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As the first state-sponsored retirement savings program rolls out in Oregon, here's what employers in Oregon and other states that are planning such programs should know.
"We are pioneers and understand the world is watching," said Scott Morrison, chief product officer at Ascensus, the Oregon plan's administrator. "Folks from the HR industry, financial services companies and other states will be looking at the Oregon plan as the blueprint for these programs."
The Oregon Retirement Savings Program—which is commonly referred to as OregonSaves— is an automatic individual retirement account (auto-IRA) arrangement through which deductions will be made from employee wages each pay period.
Only employers that don't offer their own retirement savings plans will be required to participate and to automatically enroll employees. Workers will have 30 days to opt out of the program, and they may also adjust the amount that is invested from the default rate of 5 percent.
[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]
Though Oregon was the first state to roll out auto-IRAs, other states are in the planning process—such as California, Connecticut, Illinois and Maryland. Employers doing business in these states may eventually be subject to different programs in different states for different employees. They will need to ensure that they are aware of the various statutory and regulatory state-plan rules for each applicable location, said Dominic DeMatties, an attorney with Alston & Bird in Washington, D.C.
"Employers that are subject to state-run programs must take steps to ensure they understand whether and when they are subject to the program," he said.
The best approach is to be aware of the evolving rules and requirements and to meet registration deadlines, noted Kirsten Stewart, an attorney with Sherman & Howard in Denver. "In Oregon, it appears that the state has tried to streamline the process and will provide a good deal of technical assistance."
Ascensus ran a series of pilot programs in 2017, Morrison explained. It started with 11 employers for the first pilot in July and expanded in subsequent pilots. OregonSaves is now prepared for the first wave of large employers, he said.
Businesses with 100 or more employees were required to register by Nov. 15. Phased-in registration deadlines for smaller employers will be as follows:
Workers are more likely to save for retirement if they can do so through their employer, but nearly half of employees don't have access to an employer plan, such as a 401(k), Morrison said. He noted that the median business that falls under the mandate has four employees.
"So it's very important to have an easy website interface and make it really simple for small business owners to go in every week, make changes as necessary, click a button and be done," he said. "We really tried to reduce it down to a process that takes a few minutes per pay cycle and is simple to administer."
Employers will have some administrative responsibilities, however. Employers that fall under the mandate will need to facilitate contributions, complete an enrollment process and provide data on participating employees, Stewart said. There is also a notice requirement that employers need to meet.
It's important to note that an employer can't make its own contributions on behalf of employees—only contributions from employees' compensation are permitted. Contributions have to be forwarded within seven days, and changes in elections need to be monitored and followed.
Employers should designate an individual at the company who will be responsible for facilitating the program, DeMatties said.
Narrow Legal Challenge
Although employers that already offer workers a retirement savings plan don't have to participate in OregonSaves, they do have to certify that they offer a plan.
On Oct. 12, the ERISA Industry Committee filed a lawsuit against the Oregon Retirement Savings Board, claiming that this requirement violates the federal Employee Retirement Income Security Act (ERISA). The committee requested an injunction to block the reporting rule.
"While the complaint is narrowly focused on the technical argument that plan reporting is a core ERISA function governed exclusively by federal law, the practical implications for employers are the uncertainty and administrative complexity surrounding compliance with state-sponsored retirement savings plans, especially as more states implement them," DeMatties said.
"Companies that offer a retirement plan—particularly if they have employees in multiple states—are concerned about the imposition of a series of state-specific compliance and reporting burdens, including added costs and potential penalties for mistakes, on top of existing federal requirements," he added.
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