Soon, retirement is going to be largely funded by the individual rather than an employer. What does this mean for the 27% of workers who don’t have access to an employer-sponsored defined contribution plan?
In 2016, the Employee Benefits Security Administration of the U.S. Department of Labor (DOL) released a final rule that provided a safe harbor for state payroll deduction individual retirement accounts from ERISA coverage. This change offered protection for workers’ rights by ensuring that employees are notified and given sufficient time to opt out of participation. In 2017, Congress overrode the DOL’s action, repealed the rule, and made it easier for state-run plans to exist.
The ERISA exemption would have permitted employers to avoid state mandates in benefit plans because they offer the savings plan under federal pension law.
Despite Congress repealing the action, California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Oregon, and Washington state have already enacted legislation to establish a state-run defined contribution (DC) plan. And over 30 states have considered such legislation.
In this article, Milliman’s Darlene Laursen Medrano and Jinnie Olson discuss the possible effects of a state-run plan on participants and employers and outline what an ideal plan design would include.