State Sponsored Automatic IRAs Are Underway

May 23, 2018

Ira discussion

We’ve all heard the message that Americans are not saving enough for retirement. Now, several states are trying to change that by mandating that employers offer retirement programs. So far, these programs have been structured by requiring employers facilitate deductions from employees’ paychecks if they do not already have a retirement plan. No one is requiring monetary contributions of any type from employers, either towards the program directly or as part of administrative fees.

Oregon was the first state to rollout it’s automatic IRA system. Employers in Oregon now have a tiered deadline (based on number of Oregon employees) in which they must register with OregonSaves, the state’s IRA program. Employers can opt out if certified they have an internal employee retirement program already in place. Once an employer is registered for OregonSaves, its employees will automatically be enrolled and have 5% of their pay taken out (with automatic 1% increases each year) and contributed to the state’s Roth IRA program. Employees are then free to opt-out or adjust their contribution rate. Currently, only employers with 100 or more employees working in Oregon are required to register their employees. The next deadline is fast approaching, employees with 50-99 employees need to register or submit their waiver by May 15, 2018. The remainder will continue to rollout through 2020:

  • 20-49 employees: December 15, 2018
  • 10-19 employees: May 15, 2019
  • 5-9 employees: November 15, 2019
  • 4 or fewer employees: May 15, 2020

Illinois and California are the next two states set to get their automatic IRA programs up and running. Illinois Secure Choice is set to launch this year and California Secure Choice is anticipating a 2019 launch. We anticipate more specific details on these programs in the coming months. Several other states have programs in the works, including Connecticut and Maryland. Meanwhile, New Jersey and Washington State are developing voluntary open-markets that employees can opt-in to.

Attempts to Shutdown State IRA programs

Last year, Congress repealed an Obama era U.S. Department of Labor rule that exempted state-run IRA plans from the Employee Retirement Income Security Act (ERISA). However, it is not clear what the exact impact of this decision may be. Thus far, the only impact appears to be a rather technical one; large employers in Oregon who already offer retirement programs have sued the state arguing ERISA preempts the Oregon law and they should not have to follow the law requiring them to re-certify their retirement program every three years. This suit is unlikely to halt the OregonSaves rollout.

Employers in states where IRA laws have been passed will want to pay close attention to the Oregon rollout, as well as the rollout in their own states. Other states will likely follow Oregon if their plan continues to avoid legal challenges.

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