States and large cities can more easily establish their own retirement programs for private-sector workers under new rules the Obama administration announced Thursday, which are aimed at expanding the number of Americans with access to tax-advantaged savings accounts.
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The department also proposed an addition to the rule allowing cities to create similar retirement savings plans if they are in a state that lacks a statewide retirement savings program for private sector employees. DOL’s Final Rule Facilitates State Efforts to Create Retirement Savings Programs By Providing a Path Forward Consistent with Federal Pension Law: Specifically, the rule provides that a state retirement savings program is not an ERISA plan and hence unlikely to be preempted by ERISA if the program is established and administered by the state, provides for a limited employer role, and is voluntary for employees.
“We believe that this final rule goes a long way to mitigating that litigation risk, because we believe that states who comply with this rule will be on very sound legal footing”, Perez said on a call with reporters.
Millions of California residents who don’t have access to a retirement-savings program at work could soon be able to join a state-run program.
President Obama has recommended a federal IRA payroll deduction program to address the one-third of workers that are not offered a savings program through their employers in each of his budget proposals.
Eight states have moved to set up their own retirement plans for private sector workers, including California, Connecticut and IL.
On Thursday Perez announced the new rules, joined by, which also include a new measure that would allow some large cities and municipalities like New York City to set up their own automated retirement accounts as well.
“There is no silver bullet when it comes to solving the retirement savings issues facing workers and the nation, but increasing access to savings opportunities is a crucial step”, said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi.
Employers would automatically enroll employees at 3% of pay, though workers would be free to opt out.
The Financial Services Institute (FSI) today released a statement regarding the new rule: “The financial services industry already provides numerous, reasonably priced retirement savings options for Main Street Americans, including IRAs, which are readily accessible. These people who figure out a reason to say “no” have no alternative”, Mr. Perez said, referring to groups that oppose state-run plans. Eight states have already passed laws to establish such plans. AARP does not endorse candidates for public office or make contributions to political campaigns or candidates.
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“We know that workers who have access to automatic enrollment plans are 15 times more likely to save for their future”, said LeaMond. Under the proposal, the initiative would be limited to cities with populations at least equal to the least populous state, Wyoming, which has about 582,000, according to the U.S. Census.
