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.
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 RSG@PacificLife.com.
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