The safe harbor proposal issued recently by the Department of Labor that paves the way for state-sponsored retirement plans said a payroll deduction-based IRA with an automatic enrollment feature will not “give rise” to the type of employee benefit plan regulated under the Employee Retirement Income Security Act.
States have reportedly been reluctant to fully roll out state-run retirement initiatives for fear of running afoul of ERISA.
Now, various forms of retirement legislation under way in more than 20 states, some of which mandate enrollment, can commence and target workers in the private sector who don’t have access to workplace plans.
One option available to states will be the state-sponsored multiple employer plan, or MEP.
State-run MEPs would be subject to ERISA, according to the interpretive bulletin published by the DOL.
“Plan documents would provide that the plan is subject to Title I of ERISA and is intended to comply with Internal Revenue Code tax qualification requirements,” according to the DOL’s bulletin.
MEPs in the private sector allow small businesses with a common nexus, such as affiliated trades or businesses within an industry, to pool participant 401(k) assets under one plan.
Businesses that participate in a state-run MEP will not have to file Form 5500 compliance forms. That responsibility would fall to the state, which would be fiduciary to the plan.
But the DOL’s bulletin did say that business owners would not be without some fiduciary responsibility.
While participating employers in a state-run MEP would not be considered to have sponsored their own plan, states could impart limited fiduciary responsibilities on employers.
The duty to prudently select the state-run MEP and the duty to monitor its operation would continue to apply to business owners.
Employers’ administrative responsibilities would be limited to enrolling employees and forwarding contributions to state administrators, the DOL said.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
