The U.S. Department of Labor may be ready to do battle with state regulators over any state payroll-deduction rules that affect benefit plans.
The federal Employee Retirement Income Security Act of 1974 (ERISA) “preempts” — in other words, blocks — state wage withholding rules that are designed to affect group disability plans and other benefit plans, according to a new DOL letter ruling.
Louis Campagna, a longtime DOL official, has given withholding consent rule interpretation in a new batch of guidance, Information Letter 2018-12-04.
Campagna is the longtime chief of the federal Division of Fiduciary Interpretations at the Employee Benefits Security Administration (EBSA).
EBSA, ERISA and Louis Campagna
EBSA is the arm of DOL that handles matters relating to ERISA, and the employee benefit plans governed by ERISA.
Congress passed ERISA in an effort to help large, multi-state employers cut their benefits costs, by shielding benefit plans from burdensome state benefits mandates.
Federal law gives state governments jurisdiction over the business of insurance, but ERISA normally preempts state laws and regulations that might affect large employer plans, or employer plans that cover employees in multiple states.
ERISA also includes a fiduciary standard. The fiduciary standard requires ERISA plan fiduciaries to put the interests of the participants first.
In the new letter, Campagna does not mention retirement plans, or the DOL effort to impose new fiduciary rule and “best interest” sales standards on sales of indexed annuities and other financial services products to retirement savers.
A letter ruling is simply an expression of how DOL officials read the current laws and regulations, not a formal regulation.
DOL itself can change an interpretation. Congress can change how DOL proceeds by creating a law. State agencies or other parties can get an interpretation changed by going to court.
But Campagna has been helping to interpret how the DOL applies existing laws, regulations and policies to 401(k) plans and other retirement plans for years. In 2016, for example, he wrote a letter ruling discussing how ERISA’s fiduciary provisions apply to default investments with annuitization features that contain liquidity and transferability restrictions.
The DOL has posted the new interpretation letter as some states, including New York, are trying to set their own, homegrown sales standards for retirement savings products.
Information Letter 2018-12-04
Campagna addressed the letter to Julie Spiezio, a senior vice president at the American Council of Life Insurers (ACLI).
Spiezio told the DOL that some employers governed by ERISA might want to set up automatic enrollment arrangements for group disability insurance plans, with the employees helping to pay part of the cost of the coverage. Employees at those employers would have to take active steps to opt out of the group disability coverage.