State-based retirement plans for the private sector
Date Published: Thu, 05/08/2014 (All
day)
There is a movement afoot to use the
efficiencies of public retirement systems to administer new types of pension
plans for private-sector workers. Below are brief summaries of the plans being
considered:
California
On September 28, 2012, Governor Jerry Brown signed into law S.B. 1234, the California Secure Choice Retirement Savings
Trust Act. The bill, which was sponsored by Senator Kevin de Leόn, will eventually require that all businesses
with five or more employees that do not already offer a retirement plan enroll
them in a new type of savings plan based on Individual Retirement Accounts
(IRAs).
California Secure Choice accounts differ from IRAs in several ways. The new
system’s investments would be professionally managed by the California Public Employees' Retirement System or another
contracted organization. Employees would be automatically enrolled in the plan
and would contribute about three percent of their wages through payroll
deduction, although they could opt out of the plan. A modest benefit would be
guaranteed through underwriting by private insurers, and not by taxpayers.
Employers would not have any fiduciary liability involving the fund; their
sole requirement is to assist their employees by permitting them to use their
payroll-deduction systems to make retirement fund contributions.
To date, the State has established the California Secure Choice Retirement Savings Investment Board
and the California Secure Choice Retirement Savings Trust, as required by the
statute. The Board has begun work on the market analysis and the feasibility
study that are required before the new savings accounts can be established.
Connecticut
SB 249, an Act Promoting Retirement Savings, was introduced
into the Connecticut General Assembly in February 2014 by Representative Joe Aresimowicz and Senator Martin
Looney. The bill was voted out of the Labor and Public Employees Committee
in March. Key provisions of the bill were incorporated into
Connecticut’s "budget
implementer" bill, which was approved by the legislature and sent to
the Governor’s desk on May 7, 2014.
The legislation dedicates $400,000 toward the establishment of a Connecticut
Retirement Security Board and directs the Board to conduct a market feasibility
study and create a comprehensive implementation plan for a new public retirement
program. The implementation plan must be submitted to the Governor and General
Assembly for final approval by April 2016.
If approved, the implementation plan would
create an automatic IRA that would be administered by the appointed trust fund
board, as in California. Employers with five or more workers would be required
to participate unless they offer a different retirement savings plan to their
employees. Unlike most IRAs bought in the private market, the money would be
paid out as a lifetime annuity with an option for workers to select a lump-sum,
helping to ensure that people will not outlive their assets while preserving
worker’s ability to choose the option best suited to their financial needs.
Finally, a modest guarantee and low fees would protect the money saved by
hard-working employees.
Illinois
In January 2014, SB 2758, an Act creating the Illinois Secure Choice Savings
Program, was introduced into the Illinois General Assembly by Senator Daniel Bliss. The bill passed the Illinois Senate on April 9 and is currently
pending in the House Rules Committee.
SB 2758 establishes a payroll-deduction IRA for workers whose employers do
not offer any other retirement savings vehicle in the workplace. The bill
requires all businesses in existence at least two years with 25 or more
employees to automatically enroll their employees in the Secure Choice Savings
Program unless they offer another retirement option to their workers.
Employees can choose to opt out of the program at any time, and they can
determine a contribution level and select among a small number of investment
options. A default contribution level of three percent of salary is offered to
those who do not select one on their own, as is a default life-cycle investment
fund for those who do not choose one from the options offered. Assets are pooled
into a single fund and managed by the Illinois Treasurer and a qualified board,
providing participants the benefit of low fees and competitive investment
performance.
Maryland
In January 2014, Senator James Rosapepe introduced SB 921, the Maryland Secure Choice Retirement Savings
Program and Trust, in the Maryland State Senate. Delegate Tom Hucker introduced a companion bill HB 1251 in the Maryland Assembly. SB 921 was the subject of
a hearing in the Senate Budget and Taxation Committee on February
20.
The bill would provide a retirement savings plan to employees of
private-sector employers with at least five employees that do not already
provide an employer-sponsored retirement or pension plan. Eligible employers
would be required to make the program available to their employees through
payroll deduction. Employees are required to participate unless they opt out.
Before the plan could go into effect, it must secure tax-favored
qualification from the Internal Revenue Service and it must be determined that
the plan is not subject to the federal Employee Retirement Income Security Act.
Massachusetts
In March 2012, Massachusetts enacted HR 3754, an Act Providing Retirement Options for
Nonprofit Organizations. The new law allows the State Treasurer to sponsor a retirement
savings plan for workers at small non-profit organizations in the Commonwealth.
The retirement plan would be a tax-qualified defined contribution arrangement
with various investment options available to employees. Contributions could be
made by workers, their employers, or both. A “not-for-profit defined
contribution committee” of five members would be established to assist the State
Treasurer in developing policy and providing technical advice for the plan. The
plan would be marketed particularly to nonprofits with 20 or fewer
employees.
The Massachusetts plan has been developed and is currently pending before the
Internal Revenue Service for final authorization.
Minnesota
On February 27, 2014, SF 2078, Minnesota Secure Choice Retirement Savings Plan
Establishment, was introduced in the Minnesota State Senate by Senator Sandra L. Pappas. The bill passed the State and Local Government Committee on March 12 and was
referred to the Commerce Committee. The Commerce Committee passed the
bill on March 26 and referred it to the Finance Committee, where it is currently pending.
The Minnesota Secure Choice Plan bill would require the Commissioner of Management and Budget to report to the
legislature by January 2015 on the potential establishment of a
state-administered retirement savings plan to serve employees without access to
another retirement savings plan.
Nebraska
On December 10, 2013, the Retirement Systems Committee of the Nebraska Legislature
held a hearing to discuss LR 344, a resolution calling for an interim study to examine
the availability and adequacy of retirement savings for Nebraska’s
private-sector workers. The hearing was hosted by Committee Chair Senator Jeremy
Nordquist.
Oregon
On July 7, 2013, Oregon’s state legislature passed HB 3436, which creates a task force to explore
options for helping private-sector workers who lack access to a workplace
retirement plan save for retirement. The bill is now awaiting the governor’s signature.
Sponsored by Representative Jules Bailey, Senator Lee Beyer, and Senate Majority Leader Diane Rosenbaum, HB 3436 authorizes the creation of a
seven-person task force that will develop recommendations on ways to
increase the number of Oregonians saving for retirement through new structures
that could be facilitated by the state. The task force’s report is due September
1, 2014.
The task force is headed by Oregon Treasurer Ted Wheeler, who was named Elected Official of the Year by the National Conference on Public Employee Retirement Systems in
January 2014, in recognition of his efforts to help people save for retirement.
Mr. Wheeler also convened a bi-partisan roundtable in New York City of union
representatives, financial services leaders, and state treasurers to discuss
whether new options are needed to help workers save.
Washington
On January 17, 2014, HB 2474 was introduced by Representative Larry Springer in the Washington House of Representatives,
and Senator Mark Mullet introduced a companion bill, SB 6294, in the Senate. Hearings were held on the bill in
the House Appropriations Committee on January 28, 2014, and a
substitute bill passed the Committee on February 11 and was referred to the Rules
Committee. The Rules Committee passed the bill on February 14 and referred
it to the Senate Committee on Financial Institutions, Housing &
Insurance. This Committee referred the bill back to the House Rules
Committee for a third reading on March 13, 2014.
Wisconsin
On February 17, 2014, Senator Dave Hansen introduced SB 611, a bill creating a Wisconsin private retirement
security board that would study the feasibility of establishing a private
security retirement plan for private-sector workers and designing a plan to
submit to the legislature. The bill failed to pass before the legislature
adjourned for the year.
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