Oregon is the first state to put the onus on employers to automatically enroll employees in a state-run retirement program (also known as “Auto-IRA”) called OregonSaves. Once enrolled at the mandated 5% of gross pay, employees have the flexibility to opt-out or change their contribution percentage to suit their personal goals.
Under Oregon’s phased implementation plan, the rules go into effect in “waves” based on employer size. The first wave includes any employer with 100 or more Oregon-based employees (based on its most recently filed Oregon Quarterly Tax Report).
Currently, employers that offer an IRS-qualified retirement plan are not required to use OregonSaves, even if their plan does not cover all employees. The state may revise this rule in the future.
Four other states have enacted legislation requiring mandatory employer participation in a state retirement program: California, Connecticut, Illinois and Maryland. California and Illinois are currently developing regulations and both plan to use a phased implementation schedule, but neither have published detailed roll-out dates.
Several cities – New York City, Philadelphia and Seattle - proposed Auto-IRA programs in 2017 as well.
Progress stalled for some legislative and regulatory activity when the Trump administration overturned two Department of Labor rules. The rules would have cleared the path for state and large municipal retirement programs by exempting them from the Employment Retirement Income Security Act (ERISA), which provides for federal preemption over state and local retirement laws.
The states moving forward with implementation believe they have a firm legal basis that their programs are (or will be) designed in a way that will not subject employers to ERISA. From an overall industry standpoint, however, the ERISA implications of state auto-IRAs remain controversial.
On Oct. 12, The ERISA Industry Committee (ERIC) filed a complaint against the Oregon Retirement Savings Board in the U.S. District Court of Oregon.
Although an ERISA challenge was widely expected due to industry concerns – such as the effect of state-run plans on the private sector, the lack of ERISA protections for participants, and the potential burden on multi-state employers – the scope of ERIC’s complaint is quite narrow. It requests an injunction on only: “the OregonSaves reporting requirement that applies to employers that already offer a qualified plan.” ERIC cites that the unnecessary reporting requirements infringe on employers’ ability to offer ERISA-qualified retirement plans.
Oregon State Treasurer Tobias Read responded in an email statement, “We have worked with companies in Oregon to be deliberate to ensure OregonSaves is simple, smart and works well for everybody, because the bottom line is that we want to make it easy to save. That’s the right thing to do.”
Interestingly, the question of whether employee participation in an auto-IRA is “completely voluntary” (one requirement for employer-funded IRAs to qualify for ERISA safe harbor) was not challenged – at least in this case. As a matter of fact, ERIC states on its What You Need to Know page that it supports state plans, but only if such programs do not infringe on an employer that already provides a retirement plan.
It remains to be seen whether additional challenges are forthcoming.
The state sent notices to employers with 100 or more Oregon employees (Wave 1) in October. These employers have until Nov. 15 to either register to facilitate OregonSaves or certify that they are exempt from the program.
Registered employers must then provide certain employee data to the state so they can set up employee accounts. The third-party state plan administrator will use this data to initiate employee enrollment.
Treasurer Read confirmed, “The lawsuit does not change the current trajectory for OregonSaves. We are on track to open the registration window on Oct. 15 [through Nov. 15] for the first wave of employers. Should circumstances change, we will communicate more information.”
OregonSaves will roll out to smaller businesses according to the timeline detailed on the OregonSaves employer portal.
Interested in learning more about state retirement programs?
Disclaimer: The information provided in this post is provided for informational purposes only and should not be relied upon or construed as legal advice and does not create an attorney-client relationship. You should review with your legal advisors how the laws identified in this post may apply to your specific situation.