State-mandated retirement plans aren’t dead just yet: What Finance needs to know

Your state may soon be allowed to require employers to automatically enroll workers in savings plan if they don’t offer retirement benefits – if this bill passes. 

The Preserve Rights of States and Political Subdivisions to Encourage Retirement Savings (aka PROSPERS) Act would amend ERISA in the same way an Obama-era DOL safe harbor did.

The safe harbor allowed employers to automatically enroll employees in a state-run IRA without those plans or the employers enrolling employees in the plans becoming subject to ERISA’s fiduciary requirements, as long as workers could opt-out.

PROSPERS follows a recent Senate resolution that narrowly rolled back the DOL state harbor. Although experts believe it’s highly unlikely PROSPERS will be passed under the current administration, the move effectively makes state-run a legislative priority for Senate Democrats moving forward.

Although experts believe it’s highly unlikely PROSPERS will be passed under the current administration, the move effectively makes state-run a legislative priority for Senate Democrats moving forward.

Critics of the DOL safe harbor claim the safe harbor have argued it would deprive retirement investors of ERISA’s fiduciary protections.

Moving ahead anyway

Despite the Senate resolution, five states currently have legislation in place requiring certain employers to enroll workers in a retirement plan and don’t intend to stop the plans they have in place. Writing on ForexTV.com, Timothy Kelly explains:

“The latest move [Senate rollback of safe harbor on state-run plans] will not halt the auto-IRA plans in the five states that have already passed legislation, requiring companies of a certain size to offer a payroll deducted retirement plan. The Obama administration directed the DOL to grant these state multiple employer plans (MEPs) exemption from ERISA to encourage participation.

Connecticut, as well as California, Illinois, Maryland and Oregon, have said they say they intend to push forward with programs to provide retirement plans for private-sector workers despite congressional efforts to block them, according to the NAPA report.”