Concerns Expressed About State-Run Retirement Plans

Voya Financial says it agrees there is an urgent need to expand access to workplace retirement savings plans to address the retirement savings gap; however, it believes the Department of Labor’s (DOL’s) proposal is not effective solution and would create new challenges for small businesses and their employees.

In its comment letter to the DOL, Voya says the proposals would enable a 50-state patchwork of government-administered retirement savings vehicles with inconsistent state and local regulations, low annual contribution limits, no opportunity for employer contributions and limited access to retirement planning and advice. This patchwork will be difficult, if not impossible, to dismantle once built, and, if other layers of systems or requirements are added at the federal level in the future, there will be an even more confusing “50 plus one” patchwork of state and federal standards, rather than a single, streamlined standard, it says.

Voya contends that retirement readiness is best achieved through a combination of automatic enrollment, sufficiently high limits for employee contributions, flexibility for employers to match contributions, access to high-quality retirement planning advice and availability of an appropriate range of investment alternatives. It urges the DOL to withdraw its proposal, and instead to seek a uniform federal solution that encourages employers to offer 401(k)s and similar retirement savings plans, which it says have long track records of helping Americans successfully prepare for retirement.

The proposed rule by the DOL sets forth conditions for a “safe harbor” under which a state established payroll deduction IRA Program will not be considered to be subject to Title I of ERISA. Voya notes that nondiscrimination testing requirements present significant challenges for small employers, where the small pool of participants can make compliance statistically challenging.

While these requirements are waived for employers who adopt Simple IRA plans and safe-harbor 401(k) plans, those plans require an employer match and, in many cases, immediate vesting of the employer match. Voya contends these requirements act as disincentives to employers who might otherwise make Employee Retirement Income Security Act (ERISA) plans available to their employees, and suggests it would better prepare currently underserved American workers for retirement to reduce or eliminate these costs, thus increasing the number of small employers willing to make ERISA plans available.

Similarly, in its comment letter to the DOL, the American Retirement Association (ARA) says it is concerned that the proposed rule creates different standards for payroll deduction IRA programs administered by a state and those administered by private-sector providers outside of a state program. ARA contends the lack of a private-sector alternative operating alongside the various state programs would be contrary to the overall objective of increasing access to workplace retirement savings programs.

The ARA believes that because the proposal significantly limits the employer’s involvement, it could and should be extended to all payroll deduction IRA programs irrespective of whether provided under a state-law mandate, a state established arrangement or an arrangement offered by a private-sector provider.

The ARA recommends that the non-ERISA safe harbor under the proposed rule be expanded to apply to comparable payroll deduction programs established and administered by private-sector providers, and that the non-ERISA safe harbor under the proposed rule be available to any payroll deduction IRA program without regard to whether it is mandated by a state law (or offered under a state established IRA Program).

Alternatively, the ARA recommends that the final rule include an amendment to the non-ERISA safe harbor contained in ERISA Regulation Section 2510.3-2(d) to permit automatic enrollment features.