New ERISA safe harbor for municipally sponsored IRAs

WASHINGTON – Increasing access to retirement savings opportunities is the surest way to help more of America’s workers secure their financial futures. Today, the U.S. Department of Labor’s Employee Benefits Security Administration is announcing a final rule to assist large cities and other political subdivisions that establish payroll deduction individual retirement account savings programs for workers who do not have access to workplace savings arrangements. The rule amends a similar rule related to state savings initiatives published earlier in 2016.

“More workers saving for retirement now means more financially secure retirees in the future,” said 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.”

“We have said many times 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,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “We hope that today’s rule increasing access to savings opportunities will add to the tools available for working people who want to save for retirement.”

The final rule provides guidance for eligible cities and other political subdivisions to help them design 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. The safe harbor will reduce the risk of ERISA preemption of the relevant municipal laws. By establishing a clear standard, it will also provide certainty to municipalities considering action. Importantly, the rule also protects workers’ rights by ensuring they have the ability to opt out of auto-enrollment arrangements. The rule will go into effect 30 days after its publication in the Federal Register.

Under the final rule, a limited number of cities and other political subdivisions – 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.