Retirement is front and center, and there is a lot of
concern that many people do not have access to retirement plans at work, he
explained. “The government finally gets it that retirement plans are important,
but now it’s not sure we are the best to deliver those plans,” Graff told
retirement plan advisers and service providers.
A movement has started to expand access to retirement plans.
Graff noted that it is focused on the same issues as health care reform—lack of
coverage, access and costs. However, while state governments have started the
movement, they are not just mandating that employers provide retirement plans;
they are creating state products.
Now, the federal government is getting involved. In
Interpretive Bulletin 99-1, the Department of Labor (DOL) established a
framework for non-Employee Retirement Income Security Act (ERISA) payroll
deduction individual retirement accounts (IRAs). According to Graff, as
California, Illinois and Oregon worked on their state products, they asked the
DOL for clarification that automatic-enrollment does not make payroll deduction
IRAs ERISA plans, Graff explained. The DOL was reluctant to respond, but
earlier this year, President Obama told the DOL to develop guidance
facilitating state programs.
NEXT: Giving states a
competitive advantage
The guidance from the DOL has not been proposed yet, but it
is awaiting approval from the Office of Management and Budget (OMB), so it is
expected to be published soon. Officials at the American Retirement Association
have not seen the guidance, but Graff shared what they’ve gleaned from
discussions with the DOL.
It seems the guidance will have two components: a
proposal that auto-enrollment IRAs would not be ERISA plans if employers are
required to participate—avoiding pre-emption by ERISA, and a rule allowing
states to offer open multiple-employer retirement plans (MEPs) that would be
treated as an MEP for affiliated employers—meaning, there would only need to be
one plan document, one summary plan description and one Form 5500 per year
filed. Graff says the first component would be delayed by the proposal, comment
period and hearing process, while the second component would be effective
immediately.
Judy A. Miller, executive director of the ASPPA college of
pension actuaries and director of retirement policy at the American Retirement
Association, noted that the DOL is probably wanting to allow states to offer
MEPs, because they want something with ERISA protections.
NEXT: Problems with
state plans
But, Miller notes that there are many problems or unanswered
questions about state plans. How will they define participants; what if
employees live in different states? How would states be held accountable for
and correct errors? Who will run and control investments?
While the DOL guidance may address how these plans should be
structured or run, right now it depends on rules set by each state, Miller
noted. For example, Illinois issued a request for proposals (RFP) for an investment
provider and it has a board that acts as an investment committee. The American
Retirement Association is asking that the DOL require a designated service
provider, registered with the DOL, to make sure rules are being followed, she
said.
Miller also contended that the MEP concept will not work
unless there’s an employer mandate to participate. Graff agreed, noting that
this movement by states is based on the notion that the retirement industry is
not offering a cost-effective solution for small businesses.
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