Congress to repeal payroll deduction savings plans rules

The House has introduced resolutions and to nullify final Department of Labor regulations (29 C.F.R. §2510.3-2(a)) that permitted states and cities to create payroll-deduction individual retirement account (IRA) programs for private-sector workers who do not have access to workplace savings arrangements. The regulations created safe harbor rules in which such programs will not have been subject to the Employee Retirement Income Security Act (ERISA). The regulations regarding state-sponsored programs carried an October 31, 2016, effective date, while the rules for programs sponsored by cities and other state political subdivision took effect on January 19, 2017. However, both rules apparently fall within the 60-legislative-day window for congressional review. The House has passed its two resolutions and has sent them to the Senate.


Questions had been raised that ERISA could preempt—and, thus, nullify—a state law that requires employers to establish an employee benefit plan administered by the state. Moreover, even if the state law was not preempted, employers could potentially be deemed to have “established or maintained” employee benefit plans subject to ERISA—thus, exposing employers to the full panoply of ERISA rules and regulations, including fiduciary liability, recordkeeping, reporting, and nondiscrimination requirements. To address the problem, new regulations were issued providing that ERISA plans could not include an IRA established and maintained pursuant to a state payroll deduction program that meets specified requirements. Under the new rules, employee participation in the program had to be “voluntary”—but not “completely voluntary.” Thus, if the program required automatic enrollment, employees must be given adequate advance notice and have the right to opt out.

On the other hand, the employer’s participation had to be involuntary. The regulations provided that employer participation in the program must be required by state law. Moreover, the employer’s activities were required to be limited to ministerial activities, such as collecting payroll deductions and remitting them to the program. The employer could distribute program information from the state program to employees. In addition, the employer could maintain records of the payroll deductions and remittance of payments and could provide information to the state necessary for the operation of the program. However, the employer could not contribute employer funds to the IRAs. (H.J. Res. 66, passed House 2/15/2017; H.J. Res. 67, passed House 2/16/2017; S.J. Res. 32, March 6, 2017; S.J. 33, March 6, 2017.)

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