The U.S. Department of Labor laid the groundwork for states to run ERISA-covered auto-enrollment individual retirement accounts and multi-employer retirement plans for people without workplace savings options, issuing proposed rules and an interpretive bulletin for that purpose.
The so-called open MEPs give employers that don’t want to offer their own 401(k) plan a way to join with other companies to offer a retirement plan to their workers. The announcements in mid-November advanced requests from the Obama administration for solutions to American workers’ lackluster retirement savings. But the proposed rules’ comment period, ending Jan. 19, 2016, already has brought criticism of an “unfair advantage” over private-sector IRAs and other plans that seek the same retirement assets.
The interpretive bulletin clears previous prohibitions on employers in different industries taking part in MEPs.
Significant Changes to Plan Regulation
The proposed rules bring significant changes to the way these new state-run retirement plans would be regulated, which could pose challenges for employers sponsoring retirement plans.
The rules conclude “that various state-based programs are not ERISA plans and not preempted by ERISA,” wrote Bob Seng, a partner in the Benefits & Compensation Group of consulting firm Dorsey ERISA and former assistant general counsel for pay and benefits at Target Corp., in a Dec. 2 blog post. “The regulation is what should catch the attention of employers and their governmental relations experts. That’s because the DOL is giving a green light to the form of state retirement plan legislation most likely to cause problems for employers, maybe even employers that already sponsor a retirement plan,” Seng continued.
As a result, the safe harbor created by the proposed regulation could force existing plan sponsors to comply both with ERISA for its own plan and state law for the new arrangement. “The state plans have the potential to scoop in employees who work for an employer that already sponsors a plan. The employee may not be covered by the plan because they are in a waiting period or because of some other good reason, Seng’s post said.
This scenario especially creates problems for employers with multistate workforces.