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PSCA Executive Reports

July 31, 2018

Update on State and Local Retirement Initiatives

California, Connecticut, Illinois, Maryland, Oregon, and the City of Seattle have all enacted legislation requiring certain employers without retirement plans to automatically enroll their employees in a government-run payroll deduction IRA.  The specific rules vary by state, but generally, employers that already offer a retirement plan are exempt from the state/local mandates, though exempt employers still may have to notify the state (e.g., Oregon).  The programs are all managed by a state-appointed board that contracts with recordkeepers, investment managers, and other service providers to establish and administer the IRAs. 

Oregon was the first state to launch its program with a voluntary pilot project in July 2017.  Currently, only employers with more than 50 employees are required to participate in “Oregon Saves.”  However, the mandate will be gradually phased in for all employers through 2020.  Oregon reports that 33,000 people have contributed $4.6 million at an average of $106 per month – adding that enrollment continues to grow with over 1,000 new registrants per week. 

The Illinois “Secure Choice” program officially launched a pilot program in June.  Under the current schedule, employers with more than 500 employees will be required to enroll their employees starting in November 2018.  There will then be a phased implementation with the last group of employers (25 to 49 employees) becoming subject to the mandate in November 2019. 

The California “CalSavers” program is also quite far along, relatively speaking.  It is currently scheduled to begin a pilot program in late 2018.  It will then officially open for statewide enrollment in 2019.  Like Oregon and Illinois, CalSavers will be phased in over several years.  Larger employers (more than 100 employees) will not be subject to the mandate until January 2020 at the earliest.  Employers with fewer than 5 employees are permanently exempt.

Connecticut, Maryland, and Seattle are still in the organizational stages or creating their programs.  They are not currently accepting participants, and many of the key decisions related to program design have yet to be made. Additionally, the New York City Council has recently proposed legislation creating the “Savings Access New York Retirement Program” that would require private employers with more than 10 employees and no workplace retirement plan to facilitate IRA payroll deductions for workers.

However, despite all of this activity, there remains an open legal question as to whether a state law mandating that employers participate in a payroll deduction IRA program is preempted by ERISA.  The Department of Labor issued a regulation in 2016 that provided a framework for states to operate automatic enrollment payroll deduction IRAs without triggering ERISA, which would have materially reduced the likelihood of a successful preemption challenge. However, Congress overturned that DOL rulemaking in 2017, leaving the issue for the courts. More recently, the Howard Jarvis Taxpayers Association filed a lawsuit in district court challenging the CalSavers program.  The litigation is still in the early stages, and we expect opponents of these programs to file lawsuits against at least one or two of the other states. 

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