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August 25, 2016

DOL publishes new guidance for state IRAs in workplace

The U.S. Department of Labor on Thursday published a final rule that assists states in creating individual retirement account (IRA) programs for workers without access to such workplace perks, and Connecticut is pleased to see it, the state’s comptroller said.

The final federal rule guides states in designing retirement-account programs by providing states a safe harbor from the Employee Retirement Income Security Act’s coverage to reduce the risk of preemption of the relevant state laws. The rule also ensures that workers have the ability to opt out of auto-enrollment arrangements.

Connecticut is one of eight of states that has already established a new state law on the matter. This past legislative session, lawmakers passed and Gov. Dannel P. Malloy signed into law a Connecticut Retirement Security program, which will establish Roth IRAs for eligible private-sector employees. It is scheduled to be implemented by Jan. 2018, according to State Comptroller Kevin Lembo.

That state law “conformed to the DOL’s proposed rule with the goal of constructing a program that would stand up to federal scrutiny,” Lembo said. “Today’s ruling reaffirms that our efforts were successful.”

“I am thankful that the Department of Labor has taken this necessary step to ensure the 600,000 Connecticut workers without access to a workplace retirement saving option will have a strong plan in place going forward,” Lembo said.

As the state law stands, employers who have five or more employees and do not offer any retirement-savings options will be required to offer either the state program, or select a retirement-savings option from the private market, Lembo told the Hartford Business Journal in June.

At the same time that DOL is publishing its new rule, the department is making public a proposed rule that could facilitate a limited number of cities and other local governments also setting up such workplace programs.
The DOL acknowledged in its announcement Thursday that uncertainty over the application of the ERISA’s preemption provisions and impact on state programs has proven to be a roadblock to broader adoption of these IRA programs at the state level.

The new federal rule will go into effect 60 days after its publication in the Federal Register.

Lembo said he and his staff and attorneys will study the new rule’s impact on the state program and make sure that state program meets the new federal standards.

 

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