Public Retirement Plan Mandates by State
Eight states have introduced retirement programs in response to the Department of Labor (“DOL”) rule giving states the ability to create retirement savings programs for workers whose employers do not offer retirement savings plans. State plans are exempt from ERISA regulations unless stated otherwise. Information on the features of approved state retirement savings programs are listed below:
Employers with 5 or more employees will be required to either offer an employer-sponsored retirement plan or provide employees with access to the California’s Secure Choice Retirement Program. Employers who select Secure Choice would have limited administrative and no fiduciary responsibilities.
Secure Choice would initially establish an automatic payroll contribution of 3% of salary into a personal retirement plan. The contribution rates would be subject to an automatic payroll contribution escalation of 1% annually up to 8% of salary. Participating employees may opt out or change their contribution rate at any time. Employees will be able to contribute accounts throughout their working life.
Secure Choice will be administered by a nine-member board composed of the State Treasurer, Controller and representatives of the financial industry, small business, employers and employees. The Board will have a fiduciary duty to plan participants and maintain responsibility for risk management, oversight and maintaining a balanced low-risk and low-fee investment portfolio diversified based on investments and investment class.
The Board may hire an investment manager to make investment selections. The investment manager will be required to submit monthly reports to the Board that include the type and dollar amount of fund investments. Reports will be publicly available.
Private employers, who have been in business for at least one year, do not offer a qualified retirement plan and have five or more employees, (each of whom received at least $5,000 in wages during the previous year) will be required to automatically enroll their employees in the Connecticut Retirement Security Exchange.
Eligible employees must be over 19 years old, have worked for their employer for at least 120 days and must not be members of an exempt category. Employees may contribute up to the federal limits for a Roth IRA. The Exchange would initially establish an automatic payroll contribution of 3% of an employee’s salary into a Roth IRA. An employee may elect to not participate in the Exchange by selecting a contribution amount of “zero”.
The Exchange will be administered by the Connecticut Retirement Security Authority, which is directed by a 15 member Board. Board members may not vote on issues in which they have a direct financial interest, must act only in the interest of participants and beneficiaries and provide benefits and pay administrative expenses.
Employers who have been in business for at least two years with 25 or more employees and who do not offer a retirement option to their workers must automatically enroll their employees in the Illinois Secure Choice Savings Program. The Program establishes a payroll-deduction IRA for workers.
Employees may set contribution levels and select from among the investment options. However, if no selections are made, contributions default to three percent of salary and a life-cycle investment fund will be selected. Employees may opt out of the program at any time.
Assets will be pooled and managed by the Illinois Treasurer and a qualified board.
Employees whose employers don’t offer other retirement options will be eligible to participate in the Small Business Retirement Savings Program. The Program will include automatic employee enrollment, default contribution amounts and investment options and employee opt-out and opt back in provisions.
An eleven member board will design and administer the Program. The Board is tasked with developing a vendor approval process, selecting investment options, minimizing administrative expenses and capping funds under management expenses at 0.5 percent.
Employers who have been in business for at least two years with 25 or more employees and do not offer a retirement option to their workers must automatically enroll their employees in the Massachusetts Secure Choice Savings Program. The Program establishes a payroll-deduction IRA for workers.
The state also introduced an Act Providing Retirement Options for Nonprofit Organizations (ERISA covered). The State Treasurer can sponsor a tax-qualified defined contribution retirement savings plan for workers at small non-profit organizations. Participation by organizations is voluntary, and workers and their employers could both make contributions.
The plan would establish an automatic 6 percent payroll deduction and an employer could make an initial automatic contribution of 4 percent with an escalation feature of up to 10 percent.
The IRS is currently reviewing the group trust feature that would allow the accounts to be pooled.
The New Jersey Small Business Retirement Marketplace created an online marketplace for businesses with up to 100 employees to facilitate shopping for employee retirement investment options. Participation is voluntary for both employers and their workers.
Investment options will include life insurance plans, a target date or similar fund, a balanced fund, myRA, at least two types of SIMPLE IRA type plans (allowing for employer contributions) and a payroll deduction IRA type plan (no employer contributions).
Employers will not be charged any fees and employee total annual fees may not exceed 100 basis points.
The State Treasurer will design and implement a Marketplace operation plan, engage private firms to establish a participating financial firm approval process, design and operate an online marketplace where employers may select plans, develop marketing and educational materials and ensure investment diversification based on risk tolerance and age, among other factors.
The Oregon Retirement Savings Program board will conduct a legal and market analysis to assess the feasibility of establishing a retirement plan and ERISA applicability as well as develop a defined contribution retirement plan that would be pooled and professionally managed.
The Washington State Small Business Marketplace Retirement Savings program offers an online marketplace for the self-employed, sole proprietors and businesses with less than 100 employees to shop for employee retirement plan investments. Participation is voluntary for both employers and their workers.
Investment options will include life insurance plans, a target date or similar fund, a balanced fund, myRA, at least two types of SIMPLE IRA type plans (allow employer contributions) and a payroll deduction IRA type plan (no employer contributions).
Participants will be able to roll over contributions to different retirement accounts.
The Program director will establish a due diligence and approval process for private sector financial firms seeking to participate in the marketplace and design and operate an online marketplace that includes information to help eligible employers participate in the marketplace.
The Program director is also tasked with the following:
• Developing marketing and educational materials (retirement savings and financial literacy) for distribution electronically and in agency mailers
• Identifying and promoting federal and state employer and employee retirement savings tax credits and benefits
Other State Retirement Initiatives
The following states have introduced legislation that is either pending or in limbo:
• Arizona – Arizona Secure Choice Retirement Savings Program
• Colorado – Colorado Retirement Security Task Force
• Indiana – Hoosier Employee Retirement Option (HERO) plan
• Iowa - Iowa Retirement Savings Plan Trust
• Kentucky – Kentucky Retirement Account Program
• Louisiana – Louisiana Retirement Savings Plan
• Maine – Maine Secure Choice Retirement Savings Program
• Minnesota – Evaluating the numbers of workers who could be impacted, the self-sustaining participation rate, federal tax laws and ERISA and investment strategies and products to limit state liability and manage risk
• New York – Retirement Security Study Group
• North Carolina – Work and Save Plan Study
• Ohio – Ohio Secure Choice Retirement Savings Program
• Rhode Island – House Bill being studied
• Utah – Passed resolution encouraging small business workers and employers to work with the Legislature and Treasurer to make workplace retirement savings plan recommendations
• Vermont – Created an interim Public Retirement Plan Study Committee to evaluate a public retirement plan option and requiring employer participation when private-sector employees are not covered by workplace retirement plans
• Virginia – Created a Virginia Retirement System working group to make workplace retirement savings plan recommendations. The Group will evaluate federal and state programs that encourage retirement savings, analyze retirement savings options for self-employed individuals, part-time workers, full-time workers who are not covered by retirement savings plans and low savings rates among retirement plan participants.
• West Virginia – Comparing the need, feasibility and cost of creating a state sponsored group retirement savings program with the options available to businesses without workplace retirement plans with 50 or fewer employees
• Wisconsin – Created the Wisconsin Private Retirement Security Board to study the need, feasibility and cost of establishing a private retirement security plan, hold public hearings and submit a report that provides an estimate of the setup and administrative costs, how soon a plan can be viable and will recommend any legislation that would aid plan creation