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The Department proposes to amend a regulation (29 CFR 2510.3-2(h)) that describes how states may design and operate payroll deduction savings programs, using automatic enrollment, for private-sector employees without causing the states or private-sector employers to establish employee pension benefit plans under the Employee Retirement Income Security Act of 1974. The proposed amendments would expand the current regulation to cover programs of political subdivisions of states that otherwise comply with the current regulation.  

Statement of Need:

On November 18, 2015, the Department published in the Federal Register a proposed safe harbor regulation describing specific circumstances in which state (but not state political subdivisions, such as cities and counties) payroll deduction savings programs with automatic enrollment would not give rise to the establishment of employee pension benefit plans under the Employee Retirement Income Security Act of 1974, as amended (ERISA). Several commenters on that proposal asserted that the scope of the safe harbor regulation was too narrow and requested that the Department broaden it beyond states to cover payroll deduction savings programs of state political subdivisions, such as counties and cities. hese commenters asserted that such an expansion would promote broader access to workplace retirement savings opportunities for employees, especially in states that do not themselves establish state-level programs but do have political subdivisions that would be willing to do so. The Department agrees with commenters that there may be good reasons for expanding the safe harbor to cover political subdivisions. Accordingly, on August 30, 2016, the Department published a notice of proposed rulemaking soliciting further comments on whether and how the safe harbor should be expanded to state political subdivisions.

Summary of the Legal Basis:

Section 505 of ERISA, 29 U.S.C. 1135, provides the Secretary of Labor with broad authority to prescribe such regulations as he finds necessary and appropriate to carry out the provisions of Title I of the Act.  Section 3(2) of ERISA, 29 U.S.C. 1002, defines the term employee pension benefit plan. The Department’s regulations at 29 CFR 2510.3-2 clarify the term employee pension benefit plan by identifying certain specific plans, funds and programs that do not constitute employee pension benefit plans.

Alternatives:

The notice of proposed rulemaking would expand the safe harbor to cover payroll deduction savings programs of a limited number of large (in terms of population) cities and other political subdivisions. The Department considered three alternative criteria suggested by commenters that it could use to narrow the universe of eligible political subdivisions. The first suggested alternative criterion is that a political subdivision would have a population equal to or greater than the population of the least populous state. The second suggested alternative criterion is that the state in which the political subdivision exists does not have a state-wide retirement savings program for private-sector employees. The third suggested alternative criterion is that a political subdivision would have demonstrated capacity to design and operate a payroll deduction savings program, such as by maintaining a pension plan with substantial assets for employees of the political subdivision. All of these alternatives are under consideration. In addition, the Department will consider other alternatives presented by commenters.

Anticipated Costs and Benefits:

In analyzing benefits and costs associated with this proposed rule, the Department focuses on the direct effects, which include both benefits and costs directly attributable to the rule. These benefits and costs are limited, because as stated above, the proposed rule would merely establish a safe harbor describing the circumstances under which a qualified political subdivision with authority under state law could establish payroll deduction savings programs that would not give rise to ERISA-covered employee pension benefit plans. It does not require qualified political subdivisions to take any actions nor employers to provide any retirement savings programs to their employees. The Department also addresses indirect effects associated with the proposed rule, which include:  (1) Potential benefits and costs directly associated with the requirements of qualified political subdivision payroll deduction savings programs; and (2) the potential increase in retirement savings and potential cost burden imposed on covered employers to comply with the requirements of such programs. Indirect effects vary by qualified political subdivisions depending on their program requirements and the degree to which the proposed rule might influence political subdivisions to design their payroll deduction savings programs.

Risks:

Undetermined.