In November, the Department of Labor (DOL) released a proposal that would expand the safe harbor under which select payroll deduction plans would be excluded from the definition of an “employee benefit plan” as defined under ERISA. The DOL also released an interpretive bulletin that proposes an analysis for several approaches which, in the DOL’s opinion, may pass an ERISA preemption challenge. The DOL did not open the interpretive guidance for comment.
The DOL’s proposal provides methods in which a state can assist employees who do not have a retirement plan at work save for their retirement without running into any DOL concerns. The DOL would require that:
- Employers conduct only ministerial duties for an employee’s retirement plan. Therefore an employer cannot make matching contributions to an employee’s plan, endorse a single plan or receive any compensation.
- Participation by employees must be completely voluntary.
FSI submitted a comment letter to the DOL on January 19th, 2016. While we believe it is critical for Americans to save more for retirement, we believe the DOL’s proposal will have unintended negative consequences for investors, small businesses and states. First, the proposal will deny investors access to professional retirement advice. This advice is critical to an investor’s ability to secure a dignified retirement. Second, the DOL’s proposal will force employers, especially small employers, to overcome burdens related to the cost and time required to set up and administer a state-run retirement plan. There will be significant startup costs associated with creating a retirement savings plan and these costs will likely be passed on to plan participants. Additionally, states may fine small businesses for noncompliance with an employer-mandated state-run retirement program.
Finally, we also believe that the DOL understates the costs that the proposal will impose on states. States will face considerable legal, administrative, and maintenance costs in implementing a state-run retirement program. Further, the complexity and disparity between small business record keeping, some which may not be digital, will impose significant long-term expenses to the state. These costs can be burdensome to states that are consistently struggling with budget deficits.
FSI agrees with the DOL that more Americans must work to save for retirement. However, we believe that there are better solutions already available in the private marketplace, and that states can benefit by offering private market solutions. Therefore, we believe states can play role by providing a marketplace-type that provides employers with access to retirement plan providers and education to employees about the plethora of retirement options already available to them.
We are committed to constructive engagement throughout the regulatory process and welcome the opportunity to work with DOL on this and other important regulatory efforts. We believe that the creation of a marketplace plan could solve many of the retirement savings issues facing consumers today without the costs and liabilities associated with an employer-mandated plan.