July 16, 2015

State-Sponsored Retirement Savings Programs for Private Sector Get a Boost from the President

The Department of Labor (DOL) will be issuing rules under the Employee Retirement Income Security Act (ERISA) to help states offer tax-favored retirement savings programs to private sector employees in their states. The DOL intends to propose the rules before the end of 2015.

A number of states are either considering or have already adopted programs that provide private sector employees who otherwise lack access to employer-provided arrangements a way to save for retirement. However, the growth of these programs, which take a variety of forms such as automatic enrollment IRAs or state-administered 401(k) plans, has been limited because of uncertainty about their status under ERISA, the federal law that governs private-sector employee benefit plans. ERISA preempts, or overrides, most state laws related to employee benefit plans, with certain limited exceptions such as generally applicable state criminal laws and state insurance and banking laws.

The DOL rule effort is in response to a direction from President Obama. At the White House Conference on Aging, held on July 13, President Obama announced that he had directed the DOL to develop rules “to support the growing number of States trying to promote broader access to workplace retirement savings opportunities.” Although the federal courts ultimately determine whether a state law is preempted or not, the purpose of the DOL rules will be to clarify how states can move forward with retirement savings arrangements that are consistent with ERISA and therefore less likely to be undone by litigation.

If you have any questions about the upcoming rules, please contact your Segal consultant or send us a note.

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Serena Simons

Serena Simons

SVP, National Retirement Compliance Practice Leader