Even though state auto-IRA plans will not be exempted from ERISA as Congress moved to rescind the protection granted by the DOL in August 2016, it appears that states are still planning to move forward. Will the latest move by Congress push more companies to pursue private options or even motivate the federal government to create a national program to alleviate a patchwork of retirement plans difficult to navigate for companies with employees in multiple states?
Five states have passed legislation requiring companies of a certain size to offer a payroll deducted retirement plan to address the lack of retirement coverage for 50% of workers with legislation pending in almost 25 other jurisdictions. The Obama administration directed the DOL to grant these state MEPs (multiple employer plans) exemption from ERISA to encourage participation.
Critics charged that the DOL exemption would give states a competitive advantage over private plans. Polling 1600 small to mid-sized business owners, some with and some without a defined contribution plan, research sponsored by the Pew Charitable Trust found that 13% of those with a plan would drop their current option for a state run plan. On the other hand, 50% of those without one would choose a private option over a government plan.
A vast majority of business strongly prefer that state plans run by private companies compared to state or federal options. Along with costs and increased work, fiduciary liability under ERISA is also an inhibitor to companies starting a retirement plan for their employees.
One of the opponents to the DOL’s ERISA exemption was Orrin Hatch R-Utah who is promoting a bill that would allow unaffiliated companies to join a MEP where much of the fiduciary liability could be outsourced and pricing would be more attractive.
So while there’s no question that Americans and politicians want more access to retirement plans at work, questions remain including whether states, the federal government or private companies should take the lead or just allow companies to choose. Removing the ERISA exemption from state plans makes private solutions more competitive even as states continue to move forward.
