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State-Sponsored Retirement Plans Now at Sea: Congress Votes to Repeal Safe-Harbor Law

Employee Benefits
Article
05/05/2017

On May 3, 2017, the U.S. Senate voted to repeal a Department of Labor rule that provided a safe harbor for states that sponsor retirement programs for workers with no access to company-sponsored retirement programs. By a margin of 50-49, senators elected to abolish the Obama-era rule, created to encourage states to sponsor programs that combat the looming U.S. retirement crisis. The rule’s repeal is expected to create a significant roadblock for several states that initiated plans, including Oregon, New Jersey, Maryland, California, Illinois, Connecticut, and Washington.

Using the Congressional Review Act, Congressional Republicans need only a simple majority to overturn rules established by the Obama administration. President Trump is expected to sign the resolution into law within the next two weeks.

Many States Still Intend to Move Forward with Their Retirement Plans

In general, state-sponsored retirement plans establish a mandatory system of payroll deposit for small businesses that don’t offer an employee retirement plan. Some state plans require companies to automatically deduct wages — usually 3 percent — from all workers’ paychecks; other state plans permit employers to make voluntary contributions to their workers’ IRA accounts in accordance with federal tax laws. However, state-sponsored retirement plans have been outside the jurisdiction of the Employee Retirement Income Security Act (ERISA).

If President Trump signs the resolution into law, state-sponsored, private-sector retirement programs will no longer be exempt from providing ERISA protections. This will ensure that state-sponsored programs will provide access to important savings options and safeguards to protect the interests of account holders.

Many of the leading states intend to move forward with their programs, despite the repeal of the ERISA safe harbor. Lisa Massena, CFA, executive director of OregonSaves, posted on LinkedIn that the State of Oregon plans on “staying the course” with its program.

401(k) Plans Within Reach of Small Businesses

Small-business owners who feared a retirement plan mandate from their states can likely breathe freely, as Trump is likely to sign the resolution. However, those who don’t offer a workplace retirement program may want to consider doing so. Now more than ever, such plans are needed. Studies have found that most retirement saving occurs in the workplace via employer-sponsored savings plans. And most business owners are concerned for their workers’ financial welfare.

Today, even small companies can afford 401(k) plans, because vendors have designed options for their market. Check out the affordable retirement plan options that Paychex offers.

Paychex will continue to monitor developments on the revocation of ERISA protections for state-sponsored retirement plans and provide pertinent updates.

 

mike savage headshot

Michael joined the Compliance Risk organization of Paychex in March 2015 as Manager, Retirement Services Compliance. In this role, he oversees a team responsible for regulatory compliance of the Paychex retirement products, government and industry group relations, and business partner consulting. Before joining Paychex, Michael was the Sr. Manager of Client Services at EPIC Advisors, a Rochester, NY-based 401(k) provider with a niche in the banking industry.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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