Senate Votes to Revoke Department of Labor Guidance on State-Run Retirement Plans for Private Sector Employees
May 18, 2017
In yet another move to roll-back regulatory guidance issued during the Obama administration, earlier this month the U.S. Senate voted to revoke a final rule and associated interpretive guidance that the Department of Labor issued in 2016 that would have made it easier for states to set up state-sponsored retirement plans for private sector employees. The House has already passed its own legislation revoking the rule, and President Trump is expected to sign the legislation that the Senate recently passed.
A number of states, including Illinois, have recently adopted legislation aimed at expanding access to retirement savings for private sector workers who do not have access to a workplace retirement plan. Illinois, for example, adopted the Secure Choice Savings Program (“Illinois Secure Choice”) which would require Illinois employers with at least 25 employees that otherwise do not sponsor a retirement program to automatically remit 3% of each employee’s pay to a state-run defined contribution savings plan.
As numerous states adopted similar state-run retirement initiatives for private-sector employees, state legislators became concerned that these programs would be covered by federal retirement plan law, which may, among other things, make participating employers fiduciaries under Title I of the Employee Retirement Income Security Act (“ERISA”). In response, on August 30, 2016, the U.S. Department of Labor issued a final rule and interpretive guidance that relieved these state-run plans (and the employers required to participate in them) of the fiduciary requirements set forth in Title I of ERISA, as long as the program meets a number of requirements to limit employer involvement. The final guidance did not completely insulate these programs from lawsuits in federal court under ERISA, but the guidance did offer states some assurance that these initiatives would be exempt from ERISA if challenged in federal court.
Notwithstanding the Senate’s revocation of the DOL guidance, Illinois officials have confirmed that they will continue to take steps to implement Illinois Secure Choice. We anticipate that the Illinois State Treasurer’s office will continue to issue guidance on the roll-out of the program in upcoming months.