The Department of Labor has proposed a rule that is of interest to the retirement industry but, so far, no public comments appear in the comment section of the government website.
Issued by DOL’s Employee Benefits Security Administration (ESBA), the rule outlines a safe harbor that would allow states to run their own retirement savings plans for people who have no workplace savings options from certain private sector employers. The plans would be payroll-deducted, auto-enrolled individual retirement accounts (IRAs).
DOL proposed this rule on Nov. 18, with a 60-day comment period. But the federal Regulations.gov website shows “no comments received” on the proposal as of Dec. 9.
This is in stark contrast to the thousands of comments that poured in on the DOL’s most recent proposed fiduciary rule before the comment period ended on Sept. 24.
The proposed rule concerning state-run retirement plans carries none of the heated controversy or long history associated with the proposed fiduciary rule, which also was issued by EBSA. However, the rule has stirred up comments in retirement industry circles, making the lack of public comment on the government’s website a bit of a mystery.
The subject of state-run retirement plans is getting attention across the country because states have been expressing increased interest in helping workers to save for retirement. In particular, they want to offer a state savings option for private sector workers who have no access to a retirement savings plan at work.
At least 29 states have made “recent efforts” to do this, according to a September report from the Government Accountability Office. However, no state has implemented such a plan yet.
Most observers attribute the hold-up to widespread uncertainty over whether the state programs would be preempted by the Employee Retirement Income Security Act (ERISA), if challenged.
The proposed rule, titled The Savings Arrangements Established by States for Non-Governmental Employees, establishes a safe harbor to address that issue. In the rule’s initial summary, the DOL said that the proposal makes clear that state-established and state-maintained payroll deduction savings programs with automatic enrollment that conform to the safe harbor “do not establish ERISA plans.”
This assumes that “state law would require certain private sector employers to make the program available to their employees,” the DOL said.
The eight-page proposal invites comment on several particular issues.
Although no comments are posted yet, some industry groups have been weighing in on the proposal in various ways.
For example, a leader at the American Retirement Association contends the proposal gives the government-run alternatives an unfair advantage over other programs.
The proposal, and the interpretative bulletin that accompanies it, are “misplaced attempts by the Administration to promote coverage by giving marketplace advantages to states as retirement plan providers, with no reasonably apparent policy justification to suggest states are somehow going to do a better job providing retirement plan products,” Brian Graff said in a press release. Graff is CEO of the trade group, which represents four retirement industry associations.
Meanwhile, an American Council of Life Insurers (ACLI) executive has said that “risks remain if the new guidance on establishing plans encourages more states to go down this path.”
The comment appeared in a letter written to The New York Times in response to an editorial. ACLI provided a link to this letter on its website. “Even the Labor Department cautions states that mandatory programs could be challenged in federal court,” ACLI regional vice president John Mangan wrote.
If the goal is to get workers access to savings, Mangan added, “there are already low-cost solutions available, including the Treasury Department’s ‘myRA’ (my Retirement Account) program, which could be put in place right now. Why should workers and taxpayers wait for these risky state-run experiments?”
The big investment firm, BlackRock, appears to be generally receptive to the idea of state initiatives but it also has some misgivings about the proposed rule.
In a heavily-sourced white paper on state plan initiatives, BlackRock executives allowed that the proposed rule “could be a promising step in the right direction” and said “we welcome innovation at the state level to create potential retirement savings solutions.”
However, the authors said, “If adopted without broader reforms to ERISA and Code requirements at the federal level, (the rule) risks creating regulatory arbitrage.” They urged avoiding an outcome in which the public solutions crowd out the private sector.
The BlackRock authors also said that “exempting the public IRA programs from ERISA without addressing the private sector solutions may lead to small employers opting-out of offering plans to employees even if the resulting benefit to employees is less than what they currently receive.”
However, an administrator of small 401(k) plans is more positive about the proposal. The proposed rule is “a step towards fixing the retirement gap,” David Ramirez said in a statement sent to InsuranceNewsNet. He is co-founder and chief investments officer of ForUsAll. For some business owners and employees, the state-run IRA product will be a better option, he predicted. “But I suspect, for most, having a fantastic 401(k) plan will likely be a better one.”
Other retirement industry interests have issued assessments of the state-run concept in general, both pro and con, but this was before DOL issued its proposal. Sometimes comments on rule proposals don’t flow in until the comment period is about to close, especially if a proposal entails complexity. This may be the case with this retirement proposal.
To file a comment
According to DOL, people can post comments on the proposed state-run retirement plan rule online via this webpage or via email at [email protected]. The subject line should include this identifier: RIN 1210–AB71. The comment period ends Jan. 19, 2015.
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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