is an ongoing fee that is paid as a percentage of assets under management. The fee for each investment option is approximately 1% of assets per year.
— Related on ThinkAdvisor: