The comment period has only just closed, but already critics arepiling on with their disapproval of the Department of Labor’sproposed safe harbor for state-runretirement plans.

|

State-run plans, which provide a means of retirement saving foremployees of mostly smaller companies who do not have access to anemployer-sponsored retirement plan, have been gaining moreattention as an increasing number of states jumps on thebandwagon.

|

But the plans are not universally popular, even—or perhapsespecially—with the states that would administer them. Whileemployers must withhold employee contributions and pass the moneyalong to the state, those employers need not contribute to a plan,nor manage it in any way.

|

That’s the state’s job—and some states are worried aboutpotential liability issues.

|

Hence the safe harbor proposal.

|

Voya Financial was first, saying thatDOL contradicted itself with the safe harbor proposal, which isintended to limit the Employee Retirement Income Security Act’s(ERISA) scope on the small businesses that would participate. Sucha limitation would butt heads with another DOL rule—the fiduciary rule, said Voya.

|

Now the Investment Company Institute has registered itsdisapproval, saying that the proposal for state-run plans overall,and accompanying guidance, “would spur a confusing, state-by-statepatchwork of savings programs that could lack the strict federalprotections mandated for private employers’ retirement plans.”

|

ICI took issue with exemptions from ERISA protections “forcertain retirement savings programs” that could result in a “lack[of] critical protections … designed to prevent mismanagement andother abuses.” Instead, ICI said that DOL should determine on acase-by-case basis whether a state-run plan is suitable for anexemption.

|

Many states are hesitant to create such a plan without an ERISAsafe harbor, lest they be held liable for plan outcomes.

|

Saying that the safe harbor provision would “create an unlevelplaying field” and give state plans an unfair advantage, and thatthe agency “fail[ed] to consider [the] full scope of effects onworkers,” ICI said that “state initiatives may not increaseretirement plan participation and savings as effectively as ishoped.”

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.