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.
Spiezio asked the DOL how it sees state laws that require benefit plan sponsors to get written consent from the employees before withholding premium contributions for the benefits from the employees’ wages.
Campagna writes in the DOL response that DOL rejected a Kentucky law requiring written consent for payroll-deduction payment mechanisms in a 2008 advisory opinion, and a New York written-consent law in a 1994 advisory opinion.
“Consistent with the foregoing, it continues to be the department’s view that a state law like those involved in [the] above advisory opinions would be preempted by section 514(a) of ERISA to the extent the law is interpreted to limit, prohibit, or regulate an employer’s adoption of automatic enrollment arrangements in connection with a disability benefit plan or other welfare benefit plan covered under Title I of ERISA, or making related deductions from wages for contribution to such a plan,” Campagna writes in the letter.
ACLI President Susan Neely said in a statement the new DOL letter ruling will help American workers, by expanding their access to group disability benefits.
“The department’s action will remove a barrier many employers have faced to offering workers this vital form of paycheck protection, while also ensuring workers maintain the freedom to opt-out of the plan,” Neely said.
Private disability insurance may also save the government money, by reducing the odds that workers with disabilities will end up needing government assistance, Neely said.
Prudential Financial Inc., a company that sells group disability plans, said in a statement that the new letter ruling could have a real effect on group enrollment.
“Tuesday’s announcement is a tremendous milestone to expand coverage to the more than 50 million individuals … who don’t have disability income insurance,” the company said.
The company said it will encourage the employers, plan administrators and brokers it works with to add auto-enrollment features to their group disability plan programs.
A copy of the letter ruling is available here.
Links to general ERISA guides and related documents are available here.
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