The DOL Opens the Door to State-Run Retirement Plans

October 11, 2016

With the concern over ERISA pre-emption no longer an issue, the DOL has opened the door for states to consider options when offering retirement plans going forward.

My daughter is about 1½ years old and just now finding all sorts of doors—closet doors, cabinet doors, and doggy doors—that she can open and look for trouble. Well, it seems the Department of Labor's (DOL) new rule will open doors for the state to offer retirement plans.

What exactly are "state-run retirement plans"? Well, the answer might be slightly different depending on the state, but generally, they are auto-enroll IRA programs designed for workers who don't have access to an employer-sponsored retirement plan (e.g., 401(k), SIMPLE IRA, SEP-IRA, etc.).

Although a number of states—California, Connecticut, Illinois, Maryland, New Jersey, Oregon, Massachusetts, and Washington—have already passed legislation that has put the creation of their own state-run retirement plans in motion, what seems to deter other states from pursuing these plans is the potential that the plan would be preempted by the Employee Retirement Income Security Act of 1974 (ERISA). Without a safe harbor to ERISA, a state's plan could trigger fiduciary burdens and other liabilities that courts might apply to the states.

On August 25, 2016, the DOL finalized guidance that creates a new safe harbor for state-run retirement plans and employers who offer such plans, to be exempt from Title I of ERISA if the following conditions are satisfied.

Program Characteristics
  • Established pursuant to state law
  • Implemented and administered by the state
  • Voluntary for employees
  • Provides employees with advance notice and the right to opt out, if there is an automatic enrollment feature 
State Responsibilities
  • Investing employee savings, or selecting investment options from which employees can choose
  • Ensuring the security of payroll deductions and employee savings
  • Creating and enforcing of employee notice requirements about participant rights under the plan 
Employer Role
  • Employer participation in the program must be required by state law, not voluntary
  • Limited to ministerial activities, such as collecting, remitting, and maintaining records of payroll deductions and providing notice to employees and the state
  • Facilitating employee payroll deductions
  • Employer funds  are not allowed to be contributed
  • So although we, as parents, try to create as many obstacles (e.g., child-proof locks and latches) to stop our children from opening doors we don’t want them to open, the DOL has removed the one "lock" that was inhibiting many states from offering their own state-run retirement plans. With the concern over ERISA pre-emption no longer an issue, the DOL has opened the door for states to consider options when offering retirement plans going forward.

    If you have any additional questions, please feel free to contact Retirement Strategies Group at (800)722-2333, ext. 3939, or e-mail us at



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    Chad is currently an Attorney Consultant for the Corporate Law Department at Pacific Life. Previously, he was a Senior Retirement Strategies Consultant, bringing more than 13 years of industry experience to his role and providing technical insights to our sales team and registered representatives on a variety of issues including IRAs, qualified plans, annuities, and estate planning issues.

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