Allowing States to Help Workers Save for Retirement – Department of Labor’s Proposed Rulemaking That Provides a Safe Harbor for State Savings Programs under ERISA

Abstract

There is a “retirement crisis” in America. Even though some would view this as hyperbole, the empirical evidence reflects that “[t]he average working household has virtually no retirement savings” and that the “collective retirement savings gap among working households age 25-64 ranges from $6.8 to $14 trillion.” Contributing to this crisis is that fact that almost 70 million Americans do not have access to a retirement savings plan through their employers. This problem is more prevalent in the small business community; more than half of small business employers do not offer a retirement plan to their employees. Research reflects that an important predictor for retirement readiness is participation in an employee benefit plan – employees save more in a workplace plan than they would on their own. For example, even though there are a number of non-employer based retirement savings options, such as IRAs, few workers utilize them. States, concerned with the economic stability of their citizens, have created laws that require private sector employers to implement in their workplaces state-administered payroll deduction savings programs. Even though many states are currently debating whether to adopt the programs, this Article will focus on California, Illinois and Oregon, who have enacted laws creating payroll deduction savings programs. One obstruction to wider adoption of such measures at the state level has been uncertainty about the effect of the Employee Retirement Income Security Act’s (ERISA) broad preemption of state laws that “relate to” private sector employee benefit plans and ERISA’s prohibition on requiring employers to offer employee benefit plans. To remedy this problem, the Department of Labor (DOL) has published a Notice of Proposed Rulemaking (NPRM) that would make clear “that state payroll deduction savings programs with automatic enrollment that conform to the safe harbor in [the] proposal do not establish ERISA plans.” This Article begins by discussing the current law concerning ERISA's preemption of state laws that “relate to” private sector employee benefit plans and provides a discussion of DOL’s proposed rulemaking that provides a safe harbor for state payroll deduction savings programs. The Article then transitions into an examination of the current state-based initiatives, analyzes specific state legislative proposals under the requirements of the proposed rulemaking and proposes what, if any, changes need to be made to the state payroll deduction savings programs to ensure that the programs will not run afoul of ERISA. The Article concludes by analyzing policy concerns regarding state payroll deduction savings programs, provides comment on the DOL proposed rulemaking and provides additional elements of a model state payroll deduction savings program.