Oregon State Treasury
350 Winter Street NW, Suite 100
Salem, OR 97301
RE: New Rules for the Oregon State Retirement Savings Plan
Ladies and Gentlemen:
The ERISA Industry Committee (“ERIC”) is pleased to respond to the request of the Oregon State Treasury for comments regarding rules on the Oregon State Retirement Savings Plan (“Proposed Rule”).
I.ERIC’S INTEREST IN THE ANNOUNCEMENT
ERIC is the only national association that advocates exclusively for large employers on health, retirement, and compensation public policies at the federal, state, and local levels. ERIC’s members provide comprehensive retirement benefits to tens of millions of active and retired workers and their families. ERIC has a strong interest in proposals that would impact its members’ ability to provide competitive retirement programs, such as this Proposed Rule.
ERIC supports efforts to enhance and promote retirement savings opportunities, including the establishment of state retirement plans. However, we oppose state rules that conflict with the framework and guidelines set forth under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA enables employers to tailor voluntary retirement plans that meet the needs of their workforce and sets forth the rules employers must follow. The ERISA framework preempts state regulation of employer-sponsored retirement plans, which allows employers with employees in more than one state to follow a uniform set of rules and regulations.
The Proposed Rule requests comments on whether other options should be considered for achieving the Proposed Rule’s substantive goals while reducing negative economic impacts of the Proposed Rule on business. ERIC appreciates the opportunity to provide comments. We share the same goal of increasing access to retirement plans for America’s workforce; however, we strongly encourage the State of Oregon not to adopt any final rules that increase the compliance burden on large employers already providing retirement benefits to their employees, or hinder large employers’ ability to design their own retirement plan that meets the needs of their business and workforce.
The overwhelming majority of tax-qualified retirement plans sponsored by ERIC’s members – employers who have on average more than 10,000 employees – are individually designed plans with complex plan designs that contain unique provisions reflective of individual company benefit priorities and culture. In addition, many large company retirement plans are tailored to meet the overall compensation and employee benefits goals of the company and are tailored to their industry, competitive environment, and the needs of their workers. As a result, ERIC member company retirement plans generally do not utilize one-size-fits-all enrollment timeframes, eligibility criteria, auto-enrollment features, or company contribution formulas. These plans comply with the federal ERISA law and should not be subject to state rules regarding eligibility and enrollment of plan participants.
ERIC appreciates the opportunity extended by the Oregon State Treasury to provide comments on ways in which the economic impact of the Proposed Rule can be decreased for large employers who already sponsor a tax-qualified retirement plan. In particular, ERIC appreciates the opportunity to comment on: (i) the rule requiring employers with a tax-qualified retirement plan to enroll all employees within 90-days of employment to receive an exemption, (ii) the definition of employee in the Proposed Rule; and (iii) the requirement of employers who sponsor a tax-qualified retirement plan to apply for a conditional exemption every three years.
II.SUMMARY OF COMMENTS
The following is a summary of ERIC’s comments, which are set forth in greater detail below:
- Plan sponsors of tax-qualified retirement plans should have the flexibility to implement an enrollment waiting period, in compliance with federal laws and regulations, which satisfies the employee benefits and compensation goals of the employer. We appreciate that, on February 10, 2017, the Oregon Retirement Savings Board distributed an email recognizing this concern.
- Defining employee with an age requirement of 18 years old is in direction contradiction of federal laws and regulations that allow an employer to wait until age 21 to allow an employee to enroll in the employer retirement plan. Further, employers should be able to limit participation in an employer retirement plan to full-time employees (employees who exceed 1,000 hours in a year) and not have to separately enroll other groups of non-eligible employees into the State Retirement Plan.
- Plan sponsors of tax-qualified retirement plans are already under an immense compliance burden. A mandate to apply for a conditional exemption every three years, and the threat of the requirements changing to receive the exemption at any point in time, will only decrease the likelihood of employers offering a quality retirement plan and could raise ERISA concerns for the State Retirement Plan.
- Overview.The employer-provided retirement system provides the bulwark of retirement security for working Americans. According to the Employee Benefits Research Institute’s 2016 Retirement Confidence Survey, 78% of workers are eligible to participate in an employer-sponsored retirement plan and 85% of those workers contribute to such a plan. A primary reason for the high participation rate in employer sponsored retirement plans is employer contributions. According to an Aon Hewitt Report published in 2015, 42% of employers now provide a dollar-for-dollar match to employees contributing to an employer sponsored retirement plan. And, numerous other plans provide either a matching contribution less than dollar-for-dollar or some other form of an employer contribution. In fact, the Plan Sponsor Council of America’s 59th Annual Survey of Profit Sharing and 401(k) Plans found that in 2015 only 3.8% of employer provided retirement plans did not offer a company contribution. As a result, it is important that state-based retirement plans protect the value provided by the current retirement plan system and avoid unnecessary changes that could result in likely unintended adverse consequences to the country and its workers and retirees.
It is also important that state-based retirement plans are structured in a way that will not result in the establishment of ERISA plans. In this respect, the U.S. Department of Labor (the “Department”) published a final regulation on August 30, 2016, providing a safe harbor for state payroll deduction savings programs with automatic enrollment that meet certain conditions (the “Safe Harbor”).1 In relevant part, the Safe Harbor provides that a state savings program will not fail to satisfy the conditions of the Safe Harbor merely because the program “is directed toward those employers that do not offer some other workplace savings arrangement.”2 In adopting this provision, the Department acknowledged concerns that state programs that focus on whether particular employees of an employer are eligible to participate in the employer’s retirement plan “could be overly burdensome for certain employers because they may have to monitor their obligations on an employee-by-employee basis, with some employees being enrolled in the state program, some in the workplace savings arrangement, and others migrating between the two arrangements.”3 Thus, the Safe Harbor clearly contemplates that employers who sponsor an ERISA retirement plan should be completely exempted from state payroll deduction savings programs, even if not all of the employer’s employees are eligible to participate in the employer’s retirement plan.
- 90-Day Enrollment Mandate.The Proposed Rule states that an employer who provides a retirement plan to employees must file for an exemption or conditional exemption if the employer offers the retirement plan to all or some of its employees within 90 days of hire. The addition of a 90-day requirement to the Proposed Rules is concerning to large employers who design their retirement plans with a range of eligibility dates, so long as the eligibility date is in compliance with federal laws and regulations.
The Employee Retirement Income Security Act of 1974 (ERISA) was passed into law to provide uniform minimum set of standards for employer sponsored benefit plans. As such, large employers that operate in a number of jurisdictions are able to design a retirement plan that allows employees in all 50 states to be eligible for the retirement plan without differing eligibility criteria based on residence. ERISA’s broad preemption of state laws that relate to employer-sponsored employee benefit plans was intended to serve precisely this purpose of uniform administration. The Department also recognized that “ERISA preempts state laws that:
(1) mandate employee benefit structures or their administration; (2) provide alternative enforcement mechanisms; or (3) bind employers or plan fiduciaries to particular choices or preclude uniform administrative practice, thereby functioning as a regulation of an ERISA plan itself.”4 Just last year, the U.S. Supreme Court also confirmed that “[p]re-emption is necessary to prevent the States from imposing novel, inconsistent, and burdensome reporting requirements on plans.” 5
With respect to eligibility to enroll in a tax-qualified retirement plan, ERISA Section 202(a) requires an employer to not restrict eligibility for the retirement plan beyond one year of service and attainment of age 21. Since the enactment of ERISA, employers have used Section 202(a) as a baseline for employee eligibility. Present day, employers have implemented eligibility criteria that ranges from immediate upon hire to upwards of one year. Each employer determines eligibility criteria based on the unique culture of the company and the market practices within the employer’s industry or region. In many instances, the eligibility to enroll in a retirement plan will coincide with the ability to receive employer contributions.
Mandating that an employer’s ERISA plan include a 90-day enrollment requirement in order for the employer to be exempt from a state payroll deduction savings program also implicates ERISA preemption, because such a requirement would not only mandate employee benefit structures, but, by binding employers to particular plan features, would function to regulate ERISA plans. Plan eligibility requirements are clearly an area of core ERISA concern.6
We respectfully request that the final rule remove the 90-day enrollment requirement and either remain silent or cross-reference ERISA Section 202(a) since most employer-sponsored retirement plans are subject to ERISA. If the 90-day enrollment language remains, it would be subject to challenges on ERISA preemption grounds since it would otherwise set a dangerous precedent that will subject employer-sponsored retirement plans already complying with ERISA to a variety of state rules as more states implement state-run retirement plans. If each state with a state-run retirement plan implements conflicting rules based on eligibility requirements of employer-sponsored plans, such rules would interfere with the uniform administration of employer sponsored plans in a manner that ERISA prohibits.
We appreciate the Oregon Retirement Board’s email of February 10, 2017, that seems to clarify the Proposed Rule’s position on the issue of waiting periods. The email notes that employer-sponsored plans often have waiting periods that last for as long as one year from an employee’s commencement of employment and provides that the Proposed Rule is “not intended to require businesses with waiting periods of more than 90 days for the employer plans to facilitate the state’s plan.” We understand this to mean that the plans sponsored by ERIC’s members will not have to change their enrollment periods to comply with the Oregon rule; instead, those employers can continue to operate their plans with waiting periods that comply with ERISA’s requirements regarding waiting periods. If we are misunderstanding the February 10 email, please let us know so that we can provide additional comments on this issue. We still propose that the language be removed from the proposed rule to ensure clarity on the issue.
- Definition of Employee. The Proposed Rule defines “employee” as anyone 18 years of age or older and in employment as defined under a separate Oregon statute. Similar to the issue above regarding waiting periods, this provision conflicts with the provisions of ERISA that allow employers to exclude employees from the employer’s retirement plan if the employee is less than age 21 or works less than 1,000 hours in a year. To assist those employers who currently sponsor a tax-qualified retirement plan that is subject to ERISA from being subject to different rules in different states and to ensure that the Oregon State Retirement Plan does not violate the Safe Harbor, we respectfully request that, similar to the waiting period issue described above, the Oregon Retirement Board exclude employers who sponsor plans with eligibility conditions that comply with ERISA from the requirement to facilitate the state’s plan.
Otherwise, we request that the definition in the Proposed Rule be revised to mirror ERISA Section 202(a). ERISA Section 202(a) allows an employer who provides a retirement plan to limit participation as late as attainment of age 21. If the Proposed Rule stands, confusion will ensue on whether employers who sponsor a tax-qualified retirement plan are able to receive a conditional exemption if they limit participation until attainment of age 21. In addition, some employers who sponsor a retirement plan will limit immediate eligibility to workers who have not satisfied an hours requirement (seasonal or temporary); similarly, plans may exclude collectively bargained employees unless their bargaining unit negotiates for their participation in the plan. A plan sponsor of a retirement plan should not be forced to alter their plan to increase coverage to other groups of employees (i.e. temporary or seasonal workers who work less than 1,000 a year or collectively bargained employees whose bargaining unit does not bargain for participation) if it is not a market practice to provide such a benefit to a specific group. The Proposed Rule signals that the State of Oregon may change the rules in the future on receiving a conditional exemption, which could mean additional groups of employees must be enrolled in the employer plan or auto-enrolled into the State Retirement Plan.
As noted above, mandating that an employer’s ERISA plan meet certain eligibility requirements in order for the employer to be exempt from a state payroll deduction savings program also implicates ERISA preemption. Plan eligibility requirements are clearly an area of core ERISA concern. Such a requirement would not only mandate employee benefit structures, but, by binding employers to particular plan features, would function to regulate ERISA plans, and would therefore be subject to challenges based on ERISA preemption grounds.
If an employer who sponsors a tax-qualified retirement plan limits enrollment until attainment of age 21 and excludes certain groups of employees based on hours worked, but must enroll those excluded into the Oregon State Retirement Plan, the Oregon State Retirement Plan would not satisfy the conditions of the Safe Harbor7 and could be deemed to be pre-empted by ERISA. In addition, the increase in compliance may lead employers to close their employer plan (a plan that most likely provides a generous matching contribution) in favor of the Oregon State Retirement Plan. We respectfully request that Division 15 of the Proposed Rule be amended to state that an employer provided retirement plan in compliance with ERISA is automatically exempt and employees ineligible for the employer plan do not need to be enrolled into the Oregon State Retirement Plan. In the alternative, we request that the definition of employee is clearly defined to more closely track federal law by including only those employees who work 1,000 hours in a year (and attained age 21) and explicitly excludes temporary or seasonal workers who work less than 1,000 hours a year, independent contractors, and collectively bargained employees whose bargaining units do not successfully bargain for participation. In addition, further clarification is needed on whether the employee must reside in the State of Oregon or complete primary work solely in the State of Oregon.
- Conditional Exemption. Based on the definition of employee in the Proposed Rule, it is unlikely that any large employer provides a retirement plan to “ALL” employees, considering most large employers will exclude temporary or seasonal employees, independent contractors, and certain collectively bargained employees from the employer’s tax-qualified retirement plan. Therefore, large employers will need to file for a conditional exemption, according to the Proposed Rule. The language in Division 15 of the Proposed Rule states an employer will need to re-apply every three years for a conditional exemption, list the employees excluded from the tax-qualified retirement plan, and potentially register under the Oregon plan at a later time. Due to the compliance burden involved with the filing of an exemption and the lack of certainty the Proposed Rule provides to an employer who already offers a retirement plan to certain employees, we respectfully request that the Proposed Rule automatically exempt employers from the mandate if the employer provides a tax-qualified plan (satisfies ERISA laws and regulations). If the State of Oregon believes it is necessary to audit whether an employer provides a tax-qualified retirement plan to employees, the employer already files several public documents to federal agencies each year that can confirm the existence of a tax-qualified retirement plan. In addition, employers should not be required to report the employees who are not eligible for the employer’s plan as part of the exemption process because “reporting is a principal and essential feature of ERISA.”8
Ultimately, we share your goal of increasing retirement access to employees who are employed at an employer that does not provide a retirement plan. We fully understand that employers who do not provide a retirement plan are concerned about the legal risks, costs, and administrative burden of operating a plan. The Oregon State Retirement Plan will hopefully alleviate those concerns. But, for employers that already provide a retirement plan, it is important that they be able to design plans that work effectively and efficiently based on the needs of their workforces and the industries in which they operate. Rules that are too onerous or restrictive can chill an employer’s commitment to offer a retirement plan.
ERIC appreciates the opportunity to provide comments on the Proposed Rule. If you have any questions concerning our comments, or if we can be of further assistance, please contact us at (202) 789-1400 or whansen@ERIC.org.
Senior Vice President, Retirement Policy
1 Savings Arrangements Established by State for Non-Governmental Employees, 81 Fed. Reg. 59,464 (Aug. 30, 2016) (codified at 29 C.F.R. § 2510.3-2(h)).
2 29 C.F.R. § 2510.3-2(h)(2)(i).
3 81 Fed. Reg., at 59,468.
4 80 Fed. Reg., at 72007, citing New York State Conference of Blue Cross & Blue Shield Plans v. Travelers, 514 U.S. 645, 658 (1995); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990); Egelhoff v. Egelhoff, 532 U.S. 141,
148 (2001); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 14 (1987).
5 See, e.g., Gobeille v. Liberty Mutual Insurance Co.,136 S. Ct. 936 (2016) (“Pre-emption is necessary to prevent the States from imposing novel, inconsistent, and burdensome reporting requirements on plans.”)
6 See, ERISA § 202 (setting minimum participation standards for ERISA plans).
7 See 29 C.F.R. § 2510.3-2(h)(2)(i).
8 Gobeille v. Liberty Mutual Insurance Co.,136 S. Ct. 936 (2016) (finding that ERISA preempted a state law requiring reporting of certain information by employer-sponsored employee benefit plans).