ERISA Safe Harbor Introduced for Municipally Sponsored IRAs

The DOL and EBSA announced a final rule to assist large cities and other political subdivisions establish payroll deduction IRAs for private-sector workers.

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) revealed a final rule to assist large cities and other political subdivisions as they establish payroll deduction individual retirement account (IRA) savings programs for workers who do not have access to workplace savings arrangements.

The rule adds to and amends a similar rule related to state-based savings initiatives published earlier in 2016, further opening up the number of government entities eligible to establish IRAs for private-sector workers. 

“More workers saving for retirement now means more financially secure retirees in the future,” notes outgoing U.S. Secretary of Labor Thomas E. Perez. “This is good for workers and families trying to build their nest eggs, and good for the long-term strength of the economy.”

Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi adds that “there is no silver bullet when it comes to solving the retirement savings issues facing workers and our nation. Increasing access to savings opportunities, improving transparency and reducing conflicts of interest in investment advice are all critically important policy tools that this administration has pursued.”

According to Borzi and Perez, the final rule published today provides additional guidance for eligible cities and other political subdivisions to help them design IRA programs “by providing a safe harbor describing circumstances in which an employer’s actions in complying with the municipal law do not result in the creation of an Employee Retirement Income Security Act compliant plan.”

As such, the safe harbor will reduce the risk of ERISA preemption of the relevant municipal laws.

NEXT: Details from the latest DOL rulemaking 

According to the DOL and EBSA, by establishing a clear standard, the new rule will also provide greater predictability and certainty to municipalities considering action around implementing IRAs for private-industry workers.

“Importantly, the rule also protects workers’ rights by ensuring they have the ability to opt out of auto-enrollment arrangements,” Borzi says. The rule will go into effect 30 days after its pending publication in the Federal Register.

Under the final rule, a limited number of cities and other political subdivisions, defined as “those with populations at least as large as that of the least populous of the 50 states, that are located in a state that does not already have a payroll deduction IRA plan of its own, that have experience sponsoring a plan for employees, and that meet other criteria laid out in the final rule,” are eligible to enact such a program.

Representatives from three cities—New York, Philadelphia and Seattle—have publicly expressed interest in potentially establishing programs.

The final rule will be published in an upcoming issue of the Federal Register and can also be viewed here. A fact sheet is available here.