Release Date: January 19, 2016
Contact: Carol Danko, 202-962-7390, [email protected]   

SIFMA Submits Comments to DOL on Proposed Safe Harbors for State-Run Retirement Plans

Washington, D.C., January 19, 2016 – SIFMA today submitted a comment letter to the Department of Labor on a proposed regulation to create a safe harbor exempting certain employee benefit plans from complying with the Employee Retirement Income Security Act of 1974 (ERISA).

“We agree Americans should be saving more for retirement, but the DOL’s proposed safe harbor for state-run retirement plans is counterproductive to achieving that objective by eliminating important protections provided under ERISA and discouraging employers from voluntarily establishing more substantial plans for employees,” said Lisa Bleier, SIFMA managing director and associate general counsel.  “Our retirement savings gap is not due to a lack of affordable options, but a lack of education on the importance of saving. State-run plans are not the solution to our saving problem and by granting states a safe harbor, the DOL will only make a flawed policy even worse.”

SIFMA believes this proposal is a step in the wrong direction for a variety of reasons. It does not address the fundamental issues that prevent Americans from saving more for retirement. It could lead to 50 different state plans throughout the country.  It puts an additional cost burden on states and crowds out the private market. States would be highly unlikely to provide the same level of education, service and guidance as private sector providers.

SIFMA raises concerns with the Mandatory Auto IRA in that it will discourage business owners from providing more expansive and substantive retirement plans. By setting a minimum requirement, employers will take this option as the easy way to avoid creating 401(k), SEP or SIMPLE plans, which offer greater saving options to employees. The federal government should focus on encouraging employer sponsored plans to help individuals save for retirement.

Employer limits will make saving harder for employees, as the proposal prohibits a matched contribution or other monetary incentive to participate. Data shows that while auto enrollment increases overall participation, it does not increase the savings rate.  Auto-enrollment is not enough. The focus needs to be on educating individuals about the importance of saving for retirement. 

SIFMA raises concerns about ERISA exemptions, since the federal law provides commonality among the states and universal protections for investments. An ERISA exemption could lead to different rules for different states, which can be confusing and complicated for employees who move from one state to another or those who live in a state different from the one in which their employer operates.

Moreover, exempting state plans from ERISA will have significant consequences for large amounts of retirement savings.  Just this month, the State of Connecticut issued a report stating that their plan could have $1 billion in assets under management in the first two years. If all 50 states were to implement a similar plan, it is estimated that upwards of $100 billion in assets in funds could be without ERISA protections in a very short period of time.

SIFMA raises questions on the safe harbor granted to States, but not other employers, on “completely voluntary participation” by employees and points out that the DOL’s proposal fails to account for state laws against “taking” from employees.

SIFMA commends the DOL for stating that plans cannot require that an employee retain any portion of IRA funds and cannot impose restrictions on withdrawals or impose any cost or penalty on transfers or rollovers. However, SIFMA believes the “no restrictions” requirement needs further analysis. 

SIFMA recommends that the Department issue a model notice for employers which would include information about the accessibility of the money in the IRA and the tax and penalty implications of transactions, as well as include information about who is managing the assets, options for investing, and a point of contact for questions about their IRA.

SIFMA also recommends the State be considered a co-fiduciary under ERISA, since the State is responsible for investing the employee savings or for selecting investment alternatives for employees to choose.

Finally, SIFMA reiterates its support for marketplace plans like Washington State’s, which operate at a low-cost to disseminate information and offer options fully protected by ERISA.

The full text of the letter can be found here: http://www.sifma.org/issues/item.aspx?id=8589958381