A number of states have approved initiatives for state-run plans for private sector employees.
Once approved, what is the process to get these plans to implementation, and how long does it take?
John Scott, director of retirement savings at Pew Charitable Trusts, who is based in Washington, D.C., tells PLANADVISER the devil is in the details. Sometimes the legislation has the details of the plan laid out, but some states will have to create a board to establish details of the plan. It depends on what the legislation says in a particular state.
Scott says the first step for plans just getting started will be to set up an administrative body. This may include some political appointees from the agencies directly involved and/or representatives from industry and employee groups. He speculates that within the state government, the administrative body will probably include someone from the State Treasury department and possibly a representative from the state’s public-sector pension. The state will have to set up a structure of governance and administration, Scott says. That may be in the bill, or the administrative body may have to establish documents.
The California Secure Choice Retirement Savings Act was signed into law last September. The California Secure Choice Retirement Savings Investment Board has already been established. The nine-member board is chaired by the State Treasurer and includes the State Controller, the Director of Finance, a small business representative, an individual with retirement savings and investment expertise, an employee representatives, a public member, and two additional members.
Ruth Holton-Hodson, senior policy adviser for health and retirement initiatives, based in Sacramento, tells PLANADVISER the first step they will take is to hire an executive director. They have received responses and will start interviewing people shortly; the hire may be someone from the private-sector or within the government.
Next, after approval by the board, they will issue a request for proposals (RFP) for consultants to help the state develop regulations and issue RFPs for a recordkeeper and investment managers. She says they may hire a recordkeeper to provide all services or do open architecture with a recordkeeper and also have third-party investment managers.
Scott says it is possible some states will assign someone in Treasury or from the public pension to make investment decisions, but he sees most plans outsourcing. “These are programs for private-sector workers, so having outside investment managers and recordkeeers gives credibility that this is completely apart from the state,” he says.
Holton-Hodson explains that California’s legislation just provides a framework for the plan in broad brush strokes. “Now we have to translate the legislation into regulations—going from the table of contents to precise content,” she says. According to Holton-Hodson, California officials will start this summer and it will take up to six months or more before the system is ready for implementation. “It will be a public, transparent process. Every stakeholder will have time to make comments.”
Holton-Hodson says California Secure Choice will be forming a business and advisory committee of employees and representatives to figure out the most effective way to design the program so it meets everyone’s needs. As part of the process, it will develop an investment policy. The Secure Choice statute does require that the program invest in either U.S. Treasuries or something similarly safe up to the first three years, she notes.NEXT: Communication and implementation
California Secure Choice is already communicating with employers. For one thing, Holton-Hodson explains, there are vendors telling employers that they have to comply now with the mandate to either provide a plan or participate in Secure Choice, and they are trying to sell product. Secure Choice is reaching out to business associations, the employment develop department and lobbyists that represent business associations to inform employers that the mandate is effective one year after implementation, which is expected to be in late 2018. The Secure Choice home page also says this.
She adds that once they have an idea of how the program will work, they will reach out to employers and employees about specifics.
Expecting implementation in late 2018 means the process from approval to implementation will take two years. This is similar to other programs that have been passed. The Oregon legislature passed its program in June 2015 and has recently announced rollout plans. Washington state approved its program in May 2015, and it is up and running as of 1/1/17. The Illinois program allows for a two-year implementation.
According to Holton-Hodson, although the California Secure Choice plan will be implemented in 2018, they are scheduling a phased rollout to employers— late 2019 for employers with 100 or more employees, late 2020 for employers with 50 or more and 2021 for everyone else. This is similar to how Oregon announced plans to rollout its program, Scott notes.
He feels this is the best approach, and hopes other states will take their time. They can learn from each rollout what to do differently in subsequent rollouts. In addition, he says, “The interesting thing to watch going forward is the extent to which states learn from each other. The first states can provide lessons for others. To the extent states can be as consistent as possible, they will be more efficient not only in operations but for employers that operate in several states.”
Holton-Hodson suspects that between late 2018 and late 2019, the Secure Choice program will get some participating employers voluntarily. “We will say we are open for business and hope employers will find it attractive,” she says. “A study found 75% of small business believe it will be effective for them.”
Holton-Hodson adds that Secure Choice is simple and exempt from the Employee Retirement Income Security Act (ERISA), so employers have no liability. Employers don’t have to vet providers or benchmark fees. And the state will draft materials for employers to give to employees.
Lastly, she notes that California Secure Choice’s process is open and transparent. Anyone who wants to follow and comment can go on its website and sign up to receive alerts.