[Federal Register Volume 80, Number 222 (Wednesday, November 18, 2015)]
[Proposed Rules]
[Pages 72006-72014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29426]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2510
RIN 1210-AB71
Savings Arrangements Established by States for Non-Governmental
Employees
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This document contains a proposed regulation under the
Employee Retirement Income Security Act of 1974 (ERISA) setting forth a
safe harbor describing circumstances in which a payroll deduction
savings program, including one with automatic enrollment, would not
give rise to an employee pension benefit plan under ERISA. A program
described in this proposal would be established and maintained by a
state government, and state law would require certain private-sector
employers to make the program available to their employees. Several
states are considering or have adopted measures to increase access to
payroll deduction savings for individuals employed or residing in their
jurisdictions. By making clear that state payroll deduction savings
programs with automatic enrollment that conform to the safe harbor in
this proposal do not establish ERISA plans, the objective of the safe
harbor is to reduce the risk of such state programs being preempted if
they were ever challenged. If adopted, this rule would affect
individuals and employers subject to such laws.
DATES: Written comments should be received by the Department of Labor
on or before January 19, 2016.
ADDRESSES: You may submit comments, identified by RIN 1210-AB71, by one
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include RIN 1210-AB71 in the subject
line of the message.
Mail: Office of Regulations and Interpretations, Employee
Benefits Security Administration, Room N-5655, U.S. Department of
Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention:
State Savings Arrangements Safe Harbor.
Instructions: All submissions must include the agency name and
Regulatory Identification Number (RIN) for this rulemaking. Persons
submitting comments electronically are encouraged to submit only by one
electronic method and not to submit paper copies. Comments will be
available to the public, without charge, online at www.regulations.gov
and www.dol.gov/ebsa and at the Public Disclosure Room, Employee
Benefits Security Administration, U.S. Department of Labor, Suite N-
1513, 200 Constitution Avenue NW., Washington, DC 20210. WARNING: Do
not include any personally identifiable or confidential business
information that you do not want publicly disclosed. Comments are
public records and are posted on the Internet as received, and can be
retrieved by most internet search engines.
FOR FURTHER INFORMATION CONTACT: Janet Song, Office of Regulations and
Interpretations, Employee Benefits Security Administration, (202) 693-
8500; or Jim Craig, Office of the Solicitor, Plan Benefits Security
Division, (202) 693-5600. These are not toll-free numbers.
SUPPLEMENTARY INFORMATION:
A. Background
Approximately 68 million US employees do not have access to a
retirement savings plan through their employers.\1\ For older
Americans,
[[Page 72007]]
inadequate retirement savings can mean sacrificing or skimping on food,
housing, health care, transportation, and other necessities. Inadequate
retirement savings place greater stress on state and federal social
welfare programs as guaranteed sources of income and economic security
for older Americans. Accordingly, states have a substantial
governmental interest in taking steps to address the problem and
protect the economic security of their residents.\2\ Concerned over the
low rate of saving among American workers, some state governments have
already sought to expand access to savings programs for their residents
and other individuals employed in their jurisdictions by creating their
own programs and requiring employer participation.\3\
---------------------------------------------------------------------------
\1\ Copeland, Craig, Employment-Based Retirement Plan
Participation: Geographic Differences and Trends, 2013, Employee
Benefit Research Institute, Issue Brief No. 405 (October 2014)
(available at www.ebri.org).
\2\ See Christian E. Weller, Ph.D., Nari Rhee, Ph.D., and
Carolyn Arcand, Financial Security Scorecard: A State-by-State
Analysis of Economic Pressures Facing Future Retirees, National
Institute on Retirement Security (March 2014) (www.nirsonline.org/index.php?option=com_content&task=view&id=830&Itemid=48).
\3\ See, for example, Report of the Governor's Task Force to
Ensure Retirement Security for All Marylanders, Kathleen Kennedy
Townsend, Chair, 1,000,000 of Our Neighbors at Risk: Improving
Retirement Security for Marylanders (2015). The Georgetown
University Center for Retirement Initiatives (CRI) of the McCourt
School of Public Policy has compiled a ``50 state survey'' providing
information on state legislation that would establish state-
sponsored retirement savings plans at http://cri.georgetown.edu/states/. The stated mission of the CRI is ``[to] strengthen the
retirement security of American families by developing and promoting
the bipartisan adoption of innovative state policies, legislation
and administrative models, such as pooled and professionally managed
funds, which will expand the availability and effectiveness of
retirement solutions.''
---------------------------------------------------------------------------
1. State Payroll Deduction Savings Initiatives
One approach some states have taken is to establish state payroll
deduction savings initiatives. Such programs encourage employees to
establish tax-favored individual retirement plans (IRAs) funded by
payroll deductions. Oregon, Illinois, and California, for example, have
adopted laws along these lines.\4\ These initiatives generally require
specified employers that do not offer workplace savings arrangements to
deduct amounts from their employees' paychecks in order that those
amounts may be remitted to state-administered IRAs for the employees.
Typically, with automatic enrollment, the states would require that the
employer deduct specified amounts on behalf of the employee, unless the
employee affirmatively elects not to participate. As a rule, employees
can stop the payroll deductions at any time. The programs, as currently
designed, do not require, provide for or permit employers to make
matching or other contributions of their own into the employees'
accounts. In addition, the state initiatives typically require that
employers act as a conduit for information regarding the program,
including disclosure of employees' rights and various program features,
often based on state-prepared materials.
---------------------------------------------------------------------------
\4\ Illinois Secure Choice Savings Program Act, 2014 Ill. Legis.
Serv. P.A. 98-1150 (S.B. 2758) (West); California Secure Choice
Retirement Savings Act, 2012 Cal. Legis. Serv. Ch. 734 (S.B. 1234)
(West); Oregon 2015 Session Laws, Ch. 557 (H.B. 2960) (June 2015).
---------------------------------------------------------------------------
2. ERISA's Regulation of Employee Benefit Plans
ERISA defines the terms ``employee pension benefit plan'' and
``pension plan'' broadly to mean, in relevant part:
Any plan, fund, or program which was heretofore or is
hereafter established or maintained by an employer or by an employee
organization, or by both, to the extent that by its express terms or
as a result of surrounding circumstances such plan, fund, or
program--
[cir] provides retirement income to employees, or
[cir] results in a deferral of income by employees for periods
extending to the termination of covered employment or beyond,
regardless of the method of calculating the contributions made to
the plan, the method of calculating the benefits under the plan or
the method of distributing benefits from the plan.
29 U.S.C. 1002(2)(A). The provisions of Title I of ERISA, ``shall apply
to any employee benefit plan if it is established or maintained . . .
by any employer engaged in commerce or in any industry or activity
affecting commerce.'' \5\ 29 U.S.C. 1003(a).
\5\ ERISA includes several express exemptions in section 4(b)
from coverage under Title I, for example, for pension plans
established or maintained by governmental entities or churches for
their employees, certain foreign plans, unfunded excess benefit
plans, and plans maintained solely to comply with applicable state
laws regarding workers compensation, unemployment, or disability. 29
U.S.C. 1003(b).
---------------------------------------------------------------------------
Despite the express intent of the drafters of those state statutes
not to have such a result, some have expressed concern that payroll
deduction programs, such as those enacted in Oregon, California and
Illinois, may cause employers to establish ERISA-covered plans
inadvertently. The Department and the courts have interpreted the term
``established or maintained'' as requiring minimal involvement by the
employer or employee organization to trigger the protections of ERISA
coverage. For example, an employer may establish a benefit plan by
purchasing insurance products for individual employees.\6\ Moreover,
retirement savings programs involving IRAs also fall within the broad
definition of pension plan when those programs are established or
maintained by an employer or employee organization.\7\
---------------------------------------------------------------------------
\6\ Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982);
Harding v. Provident Life and Accident Ins. Co., 809 F. Supp. 2d
403, 415-419 (W.D. Pa. 2011); DOL Adv. Op. 94-22A (July 1, 1994).
\7\ ERISA section 404(c)(2) (simple retirement accounts); 29 CFR
2510.3-2(d) (safe harbor for certain payroll deduction individual
retirement accounts); 29 CFR 2509-99-1 (interpretive bulletin on
payroll deduction IRAs); Cline v. The Industrial Maintenance
Engineering & Contracting Co., 200 F.3d 1223, 1230-31 (9th Cir.
2000).
---------------------------------------------------------------------------
Pension plans covered by ERISA are subject to various statutory and
regulatory requirements to protect the interests of the plan
participants. These include reporting and disclosure rules and
stringent conduct standards derived from trust law for plan
fiduciaries. In addition, ERISA expressly prohibits certain
transactions involving plans unless a statutory or administrative
exemption applies.
Moreover, in order to assure nationwide uniformity of treatment,
ERISA places the regulation of private-sector employee benefit plans
(including employment-based pension plans) under federal jurisdiction.
Section 514(a) of ERISA, 29 U.S.C. 1144(a), provides that the Act
``shall supersede any and all State laws insofar as they . . . relate
to any employee benefit plan'' covered by the statute. The U.S. Supreme
Court has long held that ``[a] law `relates to' an employee benefit
plan, in the normal sense of the phrase, if it has a connection with or
reference to such a plan.'' Shaw v. Delta Air Lines, Inc., 463 U.S. 85,
96-97 (1983) (footnote omitted). In various decisions, the Court has
concluded that ERISA preempts state laws that: (1) mandate employee
benefit structures or their administration; (2) provide alternative
enforcement mechanisms; or (3) bind employers or plan fiduciaries to
particular choices or preclude uniform administrative practice, thereby
functioning as a regulation of an ERISA plan itself.\8\
---------------------------------------------------------------------------
\8\ New York State Conference of Blue Cross & Blue Shield Plans
v. Travelers Ins. Co., 514 U.S. 645, 658 (1995); Ingersoll-Rand Co.
v. McClendon, 498 U.S. 133, 142 (1990); Egelhoff v. Egelhoff, 532
U.S. 141, 148 (2001); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1,
14 (1987).
---------------------------------------------------------------------------
IRAs generally are not established or maintained by employers or
employee organizations, and ERISA coverage is contingent on an employer
(or employee organization) establishing or maintaining the arrangement.
29 U.S.C. 1002(1)-(2). The Internal Revenue Code is the principal
federal law that governs
[[Page 72008]]
such IRAs. The Code includes prohibited transaction provisions (very
similar to those in ERISA), which are primarily enforced through
imposition of excise taxes against IRA fiduciaries by the Internal
Revenue Service. 26 U.S.C. 4975.
In other contexts, the Department has provided guidance to help
employers determine whether their involvement in voluntary payroll
deduction arrangements for sending employee retirement savings
contributions to IRAs would amount to establishing or maintaining
ERISA-covered plans. For example, in 1975, the Department promulgated a
safe harbor regulation to clarify the circumstances under which IRAs
funded by payroll deductions would not be treated as ERISA plans. 29
CFR 2510.3-2(d); 40 FR 34,526 (Aug. 15, 1975). This safe harbor is part
of a more general regulation that ``clarifies the limits of the defined
terms `employee pension benefit plan' and `pension plan' for purposes
of title I of the Act . . . by identifying specific plans, funds and
programs which do not constitute employee pension benefit plans for
those purposes.'' 29 CFR 2510.3-2(a). Other similar safe harbors were
published in the same Federal Register notice.\9\
---------------------------------------------------------------------------
\9\ 29 CFR 2510.3-1(j), Certain group or group-type insurance
arrangements; 29 CFR 2510.3-2(f), Tax sheltered annuities. 40 FR
34530 (Aug. 15, 1975).
---------------------------------------------------------------------------
The 1975 regulation provides that ERISA does not cover a payroll
deduction IRA arrangement so long as four conditions are met: the
employer makes no contributions, employee participation is ``completely
voluntary,'' the employer does not endorse the program and acts as a
mere facilitator of a relationship between the IRA vendor and
employees, and the employer receives no consideration except for its
own expenses.\10\ In essence, if the employer merely allows a vendor to
provide employees with information about an IRA product and then
facilitates payroll deduction for employees who voluntarily initiate
action to sign up for the vendor's IRA, the arrangement is not an ERISA
pension plan.
---------------------------------------------------------------------------
\10\ The payroll deduction IRA safe harbor regulation, 29 CFR
2510.3-2(d), Individual Retirement Accounts.
---------------------------------------------------------------------------
In 1999, the Department published additional guidance on this safe
harbor in the form of Interpretive Bulletin 99-1. 29 CFR 2509.99-1.
This guidance explains that employers may, consistent with the third
condition in the regulation, furnish materials from IRA vendors to the
employees, answer employee inquiries about the program, and encourage
retirement savings through IRAs generally, as long as the employer
makes clear to employees its neutrality concerning the program and that
its involvement is limited to collecting the deducted amounts and
remitting them promptly to the IRA sponsor, just as it remits other
payroll deductions to taxing authorities and other third parties. 29
CFR 2510.99-1(c).\11\
---------------------------------------------------------------------------
\11\ The Department has also issued advisory opinions discussing
the application of the safe harbor regulation to particular facts.
See, e.g., Advisory Opinion 82-67A (Dec. 21, 1982), 1982 WL 21250;
DOL Adv. Op. 84-25A (June 18, 1984), 1984 WL 23439.
---------------------------------------------------------------------------
The Department's publication of the 1975 payroll deduction IRA safe
harbor was prompted by comments on an earlier proposal indicating
``considerable uncertainty concerning Title I coverage of individual
retirement programs . . . .'' 40 FR 34528. When it promulgated the safe
harbor regulation, the Department did not consider payroll deduction
savings arrangements for private-sector employees with terms required
by state laws. Instead, the payroll deduction IRA safe harbor and the
group insurance safe harbor published that day focused on employers
acting in coordination with IRA and other vendors, without state
involvement. Under those circumstances, it was important for both safe
harbors to contain conditions to limit employer involvement, both to
avoid establishing or maintaining an employee benefit plan and to
prevent undue employer influence in arrangements that would not be
subject to ERISA's protective provisions. When a program meets the
conditions of the safe harbor, employer involvement in the arrangement
is minimal and employees' control of their participation in the program
is nearly complete. In such circumstances, it is fair to say that each
employee, rather than the employer, individually establishes and
maintains the program.
One of the 1975 payroll deduction IRA safe harbor's conditions is
that an employee's participation must be ``completely voluntary.'' The
Department intended this term to mean considerably more than that
employees are free to opt out of participation in the program. Instead,
the employee's enrollment must be self-initiated. In various contexts,
courts have held that opt-out arrangements are not consistent with a
requirement for a ``completely voluntary'' arrangement.\12\ This
condition is important because where the employer is acting on his or
her own volition to provide the benefit program, the employer's
actions--e.g., requiring an automatic enrollment arrangement--would
constitute its ``establishment'' of a plan within the meaning of
ERISA's text, and trigger ERISA's protections for the employees whose
money is deposited into an IRA. As a result, state payroll deduction
savings initiatives with automatic enrollment do not meet the 1975 safe
harbor's ``completely voluntary'' requirement.
---------------------------------------------------------------------------
\12\ See Doe v. Wood Co. Bd. Of Educ., 888 F.Supp.2d 771, 775-77
(S.D. W. Va. 2012) (Education Department regulations requiring
``completely voluntary'' choice of single-gender education not
satisfied by opt-out provision); Schear v. Food Scope America, Inc.,
297 F.R.D. 114, 125 (S.D.N.Y. 2014) (``For a voluntary `tip pooling'
arrangement to exist, it must be `undertaken by employees on a
completely voluntary basis and may not be mandated or initiated by
employers' and an employer can take `no part in the organization or
the conduct of [the] tip-pool.' '') (quoting N.Y. Dept. of Labor
Opinion Letter RO-08-0049). See also Carter v. Guardian Life Ins.
Co., Civil No. 11-3-ART, 2011 WL 1884625, *1 (W.D. Ky. May 18, 2011)
(``Courts have held that employees' participation is not `completely
voluntary' if their enrollment in the plan is `automatic.' '');
Thompson v. Unum Life Ins. Co., No. Civ.A. 3:03-CV-0277-B, 2005 WL
722717, *6 (N.D. Tex. Mar. 29, 2005) (analyzing group welfare plan
safe harbor, ``Thompson's participation in the plan was automatic
rather than voluntary''); cf. The Meadows v. Employers Health Ins.,
826 F. Supp. 1225, 1229 (D. Ariz. 1993) (enrollment not ``completely
voluntary'' where health insurance contract required 75 percent of
employees to participate); Davis v. Liberty Mut. Ins. Co., Civ. A.
No. 87-2851, 1987 WL 16837, *2 (D.D.C. Aug. 31, 1987) (health
insurance enrollment not completely voluntary because employee would
receive no alternative compensation for refusing coverage, therefore
making refusal comparable to a cut in pay). See generally Advisory
Council On Employee Welfare And Pension Benefit Plans, Current
Challenges And Best Practices For ERISA Compliance For 403(b) Plan
Sponsors (2011) (available at www.dol.gov/ebsa/publications/2011ACreport1.html) (``The Council also considered, but is not
recommending, that DOL permit the inclusion of an automatic
enrollment feature within the context of an ERISA safe harbor 403(b)
plan. The majority of Council members concluded that automatic
enrollment would require actions typically performed by a plan
sponsor/fiduciary (e.g., designation of a default investment
alternative), and consequently, an automatic enrollment option in
the plan may not be viewed as voluntary even in light of the
participant's right to opt out of the automatic contributions.'').
DOL Field Assistance Bulletin (FAB) 2004-1 stated that an employer
could open a health savings account (HSA) and deposit employer funds
into it without the employee's affirmative consent so long as, among
other things, the arrangement was ``completely voluntary on the part
of the employees'' and also that employees exercised control over
the account with the power to withdraw or transfer the employer
money. FAB 2004-1 was focused on the effect of employer
contributions, so there was no specific discussion of what was meant
by ``completely voluntary'' in the context of an HSA. Field
Assistance Bulletin 2006-2 clarified that the completely voluntary
requirement in FAB 2004-1 related to employee contributions to an
HSA and confirms that completely voluntary employee contributions to
the HSA must be self-initiated. The only ``opt out'' considered in
FAB 2004-1 was the employees' power to move employer contributions
out of the HSA. Neither FAB suggested that employee contributions to
an HSA could be completely voluntary under an opt out arrangement.
---------------------------------------------------------------------------
[[Page 72009]]
However, when a state government sets the terms for and administers
a payroll deduction savings arrangement, the situation is far different
than when the employer sets the terms and administers the program--the
1975 safe harbor was not written with such state laws in mind.
Therefore, the Department is promulgating this new safe harbor that
does permit automatic enrollment in such state payroll deduction
savings arrangements. Where states require employers to offer savings
arrangements, undue employer influence or pressure to enroll is far
less of a concern. Moreover, the state's active involvement and the
limitations on the employers' role removes the employer from the
equation such that the payroll deduction arrangements are not
established or maintained by an employer or employee organization
within the meaning of ERISA section 3(2). Accordingly, the safe harbor
proposed today permits automatic enrollment with an opt-out provision
in the context of state required and administered programs that meet
the terms of the proposal. The safe harbor should remove uncertainty
about Title I coverage of such state payroll deduction savings
arrangements by promulgating a ``voluntary'' standard that permits
automatic enrollment arrangements with employee opt-out features. By
removing this uncertainty, the objective of the proposed safe harbor is
to diminish the chances that, if the issue were ultimately litigated,
the courts would conclude that state payroll deduction savings
arrangements are preempted by ERISA.
3. Purpose and Scope of Proposed Regulation
Section 505 of ERISA gives the Secretary of Labor broad authority
to prescribe such regulations as he finds necessary and appropriate to
carry out the provisions of Title I of the Act. The Department believes
that regulatory guidance in this area is necessary to ensure that
governmental bodies, employers, and others in the regulated community
have guidelines concerning whether state efforts to encourage savings
implicate Title I of ERISA by requiring the establishment or
maintenance of ERISA-covered employee pension benefit plans.
The 1975 payroll deduction IRA safe harbor sets forth standards for
judging whether employer conduct crosses the line between permitted
ministerial activities with respect to non-plan IRAs and activities
that involve the establishment or maintenance of an ERISA-covered plan.
State payroll deduction savings initiatives are similar to arrangements
covered under the 1975 safe harbor if the employer's involvement is
limited to withholding and forwarding payroll deductions and performing
other related ministerial duties and the state has sole authority to
determine the terms and administration of the state savings
arrangement. The 1975 safe harbor, however, does not envision state
involvement in the IRA programs nor does it envision use of automatic
enrollment and related provisions.
The proposed regulation thus would provide a new and additional
``safe harbor'' for state savings arrangements that conform to the
proposed regulation's provisions. The proposed regulation departs from
the 1975 safe harbor for payroll deduction IRA programs by adopting a
standard that enrollment be ``voluntary'' rather than ``completely
voluntary.'' The new safe harbor's voluntary standard will allow
employees' participation in state required programs to be initiated by
automatic enrollment with an opt-out provision. The Department is also
proposing to add other provisions to assure that employer involvement
remains minimal.
The proposed regulation, however, as a ``safe harbor,'' does not
purport to define every possible program that could fall outside of
Title I of ERISA because it was not ``established or maintained'' by an
employer. The Department also is not expressing any view regarding the
application of provisions of the Internal Revenue Code (Code).
B. Description of the Proposed Regulation
The proposed regulation Sec. 2510.3-2(h) provides that for
purposes of Title I of ERISA, the terms ``employee pension benefit
plan'' and ``pension plan'' do not include an individual retirement
plan (as defined in 26 U.S.C. 7701(a)(37)) established and maintained
pursuant to a state payroll deduction savings program if the program
satisfies all of the conditions set forth in paragraphs (h)(1)(i)
through (xii) of the proposed regulation. In the Department's view,
compliance with these conditions will assure that the employer's
involvement in the state program is limited to the ministerial acts
necessary to implement the payroll deduction program as required by
state law. In addition, the proposed conditions would give employees
sufficient freedom not to enroll or to discontinue their enrollment, as
well as meaningful control over their IRAs.
The term ``individual retirement plan'' means an individual
retirement account described in section 408(a) and an individual
retirement annuity described in section 408(b) of the Code.\13\ Thus,
by limiting the safe harbor to programs that use such individual
retirement plans (which would include both traditional and Roth IRAs),
the proposal incorporates the applicable protections under the Code,
including the prohibited transaction provisions.
---------------------------------------------------------------------------
\13\ Whether a state program meets the statutory requirements
under the Code is a question within the jurisdiction of the Internal
Revenue Service.
---------------------------------------------------------------------------
The safe harbor conditions under the proposed regulations require
that the program be established by a state government pursuant to state
law. As discussed above, if an employer's activities are limited to
those ministerial functions required by the state law, the arrangement
is not established or maintained by the employer. The term ``State'' in
the proposed regulation has the same meaning as in Title I of ERISA
generally. As in section 3(10) of ERISA, a ``State'' includes any
``State of the United States, the District of Columbia,'' and certain
territories.\14\ 29 U.S.C. 1002(10). The state must also administer the
program either directly or through a governmental agency or other
instrumentality. The safe harbor also contemplates that a state or the
governmental agency or instrumentality could contract with commercial
service providers, such as investment managers and recordkeepers, to
operate and administer its program.
---------------------------------------------------------------------------
\14\ The term ``State'' in the proposed regulation has the same
meaning as in section 3(10) of ERISA. This would not include Indian
tribes, tribal subdivisions, or agencies or instrumentalities of
either in coverage under the regulation. To date, the Department is
unaware of any tribal initiatives similar to the state initiatives
described elsewhere in this preamble. Comments are welcome on
whether, on what basis, and under what circumstances, payroll
deduction programs required by Indian tribes might be covered under
the safe harbor.
---------------------------------------------------------------------------
The proposal does not address whether the employees that
participate in the program must be employed within the state that
establishes the program, or alternatively whether the covered employees
must be residents of the state or employed by employers doing business
within the state. The extent to which a state can regulate employers is
already established under existing legal principles. The proposal
simply requires that the program be established by a state pursuant to
state law. The Department solicits comments on whether the safe harbor
should be limited to require some connection between the employers and
employees covered by the program and the state that establishes the
program, and if so, what kind of connection.
[[Page 72010]]
The proposed regulation requires that participation in the program
be voluntary for employees. As discussed above, this requirement is
different from the current payroll deduction IRA safe harbor in 29 CFR
2510.3-2(d), which requires that participation be ``completely
voluntary.'' The proposed regulation expressly permits opt-out programs
and, accordingly, does not require that participation be ``completely
voluntary.'' By using only the term ``voluntary,'' the Department
intends to make clear that the proposed regulation, unlike the existing
safe harbor, would allow the state to require employers to
automatically enroll employees, unless they affirmatively elect not to
participate in the program.\15\
---------------------------------------------------------------------------
\15\ If a program requires automatic enrollment, adequate notice
of their right to opt out must be furnished to employees in order
for the program to meet the safe harbor's voluntariness condition.
The proposal does not define the manner and content of ``adequate
notice'' for this purpose. The Department expects that states and
their vendors would look to analogous notice requirements contained
in federal laws pertaining to automatic enrollment provisions. See,
e.g., 26 U.S.C. 401(k)(13)(E) and 414(w); 29 U.S.C. 1144(e)(3); and
29 CFR 2550.404c-5(d). The Department solicits comments on this
issue.
---------------------------------------------------------------------------
The proposed regulation also includes conditions to assure that
control of the payroll deduction program and the savings accounts lies
with the state and the employees, and not the employer. These include
requirements that (1) the program does not require that an employee or
beneficiary retain any portion of contributions or earnings in his or
her IRA and does not otherwise impose any restrictions on withdrawals
or impose any cost or penalty on transfers or rollovers permitted under
the Internal Revenue Code; (2) all rights of the employee, former
employee, or beneficiary under the program are enforceable only by the
employee, former employee, or beneficiary, an authorized representative
of such person, or by the state (or the designated agency or
instrumentality); and (3) the state adopts measures to ensure that
employees are notified of their rights under the program and creates a
mechanism for enforcement of those rights. In addition, the proposal
requires the state to assume responsibility for the security of payroll
deductions and employee savings. These conditions assure that the
employees will have meaningful control over their retirement savings,
that the state will enforce the employer's payroll deduction
obligations and oversee the security of retirement savings, and that
the employer will have no role in enforcing employee rights under the
program.
Limited employer involvement in the program is the key to a
determination that a state savings program is not an employee pension
benefit program. Thus, the employer's facilitation must be required by
state law--if it is voluntary, the safe harbor does not apply. Further,
the proposal does not permit the employer to contribute to the
program.\16\ All contributions under the program must be made
voluntarily by the employees. When employers make contributions to fund
benefits of the type enumerated in Section 3(2) of ERISA, they
effectively sponsor an ERISA-covered plan. Similarly, the employer may
not have discretionary authority, control, or responsibility under the
program and may not receive any direct or indirect compensation in the
form of cash or otherwise in connection with the program, other than
the reimbursement of the actual costs of the program to the employer.
Finally, the proposal specifies that employer involvement must be
limited to all or some of the following: (1) Collecting employee
contributions through payroll deductions and remitting them to the
program; (2) providing notice to the employees and maintaining records
regarding the employer's collection and remittance of payments under
the program; (3) providing information to the state necessary to
facilitate the operation of the program; and (4) distributing program
information to employees from the state and permitting the state to
publicize the program to employees.
---------------------------------------------------------------------------
\16\ This provision, of course, would not prohibit an employer
from allowing employees to review program materials on company time
or to use an employer's computer to make elections under the
program.
---------------------------------------------------------------------------
A program could fit within the safe harbor and include terms that
require employers to certify facts within the employer's knowledge as
employer, such as employee census information (e.g., status of a full
time employee, employee addresses, attendance records, compensation
levels, etc.). The employer could also conduct reviews to ensure it was
complying with program eligibility requirements and limitations
established by the state. The Department requests comments on whether
the final regulation should provide more clarity and specificity on the
types of functions that could be permitted consistent with the
requirements of the safe harbor.\17\
---------------------------------------------------------------------------
\17\ In previous guidance issued by the Department under other
safe harbors involving private parties, the Department concluded
that employers could take certain corrective actions to stay within
the safe harbor and that such actions, in and of themselves, did not
lead to the establishment of an employee benefit plan. See DOL
Information Letter to Siegel Benefit Consultants (Feb. 27, 1996) and
Field Assistance Bulletin 2007-02 on the safe harbor for tax
sheltered annuity programs under 29 CFR 2510.3-2(f).
---------------------------------------------------------------------------
A state program that meets all of the foregoing conditions will not
fail to qualify for the safe harbor merely because the program is
directed toward employees who are not already eligible for some other
workplace savings arrangement. Nor will it fail merely because it
requires automatic enrollment subject to employees having a right to
opt out. Similarly, if the state program offers employees a choice of
multiple IRA sponsors to which employees may make payroll deduction
contributions, the state program can create a default option, i.e.,
designate the IRA provider to which the employer must remit the payroll
withholding contributions in the absence of an affirmative election by
the employee.
ERISA's expansive plan definition is critical to its protective
purposes. When employers establish or maintain ERISA-covered plans, the
plan's participants are protected by trust-law obligations of fiduciary
conduct, reporting requirements, and a regulatory regime designed to
ensure the security of promised benefits. In the circumstances
specified by the proposed regulation, however, the employer does not
``establish or maintain'' the plan. Instead, the program is created and
administered by the state for the benefit of those employees who
voluntarily participate with minimal employer involvement. State
administration of the voluntary program does not give rise to ERISA
coverage, and presumably ensures that the program will be administered
in accordance with the interests of the state's citizens.\18\
---------------------------------------------------------------------------
\18\ To the extent that the state program allows employees not
subject to the automatic enrollment requirement to voluntarily
choose to participate, the employee's voluntarily participation
would not result in the employer establishing an ERISA-covered plan
or the state program including an ERISA-covered plan if the employer
and the state program satisfy the conditions in the Department's
existing safe harbor for payroll deduction IRAs at 29 CFR 2510.3-
2(d). Of course, as described above, automatic enrollment of
employees is not permitted under the existing payroll deduction IRA
safe harbor.
---------------------------------------------------------------------------
As noted above, ERISA generally preempts state laws that relate to
employee benefit plans. The U.S. Supreme Court has long held that ``[a]
law `relates to' an employee benefit plan, in the normal sense of the
phrase, if it has a connection with or reference to such a plan.'' Shaw
v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983) (footnote omitted);
see, e.g., New York State Conference of Blue Cross & Blue Shield Plans
v. Travelers Ins. Co., 514 U.S. 645, 656 (1995). This proposed
regulation would provide that certain state savings
[[Page 72011]]
programs would not create employee benefit plans. However, the fact
that state programs do not create ERISA covered plans does not
necessarily mean that, if the issue were litigated, the state laws
would not be preempted by ERISA. The courts' determinations would
depend on the precise details of the statute at issue, including
whether that state's program successfully met the requirements of the
safe harbor.
Moreover, states should be advised that a program may be preempted
by other Federal laws apart from ERISA. A state law that alters,
amends, modifies, invalidates, impairs or supersedes a Federal law
would risk being preempted by the Federal law so affected. Such
preemption issues are beyond the scope of this proposed rule, however,
which addresses only the question of whether particular programs
involve the establishment of one or more ERISA covered employee benefit
plans.
Finally, some states are considering approaches that differ from
state payroll deduction savings initiatives. In 2012, Massachusetts,
for example, enacted a law providing for a state-sponsored plan for
non-profit employers with 20 or fewer employees.\19\ Washington enacted
a law to establish a small business retirement market place to assist
small employers by making available a number of approved savings plans,
some of which may be covered by ERISA, even though the marketplace
arrangement itself is not.\20\ This proposal does not address such
state initiatives.
---------------------------------------------------------------------------
\19\ Mass. Gen. Laws ch. 29, sec. 64E (2014)
\20\ 2015 Wash. Sess. Laws chap. 296 (SB 5826).
---------------------------------------------------------------------------
C. Effective Date
The Department proposes to make this regulation effective 60 days
after the date of publication of the final rule in the Federal
Register.
D. Regulatory Impact Analysis
1. Executive Order 12866 Statement
Under Executive Order 12866, the Office of Management and Budget
(OMB) must determine whether a regulatory action is ``significant'' and
therefore subject to the requirements of the Executive Order and
subject to review by the OMB. Section 3(f) of the Executive Order
defines a ``significant regulatory action'' as an action that is likely
to result in a rule (1) having an annual effect on the economy of $100
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or state, local or tribal governments or communities
(also referred to as an ``economically significant'' action); (2)
creating serious inconsistency or otherwise interfering with an action
taken or planned by another agency; (3) materially altering the
budgetary impacts of entitlement grants, user fees, or loan programs or
the rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
OMB has tentatively determined that this regulatory action is not
economically significant within the meaning of section 3(f)(1) of the
Executive Order. However, it has been determined that the action is
significant within the meaning of section 3(f)(4) of the Executive
Order and the Department accordingly provides the following assessment
of its potential benefits and costs.
a. Direct Benefits
As stated earlier in this preamble, some state governments have
passed laws designed to expand workers' access to workplace savings
programs. Some states are looking at ways to encourage employers to
provide coverage under state-administered 401(k)-type plans, while
others have adopted or are considering approaches that combine several
retirement alternatives including IRAs, ERISA-covered plans and the
Department of the Treasury's new starter savings program, myRA.
One of the challenges states face in expanding retirement savings
opportunities for private sector employees is uncertainty about ERISA
preemption of such efforts. ERISA generally would preempt a state law
that required employers to establish and maintain ERISA-covered
employee benefit pension plans. The Department therefore believes that
states and other stakeholders would benefit from clear guidelines to
determine whether state saving initiatives would effectively require
employers to create ERISA-covered plans. The proposed rule would
provide a new ``safe harbor'' from coverage under Title I of ERISA for
state savings arrangements that conform to certain requirements. State
initiatives within the safe harbor would not result in the
establishment of employee benefit plans under ERISA. The Department
expects that the proposed rule would reduce legal costs, including
litigation costs, by (1) removing uncertainty about whether such state
savings arrangements are covered by title I of ERISA, and (2) creating
efficiencies by eliminating the need for multiple states to incur the
same costs to determine their non-plan status.
The Department notes that the proposal would not prevent states
from identifying and pursuing alternative policies, outside the safe
harbor, that also would not require employers to establish or maintain
ERISA-covered plans. Thus, while the proposal would reduce uncertainty
about state activity within the safe harbor, it would not impair state
activity outside it.
b. Direct Costs
The proposed rule does not require any new action by employers or
the states. It merely clarifies that certain state initiatives that
encourage workplace savings would not result in the creation of
employee benefit plans covered by Title I of ERISA.
States may incur legal costs to analyze the rule and determine
whether their laws fall within the proposed rule's safe harbor.
However, the Department expects that these costs will be less than the
savings that will be generated. Moreover, states will avoid incurring
the greater costs that might be incurred to determine their programs'
non-plan status without benefit of this proposed rule.
States that design their payroll deduction programs to conform to
the safe harbor may incur costs to develop notices to be provided to
participants and beneficiaries covered by the program and enter into
contracts with investment managers and other service providers to
operationalize and administer the programs. The Department's review of
existing state payroll deduction legislation indicates that these
requirements are customarily part of most state programs, and the
initiatives generally could not operate without such requirements.
Therefore, to the extent that state programs would exist even in the
absence of this rule, only the relatively minor costs of revisions for
conformity to the safe harbor are attributable to the rule, because
other cost-generating activities are necessary and essential to operate
and administer the programs. On the other hand, if state programs are
adopted more widely in the rule's presence than in its absence, there
would be more general state operational and administrative costs that
are attributable to the rule. The Department does not have sufficient
data to estimate the number of systems that would need to be updated;
therefore, the Department invites comments and any relevant data that
would allow it to make a more thorough assessment.
[[Page 72012]]
c. Uncertainty
The Department is confident that the proposed regulation, by
clarifying that certain state programs do not require employers to
establish ERISA-covered plans, will benefit states and many other
stakeholders otherwise beset by greater uncertainty. However, the
Department is unsure as to the magnitude of these benefits. The
magnitude of the proposed regulation's benefits, costs and transfer
impacts will depend on the states' independent decisions on whether and
how best to take advantage of the safe harbor, and on the cost that
otherwise would have attached to uncertainty about the legal status of
the states' actions. The Department cannot predict what actions states
will take, stakeholders' propensity to challenge such actions' legal
status, either absent or pursuant to the proposed regulation, or
courts' resultant decisions, and therefore the Department invites data
submission or other comment that would allow for more thorough
assessment of these issues.
d. Impact of State Initiatives
There are a number of cases in which this rulemaking could increase
the prevalence of state workplace savings initiatives, thus bringing
the effects of these initiatives within the scope of this regulatory
impact analysis. For instance, if this issue were ultimately resolved
in the courts, the courts could make a different preemption decision in
the rule's presence than in its absence. Furthermore, even if a
potential court decision would be the same with or without the
rulemaking, the potential reduction in states' uncertainty-related
costs could induce more states to pursue these workplace savings
initiatives. An additional possibility is that the rule would not
change the prevalence of state retirement savings programs, but would
accelerate the implementation of programs that would exist anyway. With
any of these possibilities, there would be benefits, costs and transfer
impacts that are indirectly attributable to this rule, via the
increased or accelerated creation of state-level workplace savings
programs.
Employers may incur costs to update their payroll systems to
transmit payroll deductions to the state or its agent and develop
recordkeeping systems to document their collection and remittance of
payments under the program. As with states' operational and
administrative costs (discussed in section D.1.b, above), some portion
of these employer costs would be attributable to the rule if more state
workplace savings programs are implemented in the rule's presence than
in its absence. Because employers' role in the programs must be minimal
in order to satisfy the safe harbor, they will incur little cost beyond
the costs associated with updating payroll systems. However, the costs
that are incurred could fall most heavily on small and start-up
companies, which tend to be least likely to offer pensions. Most state
payroll deduction programs do exempt the smallest companies, which
could significantly mitigate such costs. The Department does not have
sufficient data to estimate the number of payroll systems that would
have to be updated. Therefore, the Department invites the public to
provide comments and relevant data that would allow it to make a more
thorough assessment.
The Department believes that well-designed state-level initiatives
have the potential to effectively reduce gaps in retirement security.
Relevant variables such as pension coverage,\21\ labor market
conditions,\22\ population demographics,\23\ and elderly poverty,\24\
vary widely across the states, suggesting a potential opportunity for
progress at the state level. For example, payroll deduction savings
statutes in California and Illinois could extend savings opportunities
for 7.8 million workers in California and 1.7 million workers in
Illinois who currently do not have access to employment-based savings
arrangements.\25\ The Department offers the following policy discussion
for consideration, and invites public input on the issues raised, on
the potential for state initiatives to foster retirement security, and
on the potential for this proposal or other Departmental action to
facilitate effective state activity.
---------------------------------------------------------------------------
\21\ See for example Craig Copeland, ``Employment-Based
Retirement Plan Participation: Geographic Differences and Trends,
2013,'' Employee Benefit Research Institute, Issue Brief No. 405
(October 2014) (available at www.ebri.org).
\22\ See for example US Bureau of Labor Statistics, ``Regional
and State Employment and Unemployment--JUNE 2015,'' USDL-15-1430,
July 21, 2015.
\23\ See for example Lindsay M. Howden and Julie A. Meyer, ``Age
and Sex Composition: 2010,'' US Bureau of the Census, 2010 Census
Briefs C2010BR-03, May 2011.
\24\ Constantijn W. A. Panis & Michael Brien, August 28, 2015,
``Target Populations of State-Level Automatic IRA Initiatives.''
\25\ Id.
---------------------------------------------------------------------------
Effective state initiatives will advance retirement security. Some
workers currently may save less than would be optimal because of
behavioral biases (such as myopia or inertia) or labor market frictions
that prevent them from accessing plans at work. Effective state
initiatives would help such workers save more. Such workers will have
traded some consumption today for more in retirement, potentially
reaping some net gain in overall lifetime well-being. Their additional
saving may also reduce fiscal pressure on publicly financed retirement
programs and other public assistance programs, such as the Supplemental
Nutritional Assistance Program, that support low-income Americans,
including older Americans.
The Department believes that well-designed state initiatives can
achieve their intended, positive effects of fostering retirement
security. However, the initiatives might have some unintended
consequences as well. Those workers least equipped to make good
retirement savings decisions arguably stand to benefit most from state
initiatives, but also arguably are most at risk of suffering adverse
unintended effects. Workers who would not benefit from increased
retirement savings could opt out, but some might fail to do so. Such
workers might increase their savings too much, unduly sacrificing
current economic needs. Consequently they might be more likely to cash
out early and suffer tax losses, and/or to take on more expensive debt.
Similarly, state initiatives directed at workers who do not currently
participate in workplace savings arrangements may be imperfectly
targeted to address gaps in retirement security. For example, a college
student might be better advised to take less in student loans rather
than open an IRA, and a young family might do well to save more first
for their children's education and later for their own retirement.
Employers that wish to provide retirement benefits are likely to
find that ERISA-covered programs, such as 401(k) plans, have advantages
for them and their employees over participation in state programs.
Potential advantages include: Greater tax preferences, greater
flexibility in plan selection and design, opportunity for employers to
contribute, ERISA protections, and larger positive recruitment and
retention effects. Therefore it seems unlikely that state initiatives
will ``crowd-out'' many ERISA-covered plans. However, if they do, some
workers might lose ERISA-protected benefits that would have been more
generous and more secure than state-based (or IRA) benefits, unless
states adopt consumer protections similar to those Congress provided
under ERISA. Some workers who would otherwise have saved more might
reduce their savings to the low, default levels associated with some
state programs. States can address this last concern by incorporating
into their programs ``auto-escalation'' features that increase default
contribution rates over time and/or as pay increases.
[[Page 72013]]
2. Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public
understands the Department's collection instructions, respondents can
provide the requested data in the desired format, reporting burden
(time and financial resources) is minimized, collection instruments are
clearly understood, and the Department can properly assess the impact
of collection requirements on respondents.
The Department has determined this proposed rule is not subject to
the requirements of the PRA, because it does not contain a collection
of information as defined in 44 U.S.C. 3502(3). The rule does not
require any action by or impose any requirements on employers or the
states. It merely clarifies that certain state payroll deduction
programs that encourage retirement savings would not result in the
creation of employee benefit plans covered by Title I of ERISA.
Moreover, the PRA definition of burden excludes time, effort, and
financial resources necessary to comply with a collection of
information that would be incurred by respondents in the normal course
of their activities. See 5 CFR 1320.3(b)(2). The definition of burden
also excludes burdens imposed by a state, local, or tribal government
independent of a Federal requirement. See 5 CFR 1320.3(b)(3). The
Department's review of existing state payroll deduction programs
indicates that they customarily have notification and recordkeeping
requirements and that the initiatives could not operate without such
requirements, especially programs that include automatic enrollment.
Therefore, the proposed rule imposes no burden, because states
customarily include notice and recordkeeping requirements that are an
essential and routine part of administering state payroll deduction
programs. In addition, employers are responding to state, not Federal,
requirements when providing notices to individuals covered under state
payroll deduction programs and maintaining records regarding the
employers' collection and remittance of payments under the program.
Although the Department has determined that the proposed rule does
not contain a collection of information, when rules contain information
collections the Department invites comments that:
Evaluate whether the collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the burden of the collection of information,
including the validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
In addition to having an opportunity to file comments with the
Department, comments may also be sent to the Office of Information and
Regulatory Affairs, Office of Management and Budget, Room 10235, New
Executive Office Building, Washington, DC 20503; Attention: Desk
Officer for the Employee Benefits Security Administration. OMB requests
that comments be received within 30 days of publication of the proposed
rule to ensure their consideration.
3. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency certifies that a rule will not have a
significant economic impact on a substantial number of small entities,
section 603 of the RFA requires the agency to present an initial
regulatory flexibility analysis at the time of the publication of the
notice of proposed rulemaking describing the impact of the rule on
small entities. Small entities include small businesses, organizations
and governmental jurisdictions.
Because the proposed rule imposes no requirements or costs on
employers, the Department believes that it would not have a significant
economic impact on a substantial number of small entities. Accordingly,
pursuant to section 605(b) of the RFA, the Assistant Secretary of the
Employee Benefits Security Administration hereby certifies that the
proposed rule, if promulgated, will not have a significant economic
impact on a substantial number of small entities.
4. Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1501 et seq.), as well as Executive Order 12875, this rule does not
include any federal mandate that may result in expenditures by state,
local, or tribal governments, or the private sector, which may impose
an annual burden of $100 million.
5. Congressional Review Act
The proposed rule is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and, if finalized, would be transmitted to
Congress and the Comptroller General for review.
6. Federalism Statement
Executive Order 13132 outlines fundamental principles of
federalism. It also requires adherence to specific criteria by federal
agencies in formulating and implementing policies that have
``substantial direct effects'' on the states, the relationship between
the national government and states, or on the distribution of power and
responsibilities among the various levels of government. Federal
agencies promulgating regulations that have these federalism
implications must consult with state and local officials, and describe
the extent of their consultation and the nature of the concerns of
state and local officials in the preamble to the final regulation.
In the Department's view, the proposed regulations, by clarifying
that certain workplace savings arrangements under consideration or
adopted by certain states will not result in the establishment or
maintenance by employers or employee organizations of employee benefit
plans under ERISA, would provide more latitude and certainty to state
governments and employers regarding the treatment of such arrangements
under ERISA. The Department will affirmatively engage in outreach with
officials of states, and with employers and other stakeholders,
regarding the proposed rule and seek their input on the proposed rule
and any federalism implications that they believe may be presented by
it.
List of Subjects in 29 CFR Part 2510
Accounting, Employee benefit plans, Employee Retirement Income
Security Act, Pensions, Reporting, Coverage.
[[Page 72014]]
For the reasons stated in the preamble, the Department of Labor
proposes to amend 29 CFR 2510 as set forth below:
PART 2510--DEFINITIONS OF TERMS USED IN SUBCHAPTERS C, D, E, F, AND
G OF THIS CHAPTER
0
1. The authority citation for part 2510 is revised to read as follows:
Authority: 29 U.S.C. 1002(2), 1002(21), 1002(37), 1002(38),
1002(40), 1031, and 1135; Secretary of Labor's Order No. 1-2011, 77
FR 1088 (Jan. 9, 2012); Sec. 2510.3-101 also issued under sec. 102
of Reorganization Plan No. 4 of 1978, 43 FR 47713 (Oct. 17, 1978),
E.O. 12108, 44 FR 1065 (Jan. 3, 1979) and 29 U.S.C. 1135 note. Sec.
2510.3-38 is also issued under sec. 1, Pub. L. 105-72, 111 Stat.
1457 (1997).
0
2. Section 2510.3-2 is amended by adding paragraph (h) to read as
follows:
Sec. 2510.3-2 Employee pension benefit plans.
* * * * *
(h) Certain State Savings Programs. (1) For the purpose of Title I
of the Act and this chapter, the terms ``employee pension benefit
plan'' and ``pension plan'' shall not include an individual retirement
plan (as defined in 26 U.S.C. 7701(a)(37)) established and maintained
pursuant to a State payroll deduction savings program, provided that:
(i) The program is established by a State pursuant to State law;
(ii) The program is administered by the State establishing the
program, or by a governmental agency or instrumentality of the State,
which is responsible for investing the employee savings or for
selecting investment alternatives for employees to choose;
(iii) The State assumes responsibility for the security of payroll
deductions and employee savings;
(iv) The State adopts measures to ensure that employees are
notified of their rights under the program, and creates a mechanism for
enforcement of those rights;
(v) Participation in the program is voluntary for employees;
(vi) The program does not require that an employee or beneficiary
retain any portion of contributions or earnings in his or her IRA and
does not otherwise impose any restrictions on withdrawals or impose any
cost or penalty on transfers or rollovers permitted under the Internal
Revenue Code;
(vii) All rights of the employee, former employee, or beneficiary
under the program are enforceable only by the employee, former
employee, or beneficiary, an authorized representative of such a
person, or by the State (or the designated governmental agency or
instrumentality described in paragraph (h)(1)(ii) of this section);
(viii) The involvement of the employer is limited to the following:
(A) Collecting employee contributions through payroll deductions
and remitting them to the program;
(B) Providing notice to the employees and maintaining records
regarding the employer's collection and remittance of payments under
the program;
(C) Providing information to the State (or the designated
governmental agency or instrumentality described in paragraph
(h)(1)(ii) of this section) necessary to facilitate the operation of
the program; and
(D) Distributing program information to employees from the State
(or the designated governmental agency or instrumentality described in
paragraph (h)(1)(ii) of this section) and permitting the State or such
entity to publicize the program to employees;
(ix) The employer contributes no funds to the program and provides
no bonus or other monetary incentive to employees to participate in the
program;
(x) The employer's participation in the program is required by
State law;
(xi) The employer has no discretionary authority, control, or
responsibility under the program; and
(xii) The employer receives no direct or indirect consideration in
the form of cash or otherwise, other than the reimbursement of the
actual costs of the program to the employer of the activities referred
to in paragraph (h)(1)(viii) of this section.
(2) A State savings program will not fail to satisfy the provisions
of paragraph (h)(1) of this section merely because the program--
(i) Is directed toward those employees who are not already eligible
for some other workplace savings arrangement;
(ii) Utilizes one or more service or investment providers to
operate and administer the program, provided that the State (or the
designated governmental agency or instrumentality described in
paragraph (h)(1)(ii) of this section) retains full responsibility for
the operation and administration of the program; or
(iii) Treats employees as having automatically elected payroll
deductions in an amount or percentage of compensation, including any
automatic increases in such amount or percentage, specified under State
law until the employee specifically elects not to have such deductions
made (or specifically elects to have the deductions made in a different
amount or percentage of compensation allowed by the program), provided
that the employee is given adequate notice of the right to make such
elections; provided, further, that a program may also satisfy this
paragraph (h) without requiring or otherwise providing for the
automatic elections described in this paragraph (h)(2)(iii).
(3) For purposes of this section, the term State shall have the
same meaning as defined in section 3(10) of ERISA.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 2015-29426 Filed 11-16-15; 4:15 pm]
BILLING CODE 4510-29-P