New regulations help Americans save for retirement via state plans

David John of AARP—and past speaker at a number of Savings and Retirement luncheons—describes how new Department of Labor regulations make it easier for people to save for retirement through state plans. He writes:

The final regulations offer states that choose to establish automatic enrollment savings plans that are not covered by the Employee Retirement Income Security Act (ERISA) flexibility in the way they administer and regulate the plans. Several states have taken this approach because they believe ERISA imposes greater costs and regulatory responsibilities on employers. While the plans must be established under state law, boards or commissions may set the details of plan design, and operations may be contracted out to private sector vendors.  However, states must take responsibility for the security of payroll deductions by establishing procedures to ensure that the contributions go to the accounts within a reasonable time period.

The state-sponsored plans may use automatic enrollment if the state requires employers to offer the plan or an equivalent private sector option and the role of the employer is limited to providing information and collecting deductions. Under automatic enrollment, participation is completely voluntary, but an employee is part of the plan, contributing a pre-set amount to a certain investment choice unless the worker decides otherwise. States must set out a consumer’s rights and establish a mechanism to enforce them.

Leave a Reply