State Retirement Plans for Private · PDF file– With 25 or more employees ... – Working with state agencies to identify which Illinois employers ... National Association of Insurance

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State Retirement Plans for Private EmployersMay 10, 2016

Sponsored by the ABA Joint Committee on Employee Benefits and the American College of Employee Benefits Counsel

Moderator: Peter M. Kelly, Deputy General Counsel & Chief Employee Benefits Counsel, Blue Cross Blue Shield Assn Panelists: Hon. Michael W. Frerichs, Treasurer of the State of Illinois & Chair of the Illinois Secure Choice Savings Board Courtney Eccles, Invest in Illinois Program Manager, Office of Illinois State Treasurer

Carolyn C. McKinnon, Marketplace Director of the Washington Small Business Retirement Marketplace,Washington State Department of CommerceSarah E. Mysiewicz Gill, Senior Legislation Representative, AARP

© Copyright Peter M. Kelly 2016


Illinois Secure Choice Savings ProgramMay 10, 2016


Treasurer Michael FrerichsCourtney Eccles, Invest in Illinois Program Manager

www.americanbar.org/jceb3

Retirement Savings Crisis

• Median retirement savings for all working-age families is only $2,500

• Median retirement savings for near-retirement working families is only $14,500

• Access to an employment-based plan is key to successfully saving for retirement

• 45 percent of the workforce (43.3 million people) work for employers that do not offer a qualified savings plan


Retirement Security in Illinois

• Illinois is no different than the rest of the country

• Research shows that over half of private sector workers in Illinois lack access to an employer-based plan

• Sectors with the largest number of workers lacking access include: accommodation & food service, retail, manufacturing, administration & support, and health care & social assistance


Creation of Secure Choice

• The Illinois Secure Choice Savings Program Act (Secure Choice) created as a response to the retirement crisis in Illinois

• Provides access to an employment-based plan for workers

• Lightest touch on employers (facilitate auto-enrollment, no contributions, no management, no fiduciary duties)

• Secure Choice will impact 1.2 million workers throughout Illinois

• Program design and implementation are underway


Secure Choice Act

• Signed into law in January of 2015

• State-run retirement savings program for private sector workers in Illinois

• Secure Choice applies to businesses:– With 25 or more employees– That have been operating in Illinois for at least two

years– Don’t offer a qualified savings program


Participants and Accounts

• Employees at qualifying businesses will be automatically enrolled into Secure Choice

• Default deduction of 3 percent into a default target date Roth IRA

• Employees can change contribution level, select a different fund option, or opt-out entirely

• Accounts will be pooled together and privately managed, and will be portable


Administrative Features

• Managed by a seven person Board

• Treasurer’s Office provides administrative and staff support

• Program must become self-sustaining

• Any start-up costs appropriated by the state must be paid back

• Total fees capped at 75 basis points

• Program must not be subject to ERISA


Secure Choice Board

• Program managed by a seven person Board– Treasurer Frerichs, Chair– Comptroller Munger– GOMB designee Kim Fowler– David Rappaport (appointed, investment experience)– Miriam Martinez (appointed, investment experience)– John Rauschenberger (appointed, represents

employers)– David Marzahl (appointed, represents employees)


Impact of Secure Choice

• Analyzed data from Illinois Department of Employment Security and the Bureau of Labor Statistics

• Estimated participant pool size is 1.2 million after initial enrollment

• Estimated fund size (after first year with full enrollment) is $1.4B

• Long-term benefits to lower- and middle-income workers

• Consumption study to further measure impact of the Program


Program Implementation

• Secure Choice Board began meeting in August of 2015

• Focus on investment options and program design/structure

• Summer/Fall of 2015 spent significant time focused on outreach and work with the U.S. Department of Labor

– Issued a proposed rule in November, 2015

– Final comments due in January, 2016

– Expect a final rule this coming fall


Investment Options

• Board created its investment subcommittee

• Drafted and approved Investment Principles

– Low Cost

– Mirror Marketplace Performance

– Simple & Straightforward Fund Options

– High ethical standards - fund options and overall program

• Next steps include investment consultant, investment policy, and determining structure for an RFP for investment manager and/or recordkeeper


Program Design

• Focus on minimizing role of the employer and making enrollment as easy as possible for employees

• Progress:

– Working with state agencies to identify which Illinois employers will participate, and to determine best way to enroll participants

– Meeting with record keepers, payroll providers, and financial institutions

– Drafting administrative rules

– Partnering with other states focused on implementation (OR, CA, CT)


Legislative Work

• Legislation to make technical changes to the original law

• SB2420 – passed Illinois Senate, awaiting a vote by the full House

– Clarifies total fees will be capped at 75bps

– Allows for data sharing between Treasurer’s Office, State Department of Employment Security and Department of Revenue

– Adds language clarifying that businesses participating voluntarily will only be allowed to use auto enrollment if it does not trigger ERISA under the new safe harbor

• Potential for additional technical clean-ups


Legal Work

• US Department of Labor

– Worked with DOL in advance of proposed rule

– Commented on proposed rule (Board and Treasurer’s Office)

– Continued engagement

• No-action letter from the SEC

• Engagement with the IRS to ensure tax-favored savings vehicle


Education & Outreach

• Outreach subcommittee will focus on engagement with businesses and employees in advance of program launch

• Statute requires the Board to distribute employer and employee packets

– Explanation of the program

– Hope to use accessible language

– Financial Education Materials

• Working with state and national stakeholders throughout the process


More Information

• Treasurer’s Website includes a page for Secure Choice (www.illinoistreasurer.gov)

– Email address for questions

– Board materials (agendas, minutes, approved documents)

– One page introductory fact sheet

• Contact Courtney Eccles at [email protected] or 312.814.8955


The Art of the PossibleWashington’s Small Business Retirement

MarketplaceCarolyn McKinnon

Policy Advisor & Marketplace Director


The gap…Less than half of Washington’s workers participate in a retirement plan at work.

Financial industry experts recommend that workers in their 40s should have 2-3 times salary in retirement savings, yet the $35,344 average defined contribution (DC) account balance compares to just less than half of the $71,332 average annual earnings of Washington workers. National Institute on Retirement Security


The gap…

About 90,000 small businesses in Washington offer NO form of retirement arrangement to their employees.Washington Employee Benefits Survey, Employment Security Department, 2013

1.5 million Washingtonians have no workplace access to retirement savings. Composite of data sources


Consensus Legislation ESSB 5826 (2015): Creating Washington’s Small Business Retirement Marketplace

AARP WashingtonEconomic Opportunity Institute

Small Business MajoritySecurities Industry & Financial Markets Association (SIFMA)

Russell InvestmentsNational Association of Insurance and

Financial AdvisorsAmerican Council of Life InsurersWashington Bankers Association


Washington’s Marketplace model

Small Business: Only self-employed individuals, sole proprietors, and employers with fewer than 100 qualified employees are eligible to participate in the marketplace.

Voluntary: Participation in the marketplace is completely voluntary.

No New Regulation: State is an actor in the market; price ceiling & ease-of-use to enter the Marketplace; reducing information barriers.


Industry participation in the Marketplace

To participate in the Marketplace, financial services firms must be licensed or hold a certificate of authority and be in good standing with either the Department of Financial Institutions or the Office of the Insurance Commissioner and meet all federal laws and regulations to offer retirement plans.

A plan that is proposed to be offered in the marketplace must be submitted to the department for review and approval, including all documentation, in a form prescribed by the department.

Commerce may not limit or otherwise constrain industry entrants to the Marketplace.


Verification & approval is a 2-step process

Department of Financial Institutions: Initial verification process for firm and plans (currently in rulemaking) and annual renewal.

Office of Insurance Commissioner: Rates & Forms Filing: New form for carriers and products for the Marketplace.

Once verified, the firm completes a simple application with Commerce.


Truly a marketplace of choices

Commerce will approve a diverse array of verified plan options to be offered in the marketplace, including but not limited to: (a) Life insurance plans; (b) A SIMPLE-IRA type of plan that provides for employer contributions to participant accounts; (c) A payroll deduction individual retirement account type of plan or workplace based individual retirement account open to all workers to which the employer does not contribute; and (d) myRA.

A plan that is proposed to be offered in the marketplace must comply with applicable laws and rules, included but not limited to federal tax laws and rules.


Portability is a priority

Nothing in the Marketplace rules or statute shall be construed to limit rollovers, or the portability of an employee’s retirement savings into or out of approved plans.

An approved plan must include the option for an enrollee to roll pretax contributions into a different individual retirement account or another eligible retirement plan in accordance with federal tax laws providing for tax free rollovers after ceasing participation in the approved plan.


Department of Commerce

Director

Commerce Marketplace Director

Manages all aspects of Marketplace policy,

marketing, and operations

Department of Financial Institutions

Role: Verifies financial services firm and retirement plans

Office of Insurance Commissioner

Role: Verifies insurance carriers and life insurance plans

ContractorRole: Marketplace operator

and developer of web portal

and brand/identity

Commerce Marketing Services

Office of the Attorney GeneralAssistant Attorney General

& Private CounselProvides legal counsel on all

aspects of Marketplace policy, marketing, and operations

Commerce Information Services &

Applications

Commerce Community Economic

Opportunities –Asset Building

Commerce Economic

Development & CompetitivenessCommerce

Community Outreach Commerce

Rural & Small Business

Development

Network of stakeholders and advisors

Washington Small Business Retirement MarketplaceFunctional Team Organizational Chart

Department of Commerce functional areas providing consultation and outreach support to the Marketplace


Outreach to small business

• WA Chamber of Commerce Executives Association• WA Microenterprise Association• Economic development councils• WA Dept. of Commerce outreach & rural development

teams• Cultivating champions and handshake introductions• Asset building coalitions – the intermediaries• AARP – Helping to understand how small businesses

think about retirement benefits


Outreach to Working People

• Marketplace will include financial literacy and educational materials about saving for retirement

• WA Microenterprise Association• WA Dept. of Commerce outreach & rural development

teams• Asset building coalitions – the intermediaries• AARP – Helping to understand how younger workers

think about saving for retirement


Outreach to financial services industry

• Homegrown champions – Russell Investments, larger in-state credit unions, local and regional banks/savings (though asset building coalitions)

• SIFMA/FINRA/ACLI – will favorable policy outlook translate to industry participation?

• Financial services consultant – help us speak to industry

• Co-branding/cross-promotional opportunities?


Presented by:

Carolyn McKinnon, Marketplace Director/Policy [email protected]

http://www.commerce.wa.gov/about/PoliciesandInitiatives/Pages/marketplace.aspx

Thank you!


Work and SaveSarah Mysiewicz Gill

AARP Senior Legislative Representative


52 percent of households are at risk of not having

enough to maintain their living

standards in retirement,

according to the Center on

Retirement Research.

Source: Center for Retirement Research, National Retirement Risk Index

A Familiar Headline: Half of All Households At Risk for Financially Insecure Retirement


55 million private-sector employees aged 21 to 64 don’t have a way to save for retirement via payroll deduction. (AARP PPI, Chart ICI)

Flipping the Script: Reaching Untapped Market

Do Not Have IRA;

Untapped Market

33% of All US

Households

IRA only6%

IRA and Employer Sponsored Plan

32%

Employer Sponsored Plan

Only29%

Percent of US Households with Access to Savings


U.S. PRIVATE SECTOR WORKERS: Does your employer offer a pension or retirement plan? By Personal Annual Income

Source: NCPERS, Analysis of Current Population Survey, March 2011 Supplement

Access to Retirement Plans by Income-Not all small dollar accounts


Source: NIRS “The Continuing Retirement Savings Crisis”

Access to Retirement Plans by Age- Saving is Not Just a Millennial Problem


Solutions

There are five essential ingredients that facilitate adequate retirement savings rates: availability, automatic enrollment, ease of investment, automatic escalation, and lifetime income streams.

Action steps: 1) Make retirement plans with payroll deduction available

to all workers. Currently, 55 million US employees have no way to save for retirement at work.

2) Increase participation and savings rates by changing the choice architecture of retirement plans, utilizing the findings of behavioral economics


Workers are 15x More Likely to Save if Employer Offers Plan

Not covered by an EmployerPlan - Deductible IRA Only

Covered by an Employer Plan

4.6%

71.5%

Participation Rates

Data compiled by AARP’s Public Policy Institute from unpublished estimates from the Employee Benefit Research Institute of the 2004 Survey of income and Program Participation Wave 7 Topical Module (2006 data). See also Brookings' Retirement Security Project and WhiteHouse.gov


How Does Your State Rank?

49.8%46.1%

56.1%39.8%

51.1%49.8%

47.2%45.7%

56.9%50.2%

43.4%43.2%

47.7%47.9%

53.4%50.6%

53.1%60.8%

47.5%45.7%

45.2%46.8%

57.7%53.8%

58.1%49.3%

50.4%

35.0% 45.0% 55.0% 65.0%

MontanaMissouri

MississippiMinnesota

MichiganMassachusetts

MarylandMaine

LouisianaKentucky

KansasIowa

IndianaIllinoisIdaho

HawaiiGeorgiaFlorida

District of ColumbiaDelaware

ConnecticutColoradoCaliforniaArkansas

ArizonaAlaska

Alabama

Data compiled by AARP’s Public Policy Institute: http://www.aarp.org/politics-society/advocacy/financial-security/info-2014/americans-without-retirement-plan.html

Percentage of Private Sector Workers WITHOUT Access to Workplace Savings Plan by State (AL - MT)


Percentage of Private Sector Workers WITHOUT Access to Workplace Savings Plan by State (NV- WY)

48.3%42.2%

45.1%45.2%45.2%45.5%

52.6%57.8%

50.0%42.3%

53.6%47.9%

44.1%47.6%

48.4%45.6%

39.4%51.9%

53.9%63.8%

53.5%44.5%

57.2%45.7%

35.0% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0%

WyomingWisconsin

West VirginiaWashington

VirginiaVermont

UtahTexas

TennesseeSouth Dakota

South CarolinaRhode IslandPennsylvania

OregonOklahoma

OhioNorth Dakota

North CarolinaNew York

New MexicoNew Jersey

New HampshireNevada

Nebraska

How Does Your State Rank?

Data compiled by AARP’s Public Policy Institute: http://www.aarp.org/politics-society/advocacy/financial-security/info-2014/americans-without-retirement-plan.html


Payroll Deduction Valued Across All Income Levels


Effect of Auto Enrollment onParticipation

Source: How America Saves: 2013 (Valley Forge, PA: Vanguard, 2013).


StudyingRetirementInsecurity

Feasibility Study Marketplace Voluntary IRA Auto IRA

Secure Choice or DB

plan Implementing

Utah

Virginia

Vermont

New Hampshire

Nebraska

NYC

Hawaii

Minnesota

California

Connecticut

Washington*

Maine

New Jersey

West Virginia*

North Dakota

Indiana

Utah

New Jersey

Rhode Island

Kentucky

Ohio

California*

Connecticut*

Colorado

Maryland*

New Jersey

New York

Arizona

Kentucky

Wisconsin

Massachusetts

Massachusetts

Illinois

Oregon

Washington

New Jersey

* Also studied the issue. Note- double listings are not mistakes, they reflect multiple bills under

consideration

More than Half of All States Engaging on Work and Save


Auto IRA vs. Marketplace


ERISA: The Basics

ERISA, or the Employee Retirement Income Security Act of 1974, is the federal law governing retirement plans. Regulation and enforcement of ERISA is overseen by the Department of Labor (DOL).

ERISA protects the retirement assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire.

However, ERISA also imposes fiduciary responsibilities that are increasingly complex. Want more

background? Click here.


States can design their Work and Save plans to be either under or outside of ERISA. Some specifics on Work and Save plans that states can create were outlined by the Department of Labor in two documents in 2015: an Interpretive Bulletin (IB) and a notice of proposed rulemaking (NPRM).

Notice of Proposed Rulemaking (NPRM) Covers:

Interpretive Bulletin Covers:

ERISA: Department of Labor Rules

Text of the NPRM and IB


What’s in the Interpretive Bulletin

The Department of Labor focused on three key areas in the Interpretive Bulletin:

• Marketplace: the state would establish a marketplace to connect eligible employers with retirement plans available in the private sector market. The marketplace would not itself be an ERISA-covered plan, and the arrangements available to employers through the marketplace could include ERISA-covered plans and other non-ERISA savings arrangements.

• Prototype Plans: the state would make available a "prototype plan" that individual employers could adopt. Each employer that adopts the prototype would sponsor an ERISA plan for its employees, and the state or a designated third-party could assume responsibility for most administrative and asset management functions of an employer's prototype plan.

• MEPs: Under a third approach, a state would establish a "multiple-employer plan" or MEP that eligible employers could join rather than establishing their own separate plan. The MEP would be run by the state or a designated third-party.


The Department of Labor addresses three key areas in the Notice of Proposed Rulemaking:

• State Law and Role of the State –plans must be established and administered by a state. The state must be responsible for investing employee savings or for selecting investments from which employees may choose. The state must be responsible for the security of payroll deductions and employee savings. The state also must adopt measures to ensure that employees are notified of their rights under the program, and create a mechanism for enforcement of those rights. The state may administer its program or contract with private-sector providers to administer the state program.

What’s in the Notice of Proposed Rulemaking

• Rights of Employees-- participation in the program must be voluntary for employees. Thus, if the program requires automatic enrollment, employees must be given appropriate notice and have the right to opt out. Moreover, since employees own their IRAs, they must have the ability to withdraw their money under normal IRA rules without any other cost or penalties.

• Limited Role of Employer -- under the proposal, the employer's activities must be limited to activities such as collecting payroll deductions and remitting them to the program; providing program information to employees; maintaining records of payroll deductions and remittance of payments; and providing information to the state necessary to the operation of the program. The employer may have no discretionary authority or control over the employees' IRAs or the operation of the IRA program. Employers cannot contribute employer funds to the IRAs.


The interpretive bulletin (ERISA plans) goes into effect immediately, whereas the Notice of Proposed Rulemaking (non-ERISA plans) has to go through a comment period.

AARP, and many other organizations, submitted comments on the Notice of Proposed Rulemaking.

Our key points were as follows: 1) States should be provided the flexibility they need in order to implement

Work and Save plans.

2) Automatic enrollment should be allowed whether a plan is mandatory or voluntary.

3) Large cities should be allowed to run Work and Save plans.

AARP’s Comments to DOL

Want to read some of the comments? Click here.


Jo

Work and Save: A National Movement


Jo

Work and Save: A National Movement


National Media Attention


Small business owners overwhelmingly agree that retirement benefits help recruit good employees

53Data from NCPERS

Small Businesses Support Work and Save


Voters Support Work and Save

The AARP 2015 New Jersey Work and Save Survey was conducted as a telephone survey among registered voters age 35-64 in New Jersey.

2015 AARP New Jersey Survey of Registered Voters


Resources

• AARP’s Public Policy Institute resource center• State factsheets for Work and Save, which breakdown access to

retirement savings in the workplace by age, race, gender, employer size and income.

• Georgetown’s Center for Retirement Initiatives (Includes great status updates. Run by Angela Antonelli.)

• Pension Rights Center list of bills

• Boston College Center for Retirement Research (Run by Alicia Munnell)

• Brookings Retirement Security Project

• The New School’s Schwartz Center for Economic Policy Analysis Retirement Equity Lab (Run by Theresa Ghilarducci)

• Heritage Foundation papers on auto IRA here and here


Questions?

Sarah Mysiewicz Gill Senior Legislative Representative

State Financial Security & Consumer AffairsAARP

[email protected]

@pensionimposble


State Retirement Plans for Private EmployersMay 10, 2016


Peter M. Kelly, Deputy General Counsel & Chief Employee Benefits Counsel, Blue Cross Blue Shield Assn



State Efforts Fostering Retirement Plans for Employees of Private Employers

• Variety of Designs– Non-ERISA IRA Payroll Savings (Illinois model)– State connector to plan support for IRA or conventional ERISA plan

services (Washington model)– State administered conventional ERISA plans

• Participation– Employer withholding

• Mandatory (IRA withholding)• Voluntary (conventional ERISA plans)

– Employee participation generally voluntary (can be by auto enrollment)• Targets employees without retirement plans & their employers

– Typically small business– Percent of employees offered employer sponsored private retirement

plan steady at or near 60% for over 45 years (US Census)



Illinois Secure Choice: Non-ERISAMandatory IRA withholding model

• Four States (CA, IL, CT & OR) are already taking this approach– Illinois Secure Choice the first enacted into law

• Employers without plans must withhold employee contributions– IL requires a 3% of pay contribution– No employer contributions permitted

• Employee covered automatically, subject to right to opt out• Employers required to provide notices to employees about program• State Board will oversee investments & administration

– Many administrative & investment function will be performed by contractors selected by Board through RFP process

– State enforces employer withholding & timely IRA deposit duties



Washington: Facilitating Small Employer Sponsorship of ERISA & Non-ERISA Plans

• Two states (WA & NJ) take a marketplace approach– No employer mandate or other State law regulation of plans– State posts educational information on website– State pre-screens plans & administrative service providers &

posts details about their availability on website• More robust services than small employer could otherwise gain access to• Potential economies of scale in pricing services

– Marketplace can be used to facilitate both Non-ERISA IRAs & conventional ERISA Plans

– State can offer prototype documents pre-approved by IRS– State assumes no role in actual administration of an employer’s

plan or in the investment of plan assets



Threshold Issues: ERISA preemption & applicability of IRC & ERISA standards

• Preexisting DOL rulings gave comfort that IRA withholding approach might not be preempted by ERISA & employers might not face unexpected sponsorship or fiduciary duties– Mandate & auto enrollment not contemplated by prior DOL ruling

• State authority to facilitate employer voluntary sponsorship decisions never seriously in doubt

• State sponsorship of conventional ERISA plans– State regulations preempted, but not State support to employers

that voluntarily establish plans with State assistance



DOL Prop Reg: Mandatory IRA Withholding

• ERISA concerns– ERISA applies to retirement plans established by employers– If ERISA applies, State mandate would be preempted

• Prior rulings– Mere act of withholding IRA contributions at employee request not

treated as employer sponsorship– Employee participation “completely voluntary”

• DOL insisted on “self initiation” of participation standard– Inconsistent with auto enrollment

• Proposed DOL regulations offer a preemption safe harbor for State sponsored mandatory IRAs. Proposed 29 CFR §2510.3-2



DOL Proposed IRA Safe Harbor

• Employer IRA withholding not covered by ERISA if:– Employer only performs ministerial acts to comply with state law

• No employer contributions– State must administer the program (but can hire agents)– Employee choice merely “voluntary” not “completely voluntary”

• Auto enrollment OK– Only state & employee can control IRA

• Employee must have unrestricted withdrawal rights• Only employees & state (not employer) can enforce employee rights

– State must adopt procedures that:• Ensure employees are made aware of their rights• Offers mechanism for employees to enforce their rights

– State must assume responsibility for enforcing employer payroll withholding obligations & for security of IRA assets



Potential State Law & ERISA Consequences if Employer mishandles IRA withholding

• Failure of an employer to make timely transfers of employee contributions to IRA could subject that employer to ERISA

• But isolated employer violations should not adversely impact the State program’s ERISA preemption safe harbor– Safe harbor State duty to enforce withholding & protect assets– This suggests DOL will not view State enforcement as

preempted by ERISA– Failure of a few employer bad apples to withhold & transfer

contributions should not taint the entire program



State Sponsored/Administered MEP Approach

• DOL permits State sponsored multiple employer plan (MEP)– Single plan for unrelated private employers– Conventional plan under ERISA & Internal Revenue Code (IRC)– Centralized State administration– ERISA Fiduciary standards apply

• Can have single trust

– ERISA & IRC reporting & disclosure• Can report annually in one Form 5500

– Non-discrimination & other IRC & ERISA minimum standards– One Bad Apple issue

• Although one State has considered, no imminent State sponsorship• Private sector objection because State MEP operates as Open MEP

of type private sponsors prohibited from sponsoring



Existing Barriers to MEPs

• A single qualified retirement plan can be jointly maintained by legally separate employers if it fits one of three models of collective sponsorship:– Single employer plans. Member companies of a controlled group of

under common ownership may jointly maintain a single plan.• Plan can be funded through a single trust with commingled funds• Single annual report (Form 5500)

– Multiemployer plans. Taft Hartley joint union/management trusteed• Plan can be funded through a single trust with commingled funds• Single Form 5500

– Multiple Employer Plans. Employers with a “common bond” may band together to maintain a single MEP

• Common bond requirement significant limiting factor• Without common band

– Separate trust or separate subaccounts in a single trust required– Each employer must file a separate Form 5500– Issue of one bad apple impact on plan qualification



State Sponsored Open MEPs

• State sponsorship of Open MERPs for private employers. DOL Interpretive Bulletin 2015-02, 29 CFR §2509.2015-02– Fully subject to ERISA and IRC– State’s laws merely implementing sponsorship not preempted

• As long as State does not attempt to impose new enforcement rules, state laws implementing its sponsorship not preempted

• State merely another participant in marketplace of third party plan sponsors• Plan remains subject to all ERISA & IRC rules

• Open MERP is most feasible approach – State sponsored MEPs will not be required to demonstrate the

employers share a common bond– Private sponsorship of such “open MEPs” is prohibited



Other State Approaches

• DOL has clarified treatment of other State efforts to encourage formation of private plans subject to ERISA. DOL Interpretive Bulletin 2015-02, 29 CFR §2509.2015-02– Marketplace Approach

• State merely facilitates sponsorship of private plans by connecting employers to service providers

– State Prototype Documents• State merely provides prototype documents pre-approved by IRS that

individual employers may adopt



Employee Experience

• Withholding IRA contribution under State sponsored Program– Employer reports as taxable income on Form W-2– Contribution reported by State on Form 5498

• Employee IRA Taxation under State sponsored Program– Roth IRA (IL) the contributions are fully taxable in year of deposit

• Withdrawal reported by State on 1099R & If employee satisfies Roth IRA 5 year holding period or meets an exception, withdrawals are not taxed

• Premature withdrawal subjects earnings to tax (basis already taxed) & if before 59 ½ will trigger penalty tax unless an exemption applies

– Traditional IRA deductible by employee• Withdrawal reported by State on 1099R & entire distribution taxed• If earlier than 59 ½ will trigger a penalty tax unless an exemption applies

• Conventional Plan under State sponsored Program– Tax treatment similar to traditional IRA
