SEARCH
GOVERNMENT CORNER

APA Influences Development
of State Retirement Accounts

By Alice P. Jacobsohn, Esq.

In July 2015, President Obama directed the U.S. Department of Labor (DOL) to clear a path for state retirement plans by ordering a rulemaking to exempt states from certain Employer Retirement Income Security Act of 1974 (ERISA) regulations. In November 2015, DOL published an interpretive bulletin and a proposed rule adding an ERISA safe harbor for state savings programs. While the rule is not yet final, it invigorated states to develop their own retirement programs.

APA's Position
APA's Government Relations Task Force (GRTF) Subcommittee on Retirement Accounts closely watches state program developments. Payroll professionals play a role in transfers of deductions to employee retirement accounts. Depending on state plan requirements, they may work with HR departments to prepare lists of employees eligible for state programs, distribute information to employees, and collect initial or program entry forms such as opt-out records. At the very least, employees may ask questions, and payroll professionals need to know how to direct them.

APA seeks to minimize the burden on payroll professionals by curtailing the role of employers in state plans and push for single state record-keepers. For example, employers should not act as mediators between financial institutions and employees, should not track employees' retirement deductions across multiple employer situations, and should not decide between state plans when employees live or work in more than one state.

State Legislation
While many states consider what to do about retirement programs, some did not wait on federal government action. California's S.B. 1234, signed in 2012, created the Secure Choice Retirement Savings Investment Trust to "receive, invest, and pay out the retirement contributions of participating employees." In 2014, Connecticut passed legislation, called a budget implementer bill, that allocated $400,000 "toward the establishment of a retirement board to conduct a market feasibility study and create a comprehensive implementation plan for the new retirement program." Illinois' 2015 law follows California's approach. The Illinois Secure Choice Savings Program Act, Public Act 98-1150, "[e]stablishes a retirement savings program in the form of an automatic enrollment payroll deduction IRA ... ." Also in 2015, Oregon enacted legislation (H.B. 2960) as part of the state's "Fair Shot" agenda that established a state retirement board to "develop a defined contribution retirement plan for persons employed for compensation in this state and conduct a market and legal analysis of the plan."

Each of the state plans requires employers in these states and even cities (New York City has a proposal) to furnish information about the program, auto-enroll workers in retirement savings accounts, and automatically begin deductions, unless the employer already offers a qualified retirement plan. Even then, some state laws are drafted broadly to include many workers who do not qualify for an employer's retirement plan (e.g., part-time, contingent, and seasonal/temporary workers).

Multiple motivations create a push for these laws to pass, including social concern, state budgets, and the labor market. Helping people live better in retirement through their own savings represents the altruistic ideal for these laws. But other causes create pressure to develop these programs. People dependent on state welfare after retirement put significant drains on state budgets. California's law states, "The lack of sufficient retirement savings poses a significant threat to the state's already strained safety net programs and also threatens to undermine California's fiscal stability and ongoing economic recovery." The law also notes that without funds for retirement, people are forced to work longer, which causes higher unemployment levels for younger workers.

Data show the potential problem for states. According to a March 2015 report by the National Institute on Retirement Security, a nonprofit research and education group, 45% of working households do not own retirement accounts. Of those working-age households that do, the median account balance is $14,500 for those workers near retirement. When President Obama announced the U.S. Department of the Treasury's myRA program in 2014, he stated that 50% of full-time and 75% of part-time workers lack access to employer-sponsored retirement programs.

State Retirement Work Group
To protect the interests of APA members, APA's subcommittee participates in a group. Established through the National Payroll Reporting Consortium, the State Retirement Plan Administrators Work Group helps states develop retirement plans for employees who work where they are ineligible to participate in the employer-sponsored program or there is no program. To date, work group participants include the states of California, Connecticut, Illinois, Maryland, Oregon, and Washington. Other organizations include the Independent Payroll Providers Association, American Benefits Council, The Pew Charitable Trust, Boston College's Center for Retirement Research, Georgetown University's Center for Retirement Initiatives, and the University of California at Berkeley's Center for Labor Research and Education.

State Program Considerations
Specific issues for state programs include:

  • Automatic enrollment and the role that employers and payroll professionals play in engaging workers
  • Employer reporting, recordkeeping, and reconciliation, which addresses withholding payment mechanisms and attribution reports and facilitating adjustments for late opt-out elections and routine overpayments
  • Employee information packets, authorizations, and opt-out documentation in terms of who develops this information, how to disseminate and file the information, and how states expect employers to remain engaged after the initial paperwork is completed
  • Conducting annual open enrollment for those who previously opted out
  • Withholding calculations and default deduction percentages or amounts, such as whether requirements vary for employees contributing less than 3% and those who have missed contributions or have made irregular contributions
  • The priorities for Individual Retirement Arrangement (IRA) withholdings, or garnishments, child support, health plan premiums, and taxes
  • Employer involvement in enforcement of deduction limits (i.e., if an employee works for more than one employer)
  • Recordkeepers' role in advising employers to stop
    deductions for a year or to recharacterize Roth accounts
    to traditional IRAs
Developing State Program Assistance
In addition, APA participates in The Pew Charitable Trusts' effort to develop a document, directed at state policymakers, detailing potential issues involved with the implementation and administration of state-level retirement savings plans. Efforts aim to share with policymakers the concerns of those who provide retirement services that may otherwise be overlooked. The document shall not endorse or oppose any particular state proposal or program. Therefore, political concerns may exist only with regard to states' decision-making framework. For example, some state legislatures are in session only part of the year or every other year. Different agencies within states may be responsible for program development and implementation, and each has specific authorities.

Some states mention that consistency across state programs is important to them. They want to know what other states consider. Many states remain in the early stages of program development, but virtually all states watch the lead states closely. The establishment of best practices and uniform standards stands as a key goal of APA's subcommittee, so that multistate employers avoid scores of diverse state mandates in addition to their ERISA qualified plans.

Discussion among payroll and retirement interests questions whether similar protocols and definitions are possible; that is, can states agree to a uniform approach? If full program agreement cannot be accomplished, then participants may still seek uniformity in those areas where agreement can be reached. Some level of standardization can make programs easier for employers and employees to implement and understand.

Once state programs develop, APA will then decide what role to play in the education and training of payroll professionals. Yet, most of the education falls on reaching out to employees to notify them of program availability and encourage them to save money.

APA's Retirement Accounts Subcommittee discusses state plans and the actions of the work group and Pew document on conference calls held on the third Tuesday of each month from 4:00 p.m.-5:00 p.m. ET. Members who are interested should email APA's Senior Manager of Government Relations Alice Jacobsohn or call 202-248-3901.

COMPLIANCE TV

Compliance TV - March

WATCH COMPLIANCE TV
Compliance TV is your source for payroll compliance news.

Compliance TV on You Tube

SHARE THIS


Text Size: S | M | L
|
|
|
|
© Copyright 2016, American Payroll Association
San Antonio, TX
Las Vegas, NV
New York, NY
Washington, DC
American Payroll Association
660 North Main Avenue, Suite 100, San Antonio, TX 78205
P: 210-226-4600 | F: 210-226-4027
Website Design by Avatar New York