September 12, 2016

Savings Program Options Aplenty (article)

Encouraging savings and protecting those savings has been a recurring theme lately.  To that end, eight states (California, Connecticut, Illinois, Maryland, New Jersey, Oregon, Massachusetts and Washington) have passed laws creating a state payroll deduction savings program, some with an automatic enrollment feature, that require private sector employers to offer, or at least facilitate, retirement plans for their workforce. 


One of the concerns about these laws has been the impact of ERISA, and specifically, ERISA preemption.  Late last year, the Department of Labor’s Employee Benefits Security Administration (EBSA) released proposed guidance to assist states in establishing saving arrangements without creating a conflict with ERISA (see the December 2015 edition of At Issue).


On August 30, 2016, EBSA released final rules providing a safe harbor exemption for these programs.  Following are highlights of the final rules.


The State’s Role

The final rules relating to the safe harbor mainly focus on the state’s role in the program.  Specifically, the program must be established pursuant to state law, and implemented and administered by the state establishing the program.  The state would be responsible for investing the employee savings or for selecting investment alternatives from which employees may choose.  The state would also be responsible for the security of payroll deductions and employee savings.  In addition, the final rules focus on employee rights. For example, employee participation in the program must be voluntary.  Thus, if the program requires automatic enrollment, employees must be given adequate advance notice and have the right to opt out.  In addition, employees must be notified of their rights under the program, including the mechanism for enforcement of those rights.  The state may implement and administer the program through its governmental agency or instrumentality, or contract with others to operate and administer the program. 


The Employer’s Role

Whether and to what degree an employer participation in the program is required would be set forth in the relevant state law.  For purposes of the safe harbor, the final rules limit the employer’s role in the program to ministerial activities such as collecting payroll deductions and remitting them to the program.  The employer may provide notice to the employees and maintain records of the payroll deductions and remittance of payments, as well as provide information to the state necessary for the operation of the program.  The employer may also distribute program information from the state program to employees.  There can be no employer contributions to the IRAs nor any monetary incentive to employees to participate in the program.  The employer would have no discretionary authority, control, or responsibility under the program.  And finally, a state would be authorized reimburse the employer a reasonable amount in the form of cash, tax incentives or credits for the costs it incurs to facilitate the program. 


The final rules become effective on October 31, 2016. 


Proposed Rules – Savings Arrangements for Local Governments

EBSA also released proposed rules that would extend the safe harbor to payroll deduction IRAs provided by political subdivisions of a state, such as a city, county or similar governmental body of a state.  Comments relating to these rules must be received by September 29, 2016.


The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.   

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