80 FR 72006 - Savings Arrangements Established by States for Non-Governmental Employees
DEPARTMENT OF LABOR
Employee Benefits Security Administration Federal Register Volume 80, Issue 222 (November 18, 2015)
Employee Benefits Security Administration
Federal Register Volume 80, Issue 222 (November 18, 2015)
| Page Range | 72006-72014 | |
| FR Document | 2015-29426 |
[Federal Register Volume 80, Number 222 (Wednesday, November 18, 2015)] [Proposed Rules] [Pages 72006-72014] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-29426] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2510 RIN 1210-AB71 Savings Arrangements Established by States for Non-Governmental Employees AGENCY: Employee Benefits Security Administration, Department of Labor. ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: This document contains a proposed regulation under the Employee Retirement Income Security Act of 1974 (ERISA) setting forth a safe harbor describing circumstances in which a payroll deduction savings program, including one with automatic enrollment, would not give rise to an employee pension benefit plan under ERISA. A program described in this proposal would be established and maintained by a state government, and state law would require certain private-sector employers to make the program available to their employees. Several states are considering or have adopted measures to increase access to payroll deduction savings for individuals employed or residing in their jurisdictions. By making clear that state payroll deduction savings programs with automatic enrollment that conform to the safe harbor in this proposal do not establish ERISA plans, the objective of the safe harbor is to reduce the risk of such state programs being preempted if they were ever challenged. If adopted, this rule would affect individuals and employers subject to such laws. DATES: Written comments should be received by the Department of Labor on or before January 19, 2016. ADDRESSES: You may submit comments, identified by RIN 1210-AB71, by one of the following methods:Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. Email: e-ORI@dol.gov. Include RIN 1210-AB71 in the subject line of the message. Mail: Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention: State Savings Arrangements Safe Harbor. Instructions: All submissions must include the agency name and Regulatory Identification Number (RIN) for this rulemaking. Persons submitting comments electronically are encouraged to submit only by one electronic method and not to submit paper copies. Comments will be available to the public, without charge, online at www.regulations.gov and www.dol.gov/ebsa and at the Public Disclosure Room, Employee Benefits Security Administration, U.S. Department of Labor, Suite N- 1513, 200 Constitution Avenue NW., Washington, DC 20210. WARNING: Do not include any personally identifiable or confidential business information that you do not want publicly disclosed. Comments are public records and are posted on the Internet as received, and can be retrieved by most internet search engines. FOR FURTHER INFORMATION CONTACT: Janet Song, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693- 8500; or Jim Craig, Office of the Solicitor, Plan Benefits Security Division, (202) 693-5600. These are not toll-free numbers. SUPPLEMENTARY INFORMATION: A. Background Approximately 68 million US employees do not have access to a retirement savings plan through their employers.\1\ For older Americans, [[Page 72007]] inadequate retirement savings can mean sacrificing or skimping on food, housing, health care, transportation, and other necessities. Inadequate retirement savings place greater stress on state and federal social welfare programs as guaranteed sources of income and economic security for older Americans. Accordingly, states have a substantial governmental interest in taking steps to address the problem and protect the economic security of their residents.\2\ Concerned over the low rate of saving among American workers, some state governments have already sought to expand access to savings programs for their residents and other individuals employed in their jurisdictions by creating their own programs and requiring employer participation.\3\ --------------------------------------------------------------------------- \1\ Copeland, Craig, Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2013, Employee Benefit Research Institute, Issue Brief No. 405 (October 2014) (available at www.ebri.org). \2\ See Christian E. Weller, Ph.D., Nari Rhee, Ph.D., and Carolyn Arcand, Financial Security Scorecard: A State-by-State Analysis of Economic Pressures Facing Future Retirees, National Institute on Retirement Security (March 2014) (www.nirsonline.org/index.php?option=com_content&task=view&id=830&Itemid=48). \3\ See, for example, Report of the Governor's Task Force to Ensure Retirement Security for All Marylanders, Kathleen Kennedy Townsend, Chair, 1,000,000 of Our Neighbors at Risk: Improving Retirement Security for Marylanders (2015). The Georgetown University Center for Retirement Initiatives (CRI) of the McCourt School of Public Policy has compiled a ``50 state survey'' providing information on state legislation that would establish state- sponsored retirement savings plans at http://cri.georgetown.edu/states/. The stated mission of the CRI is ``[to] strengthen the retirement security of American families by developing and promoting the bipartisan adoption of innovative state policies, legislation and administrative models, such as pooled and professionally managed funds, which will expand the availability and effectiveness of retirement solutions.'' --------------------------------------------------------------------------- 1. State Payroll Deduction Savings Initiatives One approach some states have taken is to establish state payroll deduction savings initiatives. Such programs encourage employees to establish tax-favored individual retirement plans (IRAs) funded by payroll deductions. Oregon, Illinois, and California, for example, have adopted laws along these lines.\4\ These initiatives generally require specified employers that do not offer workplace savings arrangements to deduct amounts from their employees' paychecks in order that those amounts may be remitted to state-administered IRAs for the employees. Typically, with automatic enrollment, the states would require that the employer deduct specified amounts on behalf of the employee, unless the employee affirmatively elects not to participate. As a rule, employees can stop the payroll deductions at any time. The programs, as currently designed, do not require, provide for or permit employers to make matching or other contributions of their own into the employees' accounts. In addition, the state initiatives typically require that employers act as a conduit for information regarding the program, including disclosure of employees' rights and various program features, often based on state-prepared materials. --------------------------------------------------------------------------- \4\ Illinois Secure Choice Savings Program Act, 2014 Ill. Legis. Serv. P.A. 98-1150 (S.B. 2758) (West); California Secure Choice Retirement Savings Act, 2012 Cal. Legis. Serv. Ch. 734 (S.B. 1234) (West); Oregon 2015 Session Laws, Ch. 557 (H.B. 2960) (June 2015). --------------------------------------------------------------------------- 2. ERISA's Regulation of Employee Benefit Plans ERISA defines the terms ``employee pension benefit plan'' and ``pension plan'' broadly to mean, in relevant part: Any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program-- [cir] provides retirement income to employees, or [cir] results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan. 29 U.S.C. 1002(2)(A). The provisions of Title I of ERISA, ``shall apply to any employee benefit plan if it is established or maintained . . . by any employer engaged in commerce or in any industry or activity affecting commerce.'' \5\ 29 U.S.C. 1003(a). \5\ ERISA includes several express exemptions in section 4(b) from coverage under Title I, for example, for pension plans established or maintained by governmental entities or churches for their employees, certain foreign plans, unfunded excess benefit plans, and plans maintained solely to comply with applicable state laws regarding workers compensation, unemployment, or disability. 29 U.S.C. 1003(b). --------------------------------------------------------------------------- Despite the express intent of the drafters of those state statutes not to have such a result, some have expressed concern that payroll deduction programs, such as those enacted in Oregon, California and Illinois, may cause employers to establish ERISA-covered plans inadvertently. The Department and the courts have interpreted the term ``established or maintained'' as requiring minimal involvement by the employer or employee organization to trigger the protections of ERISA coverage. For example, an employer may establish a benefit plan by purchasing insurance products for individual employees.\6\ Moreover, retirement savings programs involving IRAs also fall within the broad definition of pension plan when those programs are established or maintained by an employer or employee organization.\7\ --------------------------------------------------------------------------- \6\ Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982); Harding v. Provident Life and Accident Ins. Co., 809 F. Supp. 2d 403, 415-419 (W.D. Pa. 2011); DOL Adv. Op. 94-22A (July 1, 1994). \7\ ERISA section 404(c)(2) (simple retirement accounts); 29 CFR 2510.3-2(d) (safe harbor for certain payroll deduction individual retirement accounts); 29 CFR 2509-99-1 (interpretive bulletin on payroll deduction IRAs); Cline v. The Industrial Maintenance Engineering & Contracting Co., 200 F.3d 1223, 1230-31 (9th Cir. 2000). --------------------------------------------------------------------------- Pension plans covered by ERISA are subject to various statutory and regulatory requirements to protect the interests of the plan participants. These include reporting and disclosure rules and stringent conduct standards derived from trust law for plan fiduciaries. In addition, ERISA expressly prohibits certain transactions involving plans unless a statutory or administrative exemption applies. Moreover, in order to assure nationwide uniformity of treatment, ERISA places the regulation of private-sector employee benefit plans (including employment-based pension plans) under federal jurisdiction. Section 514(a) of ERISA, 29 U.S.C. 1144(a), provides that the Act ``shall supersede any and all State laws insofar as they . . . relate to any employee benefit plan'' covered by the statute. The U.S. Supreme Court has long held that ``[a] law `relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.'' Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983) (footnote omitted). In various decisions, the Court has concluded 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.\8\ --------------------------------------------------------------------------- \8\ New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 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). --------------------------------------------------------------------------- IRAs generally are not established or maintained by employers or employee organizations, and ERISA coverage is contingent on an employer (or employee organization) establishing or maintaining the arrangement. 29 U.S.C. 1002(1)-(2). The Internal Revenue Code is the principal federal law that governs [[Page 72008]] such IRAs. The Code includes prohibited transaction provisions (very similar to those in ERISA), which are primarily enforced through imposition of excise taxes against IRA fiduciaries by the Internal Revenue Service. 26 U.S.C. 4975. In other contexts, the Department has provided guidance to help employers determine whether their involvement in voluntary payroll deduction arrangements for sending employee retirement savings contributions to IRAs would amount to establishing or maintaining ERISA-covered plans. For example, in 1975, the Department promulgated a safe harbor regulation to clarify the circumstances under which IRAs funded by payroll deductions would not be treated as ERISA plans. 29 CFR 2510.3-2(d); 40 FR 34,526 (Aug. 15, 1975). This safe harbor is part of a more general regulation that ``clarifies the limits of the defined terms `employee pension benefit plan' and `pension plan' for purposes of title I of the Act . . . by identifying specific plans, funds and programs which do not constitute employee pension benefit plans for those purposes.'' 29 CFR 2510.3-2(a). Other similar safe harbors were published in the same Federal Register notice.\9\ --------------------------------------------------------------------------- \9\ 29 CFR 2510.3-1(j), Certain group or group-type insurance arrangements; 29 CFR 2510.3-2(f), Tax sheltered annuities. 40 FR 34530 (Aug. 15, 1975). --------------------------------------------------------------------------- The 1975 regulation provides that ERISA does not cover a payroll deduction IRA arrangement so long as four conditions are met: the employer makes no contributions, employee participation is ``completely voluntary,'' the employer does not endorse the program and acts as a mere facilitator of a relationship between the IRA vendor and employees, and the employer receives no consideration except for its own expenses.\10\ In essence, if the employer merely allows a vendor to provide employees with information about an IRA product and then facilitates payroll deduction for employees who voluntarily initiate action to sign up for the vendor's IRA, the arrangement is not an ERISA pension plan. --------------------------------------------------------------------------- \10\ The payroll deduction IRA safe harbor regulation, 29 CFR 2510.3-2(d), Individual Retirement Accounts. --------------------------------------------------------------------------- In 1999, the Department published additional guidance on this safe harbor in the form of Interpretive Bulletin 99-1. 29 CFR 2509.99-1. This guidance explains that employers may, consistent with the third condition in the regulation, furnish materials from IRA vendors to the employees, answer employee inquiries about the program, and encourage retirement savings through IRAs generally, as long as the employer makes clear to employees its neutrality concerning the program and that its involvement is limited to collecting the deducted amounts and remitting them promptly to the IRA sponsor, just as it remits other payroll deductions to taxing authorities and other third parties. 29 CFR 2510.99-1(c).\11\ --------------------------------------------------------------------------- \11\ The Department has also issued advisory opinions discussing the application of the safe harbor regulation to particular facts. See, e.g., Advisory Opinion 82-67A (Dec. 21, 1982), 1982 WL 21250; DOL Adv. Op. 84-25A (June 18, 1984), 1984 WL 23439. --------------------------------------------------------------------------- The Department's publication of the 1975 payroll deduction IRA safe harbor was prompted by comments on an earlier proposal indicating ``considerable uncertainty concerning Title I coverage of individual retirement programs . . . .'' 40 FR 34528. When it promulgated the safe harbor regulation, the Department did not consider payroll deduction savings arrangements for private-sector employees with terms required by state laws. Instead, the payroll deduction IRA safe harbor and the group insurance safe harbor published that day focused on employers acting in coordination with IRA and other vendors, without state involvement. Under those circumstances, it was important for both safe harbors to contain conditions to limit employer involvement, both to avoid establishing or maintaining an employee benefit plan and to prevent undue employer influence in arrangements that would not be subject to ERISA's protective provisions. When a program meets the conditions of the safe harbor, employer involvement in the arrangement is minimal and employees' control of their participation in the program is nearly complete. In such circumstances, it is fair to say that each employee, rather than the employer, individually establishes and maintains the program. One of the 1975 payroll deduction IRA safe harbor's conditions is that an employee's participation must be ``completely voluntary.'' The Department intended this term to mean considerably more than that employees are free to opt out of participation in the program. Instead, the employee's enrollment must be self-initiated. In various contexts, courts have held that opt-out arrangements are not consistent with a requirement for a ``completely voluntary'' arrangement.\12\ This condition is important because where the employer is acting on his or her own volition to provide the benefit program, the employer's actions--e.g., requiring an automatic enrollment arrangement--would constitute its ``establishment'' of a plan within the meaning of ERISA's text, and trigger ERISA's protections for the employees whose money is deposited into an IRA. As a result, state payroll deduction savings initiatives with automatic enrollment do not meet the 1975 safe harbor's ``completely voluntary'' requirement. --------------------------------------------------------------------------- \12\ See Doe v. Wood Co. Bd. Of Educ., 888 F.Supp.2d 771, 775-77 (S.D. W. Va. 2012) (Education Department regulations requiring ``completely voluntary'' choice of single-gender education not satisfied by opt-out provision); Schear v. Food Scope America, Inc., 297 F.R.D. 114, 125 (S.D.N.Y. 2014) (``For a voluntary `tip pooling' arrangement to exist, it must be `undertaken by employees on a completely voluntary basis and may not be mandated or initiated by employers' and an employer can take `no part in the organization or the conduct of [the] tip-pool.' '') (quoting N.Y. Dept. of Labor Opinion Letter RO-08-0049). See also Carter v. Guardian Life Ins. Co., Civil No. 11-3-ART, 2011 WL 1884625, *1 (W.D. Ky. May 18, 2011) (``Courts have held that employees' participation is not `completely voluntary' if their enrollment in the plan is `automatic.' ''); Thompson v. Unum Life Ins. Co., No. Civ.A. 3:03-CV-0277-B, 2005 WL 722717, *6 (N.D. Tex. Mar. 29, 2005) (analyzing group welfare plan safe harbor, ``Thompson's participation in the plan was automatic rather than voluntary''); cf. The Meadows v. Employers Health Ins., 826 F. Supp. 1225, 1229 (D. Ariz. 1993) (enrollment not ``completely voluntary'' where health insurance contract required 75 percent of employees to participate); Davis v. Liberty Mut. Ins. Co., Civ. A. No. 87-2851, 1987 WL 16837, *2 (D.D.C. Aug. 31, 1987) (health insurance enrollment not completely voluntary because employee would receive no alternative compensation for refusing coverage, therefore making refusal comparable to a cut in pay). See generally Advisory Council On Employee Welfare And Pension Benefit Plans, Current Challenges And Best Practices For ERISA Compliance For 403(b) Plan Sponsors (2011) (available at www.dol.gov/ebsa/publications/2011ACreport1.html) (``The Council also considered, but is not recommending, that DOL permit the inclusion of an automatic enrollment feature within the context of an ERISA safe harbor 403(b) plan. The majority of Council members concluded that automatic enrollment would require actions typically performed by a plan sponsor/fiduciary (e.g., designation of a default investment alternative), and consequently, an automatic enrollment option in the plan may not be viewed as voluntary even in light of the participant's right to opt out of the automatic contributions.''). DOL Field Assistance Bulletin (FAB) 2004-1 stated that an employer could open a health savings account (HSA) and deposit employer funds into it without the employee's affirmative consent so long as, among other things, the arrangement was ``completely voluntary on the part of the employees'' and also that employees exercised control over the account with the power to withdraw or transfer the employer money. FAB 2004-1 was focused on the effect of employer contributions, so there was no specific discussion of what was meant by ``completely voluntary'' in the context of an HSA. Field Assistance Bulletin 2006-2 clarified that the completely voluntary requirement in FAB 2004-1 related to employee contributions to an HSA and confirms that completely voluntary employee contributions to the HSA must be self-initiated. The only ``opt out'' considered in FAB 2004-1 was the employees' power to move employer contributions out of the HSA. Neither FAB suggested that employee contributions to an HSA could be completely voluntary under an opt out arrangement. --------------------------------------------------------------------------- [[Page 72009]] However, when a state government sets the terms for and administers a payroll deduction savings arrangement, the situation is far different than when the employer sets the terms and administers the program--the 1975 safe harbor was not written with such state laws in mind. Therefore, the Department is promulgating this new safe harbor that does permit automatic enrollment in such state payroll deduction savings arrangements. Where states require employers to offer savings arrangements, undue employer influence or pressure to enroll is far less of a concern. Moreover, the state's active involvement and the limitations on the employers' role removes the employer from the equation such that the payroll deduction arrangements are not established or maintained by an employer or employee organization within the meaning of ERISA section 3(2). Accordingly, the safe harbor proposed today permits automatic enrollment with an opt-out provision in the context of state required and administered programs that meet the terms of the proposal. The safe harbor should remove uncertainty about Title I coverage of such state payroll deduction savings arrangements by promulgating a ``voluntary'' standard that permits automatic enrollment arrangements with employee opt-out features. By removing this uncertainty, the objective of the proposed safe harbor is to diminish the chances that, if the issue were ultimately litigated, the courts would conclude that state payroll deduction savings arrangements are preempted by ERISA. 3. Purpose and Scope of Proposed Regulation Section 505 of ERISA gives the Secretary of Labor broad authority to prescribe such regulations as he finds necessary and appropriate to carry out the provisions of Title I of the Act. The Department believes that regulatory guidance in this area is necessary to ensure that governmental bodies, employers, and others in the regulated community have guidelines concerning whether state efforts to encourage savings implicate Title I of ERISA by requiring the establishment or maintenance of ERISA-covered employee pension benefit plans. The 1975 payroll deduction IRA safe harbor sets forth standards for judging whether employer conduct crosses the line between permitted ministerial activities with respect to non-plan IRAs and activities that involve the establishment or maintenance of an ERISA-covered plan. State payroll deduction savings initiatives are similar to arrangements covered under the 1975 safe harbor if the employer's involvement is limited to withholding and forwarding payroll deductions and performing other related ministerial duties and the state has sole authority to determine the terms and administration of the state savings arrangement. The 1975 safe harbor, however, does not envision state involvement in the IRA programs nor does it envision use of automatic enrollment and related provisions. The proposed regulation thus would provide a new and additional ``safe harbor'' for state savings arrangements that conform to the proposed regulation's provisions. The proposed regulation departs from the 1975 safe harbor for payroll deduction IRA programs by adopting a standard that enrollment be ``voluntary'' rather than ``completely voluntary.'' The new safe harbor's voluntary standard will allow employees' participation in state required programs to be initiated by automatic enrollment with an opt-out provision. The Department is also proposing to add other provisions to assure that employer involvement remains minimal. The proposed regulation, however, as a ``safe harbor,'' does not purport to define every possible program that could fall outside of Title I of ERISA because it was not ``established or maintained'' by an employer. The Department also is not expressing any view regarding the application of provisions of the Internal Revenue Code (Code). B. Description of the Proposed Regulation The proposed regulation Sec. 2510.3-2(h) provides that for purposes of Title I of ERISA, the terms ``employee pension benefit plan'' and ``pension plan'' do not include an individual retirement plan (as defined in 26 U.S.C. 7701(a)(37)) established and maintained pursuant to a state payroll deduction savings program if the program satisfies all of the conditions set forth in paragraphs (h)(1)(i) through (xii) of the proposed regulation. In the Department's view, compliance with these conditions will assure that the employer's involvement in the state program is limited to the ministerial acts necessary to implement the payroll deduction program as required by state law. In addition, the proposed conditions would give employees sufficient freedom not to enroll or to discontinue their enrollment, as well as meaningful control over their IRAs. The term ``individual retirement plan'' means an individual retirement account described in section 408(a) and an individual retirement annuity described in section 408(b) of the Code.\13\ Thus, by limiting the safe harbor to programs that use such individual retirement plans (which would include both traditional and Roth IRAs), the proposal incorporates the applicable protections under the Code, including the prohibited transaction provisions. --------------------------------------------------------------------------- \13\ Whether a state program meets the statutory requirements under the Code is a question within the jurisdiction of the Internal Revenue Service. --------------------------------------------------------------------------- The safe harbor conditions under the proposed regulations require that the program be established by a state government pursuant to state law. As discussed above, if an employer's activities are limited to those ministerial functions required by the state law, the arrangement is not established or maintained by the employer. The term ``State'' in the proposed regulation has the same meaning as in Title I of ERISA generally. As in section 3(10) of ERISA, a ``State'' includes any ``State of the United States, the District of Columbia,'' and certain territories.\14\ 29 U.S.C. 1002(10). The state must also administer the program either directly or through a governmental agency or other instrumentality. The safe harbor also contemplates that a state or the governmental agency or instrumentality could contract with commercial service providers, such as investment managers and recordkeepers, to operate and administer its program. --------------------------------------------------------------------------- \14\ The term ``State'' in the proposed regulation has the same meaning as in section 3(10) of ERISA. This would not include Indian tribes, tribal subdivisions, or agencies or instrumentalities of either in coverage under the regulation. To date, the Department is unaware of any tribal initiatives similar to the state initiatives described elsewhere in this preamble. Comments are welcome on whether, on what basis, and under what circumstances, payroll deduction programs required by Indian tribes might be covered under the safe harbor. --------------------------------------------------------------------------- The proposal does not address whether the employees that participate in the program must be employed within the state that establishes the program, or alternatively whether the covered employees must be residents of the state or employed by employers doing business within the state. The extent to which a state can regulate employers is already established under existing legal principles. The proposal simply requires that the program be established by a state pursuant to state law. The Department solicits comments on whether the safe harbor should be limited to require some connection between the employers and employees covered by the program and the state that establishes the program, and if so, what kind of connection. [[Page 72010]] The proposed regulation requires that participation in the program be voluntary for employees. As discussed above, this requirement is different from the current payroll deduction IRA safe harbor in 29 CFR 2510.3-2(d), which requires that participation be ``completely voluntary.'' The proposed regulation expressly permits opt-out programs and, accordingly, does not require that participation be ``completely voluntary.'' By using only the term ``voluntary,'' the Department intends to make clear that the proposed regulation, unlike the existing safe harbor, would allow the state to require employers to automatically enroll employees, unless they affirmatively elect not to participate in the program.\15\ --------------------------------------------------------------------------- \15\ If a program requires automatic enrollment, adequate notice of their right to opt out must be furnished to employees in order for the program to meet the safe harbor's voluntariness condition. The proposal does not define the manner and content of ``adequate notice'' for this purpose. The Department expects that states and their vendors would look to analogous notice requirements contained in federal laws pertaining to automatic enrollment provisions. See, e.g., 26 U.S.C. 401(k)(13)(E) and 414(w); 29 U.S.C. 1144(e)(3); and 29 CFR 2550.404c-5(d). The Department solicits comments on this issue. --------------------------------------------------------------------------- The proposed regulation also includes conditions to assure that control of the payroll deduction program and the savings accounts lies with the state and the employees, and not the employer. These include requirements that (1) the program does not require that an employee or beneficiary retain any portion of contributions or earnings in his or her IRA and does not otherwise impose any restrictions on withdrawals or impose any cost or penalty on transfers or rollovers permitted under the Internal Revenue Code; (2) all rights of the employee, former employee, or beneficiary under the program are enforceable only by the employee, former employee, or beneficiary, an authorized representative of such person, or by the state (or the designated agency or instrumentality); and (3) the state adopts measures to ensure that employees are notified of their rights under the program and creates a mechanism for enforcement of those rights. In addition, the proposal requires the state to assume responsibility for the security of payroll deductions and employee savings. These conditions assure that the employees will have meaningful control over their retirement savings, that the state will enforce the employer's payroll deduction obligations and oversee the security of retirement savings, and that the employer will have no role in enforcing employee rights under the program. Limited employer involvement in the program is the key to a determination that a state savings program is not an employee pension benefit program. Thus, the employer's facilitation must be required by state law--if it is voluntary, the safe harbor does not apply. Further, the proposal does not permit the employer to contribute to the program.\16\ All contributions under the program must be made voluntarily by the employees. When employers make contributions to fund benefits of the type enumerated in Section 3(2) of ERISA, they effectively sponsor an ERISA-covered plan. Similarly, the employer may not have discretionary authority, control, or responsibility under the program and may not receive any direct or indirect compensation in the form of cash or otherwise in connection with the program, other than the reimbursement of the actual costs of the program to the employer. Finally, the proposal specifies that employer involvement must be limited to all or some of the following: (1) Collecting employee contributions through payroll deductions and remitting them to the program; (2) providing notice to the employees and maintaining records regarding the employer's collection and remittance of payments under the program; (3) providing information to the state necessary to facilitate the operation of the program; and (4) distributing program information to employees from the state and permitting the state to publicize the program to employees. --------------------------------------------------------------------------- \16\ This provision, of course, would not prohibit an employer from allowing employees to review program materials on company time or to use an employer's computer to make elections under the program. --------------------------------------------------------------------------- A program could fit within the safe harbor and include terms that require employers to certify facts within the employer's knowledge as employer, such as employee census information (e.g., status of a full time employee, employee addresses, attendance records, compensation levels, etc.). The employer could also conduct reviews to ensure it was complying with program eligibility requirements and limitations established by the state. The Department requests comments on whether the final regulation should provide more clarity and specificity on the types of functions that could be permitted consistent with the requirements of the safe harbor.\17\ --------------------------------------------------------------------------- \17\ In previous guidance issued by the Department under other safe harbors involving private parties, the Department concluded that employers could take certain corrective actions to stay within the safe harbor and that such actions, in and of themselves, did not lead to the establishment of an employee benefit plan. See DOL Information Letter to Siegel Benefit Consultants (Feb. 27, 1996) and Field Assistance Bulletin 2007-02 on the safe harbor for tax sheltered annuity programs under 29 CFR 2510.3-2(f). --------------------------------------------------------------------------- A state program that meets all of the foregoing conditions will not fail to qualify for the safe harbor merely because the program is directed toward employees who are not already eligible for some other workplace savings arrangement. Nor will it fail merely because it requires automatic enrollment subject to employees having a right to opt out. Similarly, if the state program offers employees a choice of multiple IRA sponsors to which employees may make payroll deduction contributions, the state program can create a default option, i.e., designate the IRA provider to which the employer must remit the payroll withholding contributions in the absence of an affirmative election by the employee. ERISA's expansive plan definition is critical to its protective purposes. When employers establish or maintain ERISA-covered plans, the plan's participants are protected by trust-law obligations of fiduciary conduct, reporting requirements, and a regulatory regime designed to ensure the security of promised benefits. In the circumstances specified by the proposed regulation, however, the employer does not ``establish or maintain'' the plan. Instead, the program is created and administered by the state for the benefit of those employees who voluntarily participate with minimal employer involvement. State administration of the voluntary program does not give rise to ERISA coverage, and presumably ensures that the program will be administered in accordance with the interests of the state's citizens.\18\ --------------------------------------------------------------------------- \18\ To the extent that the state program allows employees not subject to the automatic enrollment requirement to voluntarily choose to participate, the employee's voluntarily participation would not result in the employer establishing an ERISA-covered plan or the state program including an ERISA-covered plan if the employer and the state program satisfy the conditions in the Department's existing safe harbor for payroll deduction IRAs at 29 CFR 2510.3- 2(d). Of course, as described above, automatic enrollment of employees is not permitted under the existing payroll deduction IRA safe harbor. --------------------------------------------------------------------------- As noted above, ERISA generally preempts state laws that relate to employee benefit plans. The U.S. Supreme Court has long held that ``[a] law `relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.'' Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983) (footnote omitted); see, e.g., New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995). This proposed regulation would provide that certain state savings [[Page 72011]] programs would not create employee benefit plans. However, the fact that state programs do not create ERISA covered plans does not necessarily mean that, if the issue were litigated, the state laws would not be preempted by ERISA. The courts' determinations would depend on the precise details of the statute at issue, including whether that state's program successfully met the requirements of the safe harbor. Moreover, states should be advised that a program may be preempted by other Federal laws apart from ERISA. A state law that alters, amends, modifies, invalidates, impairs or supersedes a Federal law would risk being preempted by the Federal law so affected. Such preemption issues are beyond the scope of this proposed rule, however, which addresses only the question of whether particular programs involve the establishment of one or more ERISA covered employee benefit plans. Finally, some states are considering approaches that differ from state payroll deduction savings initiatives. In 2012, Massachusetts, for example, enacted a law providing for a state-sponsored plan for non-profit employers with 20 or fewer employees.\19\ Washington enacted a law to establish a small business retirement market place to assist small employers by making available a number of approved savings plans, some of which may be covered by ERISA, even though the marketplace arrangement itself is not.\20\ This proposal does not address such state initiatives. --------------------------------------------------------------------------- \19\ Mass. Gen. Laws ch. 29, sec. 64E (2014) \20\ 2015 Wash. Sess. Laws chap. 296 (SB 5826). --------------------------------------------------------------------------- C. Effective Date The Department proposes to make this regulation effective 60 days after the date of publication of the final rule in the Federal Register. D. Regulatory Impact Analysis 1. Executive Order 12866 Statement Under Executive Order 12866, the Office of Management and Budget (OMB) must determine whether a regulatory action is ``significant'' and therefore subject to the requirements of the Executive Order and subject to review by the OMB. Section 3(f) of the Executive Order defines a ``significant regulatory action'' as an action that is likely to result in a rule (1) having an annual effect on the economy of $100 million or more, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local or tribal governments or communities (also referred to as an ``economically significant'' action); (2) creating serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. OMB has tentatively determined that this regulatory action is not economically significant within the meaning of section 3(f)(1) of the Executive Order. However, it has been determined that the action is significant within the meaning of section 3(f)(4) of the Executive Order and the Department accordingly provides the following assessment of its potential benefits and costs. a. Direct Benefits As stated earlier in this preamble, some state governments have passed laws designed to expand workers' access to workplace savings programs. Some states are looking at ways to encourage employers to provide coverage under state-administered 401(k)-type plans, while others have adopted or are considering approaches that combine several retirement alternatives including IRAs, ERISA-covered plans and the Department of the Treasury's new starter savings program, myRA. One of the challenges states face in expanding retirement savings opportunities for private sector employees is uncertainty about ERISA preemption of such efforts. ERISA generally would preempt a state law that required employers to establish and maintain ERISA-covered employee benefit pension plans. The Department therefore believes that states and other stakeholders would benefit from clear guidelines to determine whether state saving initiatives would effectively require employers to create ERISA-covered plans. The proposed rule would provide a new ``safe harbor'' from coverage under Title I of ERISA for state savings arrangements that conform to certain requirements. State initiatives within the safe harbor would not result in the establishment of employee benefit plans under ERISA. The Department expects that the proposed rule would reduce legal costs, including litigation costs, by (1) removing uncertainty about whether such state savings arrangements are covered by title I of ERISA, and (2) creating efficiencies by eliminating the need for multiple states to incur the same costs to determine their non-plan status. The Department notes that the proposal would not prevent states from identifying and pursuing alternative policies, outside the safe harbor, that also would not require employers to establish or maintain ERISA-covered plans. Thus, while the proposal would reduce uncertainty about state activity within the safe harbor, it would not impair state activity outside it. b. Direct Costs The proposed rule does not require any new action by employers or the states. It merely clarifies that certain state initiatives that encourage workplace savings would not result in the creation of employee benefit plans covered by Title I of ERISA. States may incur legal costs to analyze the rule and determine whether their laws fall within the proposed rule's safe harbor. However, the Department expects that these costs will be less than the savings that will be generated. Moreover, states will avoid incurring the greater costs that might be incurred to determine their programs' non-plan status without benefit of this proposed rule. States that design their payroll deduction programs to conform to the safe harbor may incur costs to develop notices to be provided to participants and beneficiaries covered by the program and enter into contracts with investment managers and other service providers to operationalize and administer the programs. The Department's review of existing state payroll deduction legislation indicates that these requirements are customarily part of most state programs, and the initiatives generally could not operate without such requirements. Therefore, to the extent that state programs would exist even in the absence of this rule, only the relatively minor costs of revisions for conformity to the safe harbor are attributable to the rule, because other cost-generating activities are necessary and essential to operate and administer the programs. On the other hand, if state programs are adopted more widely in the rule's presence than in its absence, there would be more general state operational and administrative costs that are attributable to the rule. The Department does not have sufficient data to estimate the number of systems that would need to be updated; therefore, the Department invites comments and any relevant data that would allow it to make a more thorough assessment. [[Page 72012]] c. Uncertainty The Department is confident that the proposed regulation, by clarifying that certain state programs do not require employers to establish ERISA-covered plans, will benefit states and many other stakeholders otherwise beset by greater uncertainty. However, the Department is unsure as to the magnitude of these benefits. The magnitude of the proposed regulation's benefits, costs and transfer impacts will depend on the states' independent decisions on whether and how best to take advantage of the safe harbor, and on the cost that otherwise would have attached to uncertainty about the legal status of the states' actions. The Department cannot predict what actions states will take, stakeholders' propensity to challenge such actions' legal status, either absent or pursuant to the proposed regulation, or courts' resultant decisions, and therefore the Department invites data submission or other comment that would allow for more thorough assessment of these issues. d. Impact of State Initiatives There are a number of cases in which this rulemaking could increase the prevalence of state workplace savings initiatives, thus bringing the effects of these initiatives within the scope of this regulatory impact analysis. For instance, if this issue were ultimately resolved in the courts, the courts could make a different preemption decision in the rule's presence than in its absence. Furthermore, even if a potential court decision would be the same with or without the rulemaking, the potential reduction in states' uncertainty-related costs could induce more states to pursue these workplace savings initiatives. An additional possibility is that the rule would not change the prevalence of state retirement savings programs, but would accelerate the implementation of programs that would exist anyway. With any of these possibilities, there would be benefits, costs and transfer impacts that are indirectly attributable to this rule, via the increased or accelerated creation of state-level workplace savings programs. Employers may incur costs to update their payroll systems to transmit payroll deductions to the state or its agent and develop recordkeeping systems to document their collection and remittance of payments under the program. As with states' operational and administrative costs (discussed in section D.1.b, above), some portion of these employer costs would be attributable to the rule if more state workplace savings programs are implemented in the rule's presence than in its absence. Because employers' role in the programs must be minimal in order to satisfy the safe harbor, they will incur little cost beyond the costs associated with updating payroll systems. However, the costs that are incurred could fall most heavily on small and start-up companies, which tend to be least likely to offer pensions. Most state payroll deduction programs do exempt the smallest companies, which could significantly mitigate such costs. The Department does not have sufficient data to estimate the number of payroll systems that would have to be updated. Therefore, the Department invites the public to provide comments and relevant data that would allow it to make a more thorough assessment. The Department believes that well-designed state-level initiatives have the potential to effectively reduce gaps in retirement security. Relevant variables such as pension coverage,\21\ labor market conditions,\22\ population demographics,\23\ and elderly poverty,\24\ vary widely across the states, suggesting a potential opportunity for progress at the state level. For example, payroll deduction savings statutes in California and Illinois could extend savings opportunities for 7.8 million workers in California and 1.7 million workers in Illinois who currently do not have access to employment-based savings arrangements.\25\ The Department offers the following policy discussion for consideration, and invites public input on the issues raised, on the potential for state initiatives to foster retirement security, and on the potential for this proposal or other Departmental action to facilitate effective state activity. --------------------------------------------------------------------------- \21\ See for example Craig Copeland, ``Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2013,'' Employee Benefit Research Institute, Issue Brief No. 405 (October 2014) (available at www.ebri.org). \22\ See for example US Bureau of Labor Statistics, ``Regional and State Employment and Unemployment--JUNE 2015,'' USDL-15-1430, July 21, 2015. \23\ See for example Lindsay M. Howden and Julie A. Meyer, ``Age and Sex Composition: 2010,'' US Bureau of the Census, 2010 Census Briefs C2010BR-03, May 2011. \24\ Constantijn W. A. Panis & Michael Brien, August 28, 2015, ``Target Populations of State-Level Automatic IRA Initiatives.'' \25\ Id. --------------------------------------------------------------------------- Effective state initiatives will advance retirement security. Some workers currently may save less than would be optimal because of behavioral biases (such as myopia or inertia) or labor market frictions that prevent them from accessing plans at work. Effective state initiatives would help such workers save more. Such workers will have traded some consumption today for more in retirement, potentially reaping some net gain in overall lifetime well-being. Their additional saving may also reduce fiscal pressure on publicly financed retirement programs and other public assistance programs, such as the Supplemental Nutritional Assistance Program, that support low-income Americans, including older Americans. The Department believes that well-designed state initiatives can achieve their intended, positive effects of fostering retirement security. However, the initiatives might have some unintended consequences as well. Those workers least equipped to make good retirement savings decisions arguably stand to benefit most from state initiatives, but also arguably are most at risk of suffering adverse unintended effects. Workers who would not benefit from increased retirement savings could opt out, but some might fail to do so. Such workers might increase their savings too much, unduly sacrificing current economic needs. Consequently they might be more likely to cash out early and suffer tax losses, and/or to take on more expensive debt. Similarly, state initiatives directed at workers who do not currently participate in workplace savings arrangements may be imperfectly targeted to address gaps in retirement security. For example, a college student might be better advised to take less in student loans rather than open an IRA, and a young family might do well to save more first for their children's education and later for their own retirement. Employers that wish to provide retirement benefits are likely to find that ERISA-covered programs, such as 401(k) plans, have advantages for them and their employees over participation in state programs. Potential advantages include: Greater tax preferences, greater flexibility in plan selection and design, opportunity for employers to contribute, ERISA protections, and larger positive recruitment and retention effects. Therefore it seems unlikely that state initiatives will ``crowd-out'' many ERISA-covered plans. However, if they do, some workers might lose ERISA-protected benefits that would have been more generous and more secure than state-based (or IRA) benefits, unless states adopt consumer protections similar to those Congress provided under ERISA. Some workers who would otherwise have saved more might reduce their savings to the low, default levels associated with some state programs. States can address this last concern by incorporating into their programs ``auto-escalation'' features that increase default contribution rates over time and/or as pay increases. [[Page 72013]] 2. Paperwork Reduction Act As part of its continuing effort to reduce paperwork and respondent burden, the Department of Labor conducts a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public understands the Department's collection instructions, respondents can provide the requested data in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the Department can properly assess the impact of collection requirements on respondents. The Department has determined this proposed rule is not subject to the requirements of the PRA, because it does not contain a collection of information as defined in 44 U.S.C. 3502(3). The rule does not require any action by or impose any requirements on employers or the states. It merely clarifies that certain state payroll deduction programs that encourage retirement savings would not result in the creation of employee benefit plans covered by Title I of ERISA. Moreover, the PRA definition of burden excludes time, effort, and financial resources necessary to comply with a collection of information that would be incurred by respondents in the normal course of their activities. See 5 CFR 1320.3(b)(2). The definition of burden also excludes burdens imposed by a state, local, or tribal government independent of a Federal requirement. See 5 CFR 1320.3(b)(3). The Department's review of existing state payroll deduction programs indicates that they customarily have notification and recordkeeping requirements and that the initiatives could not operate without such requirements, especially programs that include automatic enrollment. Therefore, the proposed rule imposes no burden, because states customarily include notice and recordkeeping requirements that are an essential and routine part of administering state payroll deduction programs. In addition, employers are responding to state, not Federal, requirements when providing notices to individuals covered under state payroll deduction programs and maintaining records regarding the employers' collection and remittance of payments under the program. Although the Department has determined that the proposed rule does not contain a collection of information, when rules contain information collections the Department invites comments that: Evaluate whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; Evaluate the burden of the collection of information, including the validity of the methodology and assumptions used; Enhance the quality, utility, and clarity of the information to be collected; and Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses. In addition to having an opportunity to file comments with the Department, comments may also be sent to the Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503; Attention: Desk Officer for the Employee Benefits Security Administration. OMB requests that comments be received within 30 days of publication of the proposed rule to ensure their consideration. 3. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are likely to have a significant economic impact on a substantial number of small entities. Unless an agency certifies that a rule will not have a significant economic impact on a substantial number of small entities, section 603 of the RFA requires the agency to present an initial regulatory flexibility analysis at the time of the publication of the notice of proposed rulemaking describing the impact of the rule on small entities. Small entities include small businesses, organizations and governmental jurisdictions. Because the proposed rule imposes no requirements or costs on employers, the Department believes that it would not have a significant economic impact on a substantial number of small entities. Accordingly, pursuant to section 605(b) of the RFA, the Assistant Secretary of the Employee Benefits Security Administration hereby certifies that the proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. 4. Unfunded Mandates Reform Act For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.), as well as Executive Order 12875, this rule does not include any federal mandate that may result in expenditures by state, local, or tribal governments, or the private sector, which may impose an annual burden of $100 million. 5. Congressional Review Act The proposed rule is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and, if finalized, would be transmitted to Congress and the Comptroller General for review. 6. Federalism Statement Executive Order 13132 outlines fundamental principles of federalism. It also requires adherence to specific criteria by federal agencies in formulating and implementing policies that have ``substantial direct effects'' on the states, the relationship between the national government and states, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have these federalism implications must consult with state and local officials, and describe the extent of their consultation and the nature of the concerns of state and local officials in the preamble to the final regulation. In the Department's view, the proposed regulations, by clarifying that certain workplace savings arrangements under consideration or adopted by certain states will not result in the establishment or maintenance by employers or employee organizations of employee benefit plans under ERISA, would provide more latitude and certainty to state governments and employers regarding the treatment of such arrangements under ERISA. The Department will affirmatively engage in outreach with officials of states, and with employers and other stakeholders, regarding the proposed rule and seek their input on the proposed rule and any federalism implications that they believe may be presented by it. List of Subjects in 29 CFR Part 2510 Accounting, Employee benefit plans, Employee Retirement Income Security Act, Pensions, Reporting, Coverage. [[Page 72014]] For the reasons stated in the preamble, the Department of Labor proposes to amend 29 CFR 2510 as set forth below: PART 2510--DEFINITIONS OF TERMS USED IN SUBCHAPTERS C, D, E, F, AND G OF THIS CHAPTER 0 1. The authority citation for part 2510 is revised to read as follows: Authority: 29 U.S.C. 1002(2), 1002(21), 1002(37), 1002(38), 1002(40), 1031, and 1135; Secretary of Labor's Order No. 1-2011, 77 FR 1088 (Jan. 9, 2012); Sec. 2510.3-101 also issued under sec. 102 of Reorganization Plan No. 4 of 1978, 43 FR 47713 (Oct. 17, 1978), E.O. 12108, 44 FR 1065 (Jan. 3, 1979) and 29 U.S.C. 1135 note. Sec. 2510.3-38 is also issued under sec. 1, Pub. L. 105-72, 111 Stat. 1457 (1997). 0 2. Section 2510.3-2 is amended by adding paragraph (h) to read as follows: Sec. 2510.3-2 Employee pension benefit plans. * * * * * (h) Certain State Savings Programs. (1) For the purpose of Title I of the Act and this chapter, the terms ``employee pension benefit plan'' and ``pension plan'' shall not include an individual retirement plan (as defined in 26 U.S.C. 7701(a)(37)) established and maintained pursuant to a State payroll deduction savings program, provided that: (i) The program is established by a State pursuant to State law; (ii) The program is administered by the State establishing the program, or by a governmental agency or instrumentality of the State, which is responsible for investing the employee savings or for selecting investment alternatives for employees to choose; (iii) The State assumes responsibility for the security of payroll deductions and employee savings; (iv) The State adopts measures to ensure that employees are notified of their rights under the program, and creates a mechanism for enforcement of those rights; (v) Participation in the program is voluntary for employees; (vi) The program does not require that an employee or beneficiary retain any portion of contributions or earnings in his or her IRA and does not otherwise impose any restrictions on withdrawals or impose any cost or penalty on transfers or rollovers permitted under the Internal Revenue Code; (vii) All rights of the employee, former employee, or beneficiary under the program are enforceable only by the employee, former employee, or beneficiary, an authorized representative of such a person, or by the State (or the designated governmental agency or instrumentality described in paragraph (h)(1)(ii) of this section); (viii) The involvement of the employer is limited to the following: (A) Collecting employee contributions through payroll deductions and remitting them to the program; (B) Providing notice to the employees and maintaining records regarding the employer's collection and remittance of payments under the program; (C) Providing information to the State (or the designated governmental agency or instrumentality described in paragraph (h)(1)(ii) of this section) necessary to facilitate the operation of the program; and (D) Distributing program information to employees from the State (or the designated governmental agency or instrumentality described in paragraph (h)(1)(ii) of this section) and permitting the State or such entity to publicize the program to employees; (ix) The employer contributes no funds to the program and provides no bonus or other monetary incentive to employees to participate in the program; (x) The employer's participation in the program is required by State law; (xi) The employer has no discretionary authority, control, or responsibility under the program; and (xii) The employer receives no direct or indirect consideration in the form of cash or otherwise, other than the reimbursement of the actual costs of the program to the employer of the activities referred to in paragraph (h)(1)(viii) of this section. (2) A State savings program will not fail to satisfy the provisions of paragraph (h)(1) of this section merely because the program-- (i) Is directed toward those employees who are not already eligible for some other workplace savings arrangement; (ii) Utilizes one or more service or investment providers to operate and administer the program, provided that the State (or the designated governmental agency or instrumentality described in paragraph (h)(1)(ii) of this section) retains full responsibility for the operation and administration of the program; or (iii) Treats employees as having automatically elected payroll deductions in an amount or percentage of compensation, including any automatic increases in such amount or percentage, specified under State law until the employee specifically elects not to have such deductions made (or specifically elects to have the deductions made in a different amount or percentage of compensation allowed by the program), provided that the employee is given adequate notice of the right to make such elections; provided, further, that a program may also satisfy this paragraph (h) without requiring or otherwise providing for the automatic elections described in this paragraph (h)(2)(iii). (3) For purposes of this section, the term State shall have the same meaning as defined in section 3(10) of ERISA. Phyllis C. Borzi, Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2015-29426 Filed 11-16-15; 4:15 pm] BILLING CODE 4510-29-P
![72006 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Proposed Rules
PART 101—FOOD LABELING (4) Records necessary to verify to the safe harbor in this proposal do not
compliance with paragraphs (c)(2) and establish ERISA plans, the objective of
■ 1. The authority citation for 21 CFR (3) of this section must be retained for the safe harbor is to reduce the risk of
part 101 continues to read as follows: at least 2 years after introduction or such state programs being preempted if
Authority: 15 U.S.C. 1453, 1454, 1455; 21 delivery for introduction of the food they were ever challenged. If adopted,
U.S.C. 321, 331, 342, 343, 348, 371; 42 U.S.C. into interstate commerce and may be this rule would affect individuals and
243, 264, 271. kept as original records, as true copies, employers subject to such laws.
■ 2. In § 101.91, revise paragraphs (b)(1), or as electronic records. Manufacturers DATES: Written comments should be
(b)(2), and (c) to read as follows: must provide those records to us for received by the Department of Labor on
examination and copying during an or before January 19, 2016.
§ 101.91 Gluten-free labeling of food. inspection upon request. ADDRESSES: You may submit comments,
* * * * * (5) When a scientifically valid method identified by RIN 1210–AB71, by one of
(b) Requirements. (1) A food that pursuant to paragraph (c)(1) of this the following methods:
bears the claim ‘‘gluten-free’’ in its section is not available because the food • Federal eRulemaking Portal: http://
labeling and fails to meet the is distilled, FDA will evaluate www.regulations.gov. Follow the
requirements of paragraph (a)(3) of this compliance with paragraph (b) of this instructions for submitting comments.
section and, if applicable, paragraphs section by verifying the absence of • Email: e-ORI@dol.gov. Include RIN
(c)(2) through (4) of this section will be protein in the distilled component using 1210–AB71 in the subject line of the
deemed misbranded. scientifically valid analytical methods
(2) A food that bears the claim ‘‘no message.
that can reliably detect the presence or • Mail: Office of Regulations and
gluten,’’ ‘‘free of gluten,’’ or ‘‘without absence of protein or protein fragments
gluten’’ in its labeling and fails to meet Interpretations, Employee Benefits
in the food. Security Administration, Room N–5655,
the requirements of paragraph (a)(3) of * * * * *
this section and, if applicable, U.S. Department of Labor, 200
paragraphs (c)(2) through (4) of this Dated: November 10, 2015. Constitution Avenue NW., Washington,
section will be deemed misbranded. Leslie Kux, DC 20210, Attention: State Savings
Associate Commissioner for Policy. Arrangements Safe Harbor.
* * * * * Instructions: All submissions must
(c) Compliance. (1) When compliance [FR Doc. 2015–29292 Filed 11–17–15; 8:45 am]
include the agency name and Regulatory
with paragraph (b) of this section is BILLING CODE 4164–01–P
Identification Number (RIN) for this
based on an analysis of the food, FDA
rulemaking. Persons submitting
will use a scientifically valid method
that can reliably detect the presence of comments electronically are encouraged
DEPARTMENT OF LABOR to submit only by one electronic method
20 ppm gluten in a variety of food
matrices, including both raw and Employee Benefits Security and not to submit paper copies.
cooked or baked products. Administration Comments will be available to the
(2) When a scientifically valid method public, without charge, online at
pursuant to paragraph (c)(1) of this 29 CFR Part 2510 www.regulations.gov and www.dol.gov/
section is not available because the food ebsa and at the Public Disclosure Room,
RIN 1210–AB71 Employee Benefits Security
is fermented or hydrolyzed, the
manufacturer of such foods bearing the Administration, U.S. Department of
Savings Arrangements Established by Labor, Suite N–1513, 200 Constitution
claim must make and keep records States for Non-Governmental
regarding the fermented or hydrolyzed Avenue NW., Washington, DC 20210.
Employees WARNING: Do not include any
food demonstrating adequate assurance
that: AGENCY: Employee Benefits Security personally identifiable or confidential
(i) The food is ‘‘gluten-free’’ in Administration, Department of Labor. business information that you do not
compliance with paragraph (a)(3) of this ACTION: Proposed rule. want publicly disclosed. Comments are
section before fermentation or public records and are posted on the
hydrolysis; SUMMARY: This document contains a Internet as received, and can be
(ii) The manufacturer has adequately proposed regulation under the retrieved by most internet search
evaluated their processing for any Employee Retirement Income Security engines.
potential for gluten cross-contact; and Act of 1974 (ERISA) setting forth a safe FOR FURTHER INFORMATION CONTACT:
(iii) Where a potential for gluten harbor describing circumstances in Janet Song, Office of Regulations and
cross-contact has been identified, the which a payroll deduction savings Interpretations, Employee Benefits
manufacturer has implemented program, including one with automatic Security Administration, (202) 693–
measures to prevent the introduction of enrollment, would not give rise to an 8500; or Jim Craig, Office of the
gluten into the food during the employee pension benefit plan under Solicitor, Plan Benefits Security
manufacturing process. ERISA. A program described in this Division, (202) 693–5600. These are not
(3) When a scientifically valid method proposal would be established and toll-free numbers.
pursuant to paragraph (c)(1) of this maintained by a state government, and
SUPPLEMENTARY INFORMATION:
section is not available because the food state law would require certain private-
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
contains one or more ingredients that sector employers to make the program A. Background
are fermented or hydrolyzed, the available to their employees. Several
Approximately 68 million US
manufacturer of such foods bearing the states are considering or have adopted
employees do not have access to a
claim must make and keep records measures to increase access to payroll
retirement savings plan through their
demonstrating adequate assurance that deduction savings for individuals
employers.1 For older Americans,
that the fermented or hydrolyzed employed or residing in their
ingredients are ‘‘gluten-free’’ as jurisdictions. By making clear that state 1 Copeland, Craig, Employment-Based Retirement
described in paragraph (c)(2) of this payroll deduction savings programs Plan Participation: Geographic Differences and
section. with automatic enrollment that conform Trends, 2013, Employee Benefit Research Institute,
VerDate Sep<11>2014 18:24 Nov 17, 2015 Jkt 238001 PO 00000 Frm 00025 Fmt 4702 Sfmt 4702 E:\FR\FM\18NOP1.SGM 18NOP1](https://thefederalregister.org/doc/80_FR_72228/page/1.svg)
![Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Proposed Rules 72007
inadequate retirement savings can mean employee, unless the employee products for individual employees.6
sacrificing or skimping on food, affirmatively elects not to participate. Moreover, retirement savings programs
housing, health care, transportation, and As a rule, employees can stop the involving IRAs also fall within the
other necessities. Inadequate retirement payroll deductions at any time. The broad definition of pension plan when
savings place greater stress on state and programs, as currently designed, do not those programs are established or
federal social welfare programs as require, provide for or permit employers maintained by an employer or employee
guaranteed sources of income and to make matching or other contributions organization.7
economic security for older Americans. of their own into the employees’ Pension plans covered by ERISA are
Accordingly, states have a substantial accounts. In addition, the state subject to various statutory and
governmental interest in taking steps to initiatives typically require that regulatory requirements to protect the
address the problem and protect the employers act as a conduit for interests of the plan participants. These
economic security of their residents.2 information regarding the program, include reporting and disclosure rules
Concerned over the low rate of saving including disclosure of employees’ and stringent conduct standards derived
among American workers, some state rights and various program features, from trust law for plan fiduciaries. In
governments have already sought to often based on state-prepared materials. addition, ERISA expressly prohibits
expand access to savings programs for certain transactions involving plans
their residents and other individuals 2. ERISA’s Regulation of Employee unless a statutory or administrative
employed in their jurisdictions by Benefit Plans exemption applies.
creating their own programs and ERISA defines the terms ‘‘employee Moreover, in order to assure
requiring employer participation.3 pension benefit plan’’ and ‘‘pension nationwide uniformity of treatment,
plan’’ broadly to mean, in relevant part: ERISA places the regulation of private-
1. State Payroll Deduction Savings sector employee benefit plans
Initiatives • Any plan, fund, or program which was
heretofore or is hereafter established or
(including employment-based pension
One approach some states have taken maintained by an employer or by an plans) under federal jurisdiction.
is to establish state payroll deduction employee organization, or by both, to the Section 514(a) of ERISA, 29 U.S.C.
savings initiatives. Such programs extent that by its express terms or as a result 1144(a), provides that the Act ‘‘shall
encourage employees to establish tax- of surrounding circumstances such plan, supersede any and all State laws insofar
favored individual retirement plans fund, or program— as they . . . relate to any employee
(IRAs) funded by payroll deductions. Æ provides retirement income to benefit plan’’ covered by the statute.
Oregon, Illinois, and California, for employees, or The U.S. Supreme Court has long held
example, have adopted laws along these Æ results in a deferral of income by that ‘‘[a] law ‘relates to’ an employee
lines.4 These initiatives generally employees for periods extending to the benefit plan, in the normal sense of the
termination of covered employment or
require specified employers that do not beyond, regardless of the method of
phrase, if it has a connection with or
offer workplace savings arrangements to calculating the contributions made to the reference to such a plan.’’ Shaw v. Delta
deduct amounts from their employees’ plan, the method of calculating the benefits Air Lines, Inc., 463 U.S. 85, 96–97
paychecks in order that those amounts under the plan or the method of distributing (1983) (footnote omitted). In various
may be remitted to state-administered benefits from the plan. decisions, the Court has concluded that
IRAs for the employees. Typically, with 29 U.S.C. 1002(2)(A). The provisions of ERISA preempts state laws that: (1)
automatic enrollment, the states would Title I of ERISA, ‘‘shall apply to any mandate employee benefit structures or
require that the employer deduct their administration; (2) provide
employee benefit plan if it is established
specified amounts on behalf of the alternative enforcement mechanisms; or
or maintained . . . by any employer
engaged in commerce or in any industry (3) bind employers or plan fiduciaries to
Issue Brief No. 405 (October 2014) (available at particular choices or preclude uniform
www.ebri.org). or activity affecting commerce.’’ 5 29
administrative practice, thereby
2 See Christian E. Weller, Ph.D., Nari Rhee, Ph.D., U.S.C. 1003(a).
and Carolyn Arcand, Financial Security Scorecard: Despite the express intent of the functioning as a regulation of an ERISA
A State-by-State Analysis of Economic Pressures drafters of those state statutes not to plan itself.8
Facing Future Retirees, National Institute on IRAs generally are not established or
have such a result, some have expressed
Retirement Security (March 2014) maintained by employers or employee
(www.nirsonline.org/index.php?option=com_ concern that payroll deduction
organizations, and ERISA coverage is
content&task=view&id=830&Itemid=48). programs, such as those enacted in contingent on an employer (or employee
3 See, for example, Report of the Governor’s Task
Oregon, California and Illinois, may organization) establishing or
Force to Ensure Retirement Security for All
Marylanders, Kathleen Kennedy Townsend, Chair,
cause employers to establish ERISA- maintaining the arrangement. 29 U.S.C.
1,000,000 of Our Neighbors at Risk: Improving covered plans inadvertently. The 1002(1)–(2). The Internal Revenue Code
Retirement Security for Marylanders (2015). The Department and the courts have is the principal federal law that governs
Georgetown University Center for Retirement interpreted the term ‘‘established or
Initiatives (CRI) of the McCourt School of Public
Policy has compiled a ‘‘50 state survey’’ providing
maintained’’ as requiring minimal 6 Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.
information on state legislation that would establish involvement by the employer or 1982); Harding v. Provident Life and Accident Ins.
state-sponsored retirement savings plans at http:// employee organization to trigger the Co., 809 F. Supp. 2d 403, 415–419 (W.D. Pa. 2011);
cri.georgetown.edu/states/. The stated mission of protections of ERISA coverage. For DOL Adv. Op. 94–22A (July 1, 1994).
the CRI is ‘‘[to] strengthen the retirement security 7 ERISA section 404(c)(2) (simple retirement
example, an employer may establish a
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
of American families by developing and promoting accounts); 29 CFR 2510.3–2(d) (safe harbor for
the bipartisan adoption of innovative state policies, benefit plan by purchasing insurance certain payroll deduction individual retirement
legislation and administrative models, such as accounts); 29 CFR 2509–99–1 (interpretive bulletin
pooled and professionally managed funds, which 5 ERISA includes several express exemptions in on payroll deduction IRAs); Cline v. The Industrial
will expand the availability and effectiveness of section 4(b) from coverage under Title I, for Maintenance Engineering & Contracting Co., 200
retirement solutions.’’ example, for pension plans established or F.3d 1223, 1230–31 (9th Cir. 2000).
4 Illinois Secure Choice Savings Program Act, maintained by governmental entities or churches 8 New York State Conference of Blue Cross & Blue
2014 Ill. Legis. Serv. P.A. 98–1150 (S.B. 2758) for their employees, certain foreign plans, unfunded Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 658
(West); California Secure Choice Retirement excess benefit plans, and plans maintained solely (1995); Ingersoll-Rand Co. v. McClendon, 498 U.S.
Savings Act, 2012 Cal. Legis. Serv. Ch. 734 (S.B. to comply with applicable state laws regarding 133, 142 (1990); Egelhoff v. Egelhoff, 532 U.S. 141,
1234) (West); Oregon 2015 Session Laws, Ch. 557 workers compensation, unemployment, or 148 (2001); Fort Halifax Packing Co. v. Coyne, 482
(H.B. 2960) (June 2015). disability. 29 U.S.C. 1003(b). U.S. 1, 14 (1987).
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![72008 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Proposed Rules
such IRAs. The Code includes through IRAs generally, as long as the condition is important because where
prohibited transaction provisions (very employer makes clear to employees its the employer is acting on his or her own
similar to those in ERISA), which are neutrality concerning the program and volition to provide the benefit program,
primarily enforced through imposition that its involvement is limited to the employer’s actions—e.g., requiring
of excise taxes against IRA fiduciaries collecting the deducted amounts and an automatic enrollment arrangement—
by the Internal Revenue Service. 26 remitting them promptly to the IRA would constitute its ‘‘establishment’’ of
U.S.C. 4975. sponsor, just as it remits other payroll a plan within the meaning of ERISA’s
In other contexts, the Department has deductions to taxing authorities and text, and trigger ERISA’s protections for
provided guidance to help employers other third parties. 29 CFR 2510.99– the employees whose money is
determine whether their involvement in 1(c).11 deposited into an IRA. As a result, state
voluntary payroll deduction The Department’s publication of the payroll deduction savings initiatives
arrangements for sending employee 1975 payroll deduction IRA safe harbor with automatic enrollment do not meet
retirement savings contributions to IRAs was prompted by comments on an the 1975 safe harbor’s ‘‘completely
would amount to establishing or earlier proposal indicating voluntary’’ requirement.
maintaining ERISA-covered plans. For ‘‘considerable uncertainty concerning
example, in 1975, the Department Title I coverage of individual retirement 125 (S.D.N.Y. 2014) (‘‘For a voluntary ‘tip pooling’
promulgated a safe harbor regulation to programs . . . .’’ 40 FR 34528. When it arrangement to exist, it must be ‘undertaken by
clarify the circumstances under which promulgated the safe harbor regulation, employees on a completely voluntary basis and may
IRAs funded by payroll deductions the Department did not consider payroll not be mandated or initiated by employers’ and an
would not be treated as ERISA plans. 29 deduction savings arrangements for employer can take ‘no part in the organization or
the conduct of [the] tip-pool.’ ’’) (quoting N.Y. Dept.
CFR 2510.3–2(d); 40 FR 34,526 (Aug. 15, private-sector employees with terms of Labor Opinion Letter RO–08–0049). See also
1975). This safe harbor is part of a more required by state laws. Instead, the Carter v. Guardian Life Ins. Co., Civil No. 11–3–
general regulation that ‘‘clarifies the payroll deduction IRA safe harbor and ART, 2011 WL 1884625, *1 (W.D. Ky. May 18,
limits of the defined terms ‘employee the group insurance safe harbor 2011) (‘‘Courts have held that employees’
participation is not ‘completely voluntary’ if their
pension benefit plan’ and ‘pension plan’ published that day focused on enrollment in the plan is ‘automatic.’ ’’); Thompson
for purposes of title I of the Act . . . by employers acting in coordination with v. Unum Life Ins. Co., No. Civ.A. 3:03–CV–0277–
identifying specific plans, funds and IRA and other vendors, without state B, 2005 WL 722717, *6 (N.D. Tex. Mar. 29, 2005)
programs which do not constitute involvement. Under those (analyzing group welfare plan safe harbor,
‘‘Thompson’s participation in the plan was
employee pension benefit plans for circumstances, it was important for both automatic rather than voluntary’’); cf. The Meadows
those purposes.’’ 29 CFR 2510.3–2(a). safe harbors to contain conditions to v. Employers Health Ins., 826 F. Supp. 1225, 1229
Other similar safe harbors were limit employer involvement, both to (D. Ariz. 1993) (enrollment not ‘‘completely
published in the same Federal Register avoid establishing or maintaining an voluntary’’ where health insurance contract
required 75 percent of employees to participate);
notice.9 employee benefit plan and to prevent Davis v. Liberty Mut. Ins. Co., Civ. A. No. 87–2851,
The 1975 regulation provides that undue employer influence in 1987 WL 16837, *2 (D.D.C. Aug. 31, 1987) (health
ERISA does not cover a payroll arrangements that would not be subject insurance enrollment not completely voluntary
deduction IRA arrangement so long as to ERISA’s protective provisions. When because employee would receive no alternative
four conditions are met: the employer compensation for refusing coverage, therefore
a program meets the conditions of the making refusal comparable to a cut in pay). See
makes no contributions, employee safe harbor, employer involvement in generally Advisory Council On Employee Welfare
participation is ‘‘completely voluntary,’’ the arrangement is minimal and And Pension Benefit Plans, Current Challenges And
the employer does not endorse the employees’ control of their participation Best Practices For ERISA Compliance For 403(b)
program and acts as a mere facilitator of in the program is nearly complete. In Plan Sponsors (2011) (available at www.dol.gov/
ebsa/publications/2011ACreport1.html) (‘‘The
a relationship between the IRA vendor such circumstances, it is fair to say that Council also considered, but is not recommending,
and employees, and the employer each employee, rather than the that DOL permit the inclusion of an automatic
receives no consideration except for its employer, individually establishes and enrollment feature within the context of an ERISA
own expenses.10 In essence, if the maintains the program. safe harbor 403(b) plan. The majority of Council
members concluded that automatic enrollment
employer merely allows a vendor to One of the 1975 payroll deduction would require actions typically performed by a plan
provide employees with information IRA safe harbor’s conditions is that an sponsor/fiduciary (e.g., designation of a default
about an IRA product and then employee’s participation must be investment alternative), and consequently, an
facilitates payroll deduction for ‘‘completely voluntary.’’ The automatic enrollment option in the plan may not be
viewed as voluntary even in light of the
employees who voluntarily initiate Department intended this term to mean participant’s right to opt out of the automatic
action to sign up for the vendor’s IRA, considerably more than that employees contributions.’’). DOL Field Assistance Bulletin
the arrangement is not an ERISA are free to opt out of participation in the (FAB) 2004–1 stated that an employer could open
pension plan. program. Instead, the employee’s a health savings account (HSA) and deposit
In 1999, the Department published employer funds into it without the employee’s
enrollment must be self-initiated. In affirmative consent so long as, among other things,
additional guidance on this safe harbor various contexts, courts have held that the arrangement was ‘‘completely voluntary on the
in the form of Interpretive Bulletin 99– opt-out arrangements are not consistent part of the employees’’ and also that employees
1. 29 CFR 2509.99–1. This guidance with a requirement for a ‘‘completely exercised control over the account with the power
explains that employers may, consistent to withdraw or transfer the employer money. FAB
voluntary’’ arrangement.12 This 2004–1 was focused on the effect of employer
with the third condition in the contributions, so there was no specific discussion
regulation, furnish materials from IRA
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
11 The Department has also issued advisory
of what was meant by ‘‘completely voluntary’’ in
vendors to the employees, answer opinions discussing the application of the safe the context of an HSA. Field Assistance Bulletin
employee inquiries about the program, harbor regulation to particular facts. See, e.g., 2006–2 clarified that the completely voluntary
Advisory Opinion 82–67A (Dec. 21, 1982), 1982 WL requirement in FAB 2004–1 related to employee
and encourage retirement savings 21250; DOL Adv. Op. 84–25A (June 18, 1984), 1984 contributions to an HSA and confirms that
WL 23439. completely voluntary employee contributions to the
9 29 CFR 2510.3–1(j), Certain group or group-type 12 See Doe v. Wood Co. Bd. Of Educ., 888 HSA must be self-initiated. The only ‘‘opt out’’
insurance arrangements; 29 CFR 2510.3–2(f), Tax F.Supp.2d 771, 775–77 (S.D. W. Va. 2012) considered in FAB 2004–1 was the employees’
sheltered annuities. 40 FR 34530 (Aug. 15, 1975). (Education Department regulations requiring power to move employer contributions out of the
10 The payroll deduction IRA safe harbor ‘‘completely voluntary’’ choice of single-gender HSA. Neither FAB suggested that employee
regulation, 29 CFR 2510.3–2(d), Individual education not satisfied by opt-out provision); contributions to an HSA could be completely
Retirement Accounts. Schear v. Food Scope America, Inc., 297 F.R.D. 114, voluntary under an opt out arrangement.
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![72010 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Proposed Rules
The proposed regulation requires that Limited employer involvement in the A state program that meets all of the
participation in the program be program is the key to a determination foregoing conditions will not fail to
voluntary for employees. As discussed that a state savings program is not an qualify for the safe harbor merely
above, this requirement is different from employee pension benefit program. because the program is directed toward
the current payroll deduction IRA safe Thus, the employer’s facilitation must employees who are not already eligible
harbor in 29 CFR 2510.3–2(d), which be required by state law—if it is for some other workplace savings
requires that participation be voluntary, the safe harbor does not arrangement. Nor will it fail merely
‘‘completely voluntary.’’ The proposed apply. Further, the proposal does not because it requires automatic
regulation expressly permits opt-out permit the employer to contribute to the enrollment subject to employees having
programs and, accordingly, does not program.16 All contributions under the a right to opt out. Similarly, if the state
require that participation be program must be made voluntarily by program offers employees a choice of
‘‘completely voluntary.’’ By using only the employees. When employers make multiple IRA sponsors to which
the term ‘‘voluntary,’’ the Department contributions to fund benefits of the employees may make payroll deduction
intends to make clear that the proposed type enumerated in Section 3(2) of contributions, the state program can
regulation, unlike the existing safe ERISA, they effectively sponsor an create a default option, i.e., designate
harbor, would allow the state to require ERISA-covered plan. Similarly, the the IRA provider to which the employer
employers to automatically enroll employer may not have discretionary must remit the payroll withholding
employees, unless they affirmatively authority, control, or responsibility contributions in the absence of an
elect not to participate in the program.15 under the program and may not receive affirmative election by the employee.
any direct or indirect compensation in ERISA’s expansive plan definition is
The proposed regulation also includes the form of cash or otherwise in critical to its protective purposes. When
conditions to assure that control of the connection with the program, other than employers establish or maintain ERISA-
payroll deduction program and the the reimbursement of the actual costs of covered plans, the plan’s participants
savings accounts lies with the state and the program to the employer. Finally, are protected by trust-law obligations of
the employees, and not the employer. the proposal specifies that employer fiduciary conduct, reporting
These include requirements that (1) the involvement must be limited to all or requirements, and a regulatory regime
program does not require that an some of the following: (1) Collecting designed to ensure the security of
employee or beneficiary retain any employee contributions through payroll promised benefits. In the circumstances
portion of contributions or earnings in deductions and remitting them to the specified by the proposed regulation,
his or her IRA and does not otherwise program; (2) providing notice to the however, the employer does not
impose any restrictions on withdrawals employees and maintaining records ‘‘establish or maintain’’ the plan.
or impose any cost or penalty on regarding the employer’s collection and Instead, the program is created and
transfers or rollovers permitted under remittance of payments under the administered by the state for the benefit
the Internal Revenue Code; (2) all rights program; (3) providing information to of those employees who voluntarily
of the employee, former employee, or the state necessary to facilitate the participate with minimal employer
beneficiary under the program are operation of the program; and (4) involvement. State administration of the
enforceable only by the employee, distributing program information to voluntary program does not give rise to
former employee, or beneficiary, an employees from the state and permitting ERISA coverage, and presumably
authorized representative of such the state to publicize the program to ensures that the program will be
person, or by the state (or the designated employees. administered in accordance with the
agency or instrumentality); and (3) the A program could fit within the safe interests of the state’s citizens.18
state adopts measures to ensure that harbor and include terms that require As noted above, ERISA generally
employees are notified of their rights employers to certify facts within the preempts state laws that relate to
under the program and creates a employer’s knowledge as employer, employee benefit plans. The U.S.
mechanism for enforcement of those such as employee census information Supreme Court has long held that ‘‘[a]
rights. In addition, the proposal requires (e.g., status of a full time employee, law ‘relates to’ an employee benefit
the state to assume responsibility for the employee addresses, attendance records, plan, in the normal sense of the phrase,
security of payroll deductions and compensation levels, etc.). The if it has a connection with or reference
employee savings. These conditions employer could also conduct reviews to to such a plan.’’ Shaw v. Delta Air Lines,
assure that the employees will have ensure it was complying with program Inc., 463 U.S. 85, 96–97 (1983) (footnote
meaningful control over their retirement eligibility requirements and limitations omitted); see, e.g., New York State
savings, that the state will enforce the established by the state. The Department Conference of Blue Cross & Blue Shield
employer’s payroll deduction requests comments on whether the final Plans v. Travelers Ins. Co., 514 U.S. 645,
obligations and oversee the security of regulation should provide more clarity 656 (1995). This proposed regulation
retirement savings, and that the and specificity on the types of functions would provide that certain state savings
employer will have no role in enforcing that could be permitted consistent with
employee rights under the program. the requirements of the safe harbor.17 Field Assistance Bulletin 2007–02 on the safe
harbor for tax sheltered annuity programs under 29
CFR 2510.3–2(f).
15 If a program requires automatic enrollment, 16 This provision, of course, would not prohibit 18 To the extent that the state program allows
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
adequate notice of their right to opt out must be an employer from allowing employees to review employees not subject to the automatic enrollment
furnished to employees in order for the program to program materials on company time or to use an requirement to voluntarily choose to participate, the
meet the safe harbor’s voluntariness condition. The employer’s computer to make elections under the employee’s voluntarily participation would not
proposal does not define the manner and content program. result in the employer establishing an ERISA-
of ‘‘adequate notice’’ for this purpose. The 17 In previous guidance issued by the Department
covered plan or the state program including an
Department expects that states and their vendors under other safe harbors involving private parties, ERISA-covered plan if the employer and the state
would look to analogous notice requirements the Department concluded that employers could program satisfy the conditions in the Department’s
contained in federal laws pertaining to automatic take certain corrective actions to stay within the existing safe harbor for payroll deduction IRAs at
enrollment provisions. See, e.g., 26 U.S.C. safe harbor and that such actions, in and of 29 CFR 2510.3–2(d). Of course, as described above,
401(k)(13)(E) and 414(w); 29 U.S.C. 1144(e)(3); and themselves, did not lead to the establishment of an automatic enrollment of employees is not permitted
29 CFR 2550.404c–5(d). The Department solicits employee benefit plan. See DOL Information Letter under the existing payroll deduction IRA safe
comments on this issue. to Siegel Benefit Consultants (Feb. 27, 1996) and harbor.
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![72014 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Proposed Rules
For the reasons stated in the governmental agency or instrumentality employee is given adequate notice of the
preamble, the Department of Labor described in paragraph (h)(1)(ii) of this right to make such elections; provided,
proposes to amend 29 CFR 2510 as set section); further, that a program may also satisfy
forth below: (viii) The involvement of the this paragraph (h) without requiring or
employer is limited to the following: otherwise providing for the automatic
PART 2510—DEFINITIONS OF TERMS (A) Collecting employee contributions elections described in this paragraph
USED IN SUBCHAPTERS C, D, E, F, through payroll deductions and (h)(2)(iii).
AND G OF THIS CHAPTER remitting them to the program; (3) For purposes of this section, the
(B) Providing notice to the employees term State shall have the same meaning
■ 1. The authority citation for part 2510 and maintaining records regarding the as defined in section 3(10) of ERISA.
is revised to read as follows: employer’s collection and remittance of
Authority: 29 U.S.C. 1002(2), 1002(21), payments under the program; Phyllis C. Borzi,
1002(37), 1002(38), 1002(40), 1031, and 1135; (C) Providing information to the State Assistant Secretary, Employee Benefits
Secretary of Labor’s Order No. 1–2011, 77 FR (or the designated governmental agency Security Administration, U.S. Department of
1088 (Jan. 9, 2012); Sec. 2510.3–101 also or instrumentality described in Labor.
issued under sec. 102 of Reorganization Plan paragraph (h)(1)(ii) of this section) [FR Doc. 2015–29426 Filed 11–16–15; 4:15 pm]
No. 4 of 1978, 43 FR 47713 (Oct. 17, 1978),
E.O. 12108, 44 FR 1065 (Jan. 3, 1979) and 29
necessary to facilitate the operation of BILLING CODE 4510–29–P
U.S.C. 1135 note. Sec. 2510.3–38 is also the program; and
issued under sec. 1, Pub. L. 105–72, 111 Stat. (D) Distributing program information
1457 (1997). to employees from the State (or the DEPARTMENT OF LABOR
designated governmental agency or
■ 2. Section 2510.3–2 is amended by Employee Benefits Security
instrumentality described in paragraph
adding paragraph (h) to read as follows: Administration
(h)(1)(ii) of this section) and permitting
§ 2510.3–2 Employee pension benefit the State or such entity to publicize the
29 CFR Part 2560
plans. program to employees;
* * * * * (ix) The employer contributes no RIN 1210–AB39
(h) Certain State Savings Programs. funds to the program and provides no
(1) For the purpose of Title I of the Act bonus or other monetary incentive to Claims Procedure for Plans Providing
and this chapter, the terms ‘‘employee employees to participate in the program; Disability Benefits
pension benefit plan’’ and ‘‘pension (x) The employer’s participation in
AGENCY: Employee Benefits Security
plan’’ shall not include an individual the program is required by State law;
Administration, Department of Labor.
retirement plan (as defined in 26 U.S.C. (xi) The employer has no
discretionary authority, control, or ACTION: Notice of proposed rulemaking.
7701(a)(37)) established and maintained
pursuant to a State payroll deduction responsibility under the program; and SUMMARY: This document contains
savings program, provided that: (xii) The employer receives no direct
proposed amendments to claims
(i) The program is established by a or indirect consideration in the form of
procedure regulations for plans
State pursuant to State law; cash or otherwise, other than the
providing disability benefits under the
(ii) The program is administered by reimbursement of the actual costs of the
Employee Retirement Income Security
the State establishing the program, or by program to the employer of the activities
Act of 1974 (ERISA). The amendments
a governmental agency or referred to in paragraph (h)(1)(viii) of
would revise and strengthen the current
instrumentality of the State, which is this section.
rules primarily by adopting certain of
responsible for investing the employee (2) A State savings program will not
the new procedural protections and
savings or for selecting investment fail to satisfy the provisions of
safeguards made applicable to group
alternatives for employees to choose; paragraph (h)(1) of this section merely
health plans by the Affordable Care Act.
(iii) The State assumes responsibility because the program—
(i) Is directed toward those employees If adopted as final, the proposed
for the security of payroll deductions regulation would affect plan
and employee savings; who are not already eligible for some
other workplace savings arrangement; administrators and participants and
(iv) The State adopts measures to
(ii) Utilizes one or more service or beneficiaries of plans providing
ensure that employees are notified of
investment providers to operate and disability benefits, and others who assist
their rights under the program, and
administer the program, provided that in the provision of these benefits, such
creates a mechanism for enforcement of
the State (or the designated as third-party benefits administrators
those rights;
governmental agency or instrumentality and other service providers that provide
(v) Participation in the program is
described in paragraph (h)(1)(ii) of this benefits to participants and beneficiaries
voluntary for employees;
(vi) The program does not require that section) retains full responsibility for of these plans.
an employee or beneficiary retain any the operation and administration of the DATES: Written comments should be
portion of contributions or earnings in program; or received by the Department of Labor on
his or her IRA and does not otherwise (iii) Treats employees as having or before January 19, 2016.
impose any restrictions on withdrawals automatically elected payroll ADDRESSES: You may submit written
or impose any cost or penalty on deductions in an amount or percentage comments, identified by RIN 1210–
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
transfers or rollovers permitted under of compensation, including any AB39, by one of the following methods:
the Internal Revenue Code; automatic increases in such amount or • Federal eRulemaking Portal: http://
(vii) All rights of the employee, percentage, specified under State law www.regulations.gov. Follow the
former employee, or beneficiary under until the employee specifically elects instructions for submitting comments.
the program are enforceable only by the not to have such deductions made (or • Email: e-ORI@dol.gov. Include RIN
employee, former employee, or specifically elects to have the 1210–AB39 in the subject line of the
beneficiary, an authorized deductions made in a different amount message.
representative of such a person, or by or percentage of compensation allowed • Mail: Office of Regulations and
the State (or the designated by the program), provided that the Interpretations, Employee Benefits
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Document Created: 2018-03-01 11:20:21
Document Modified: 2018-03-01 11:20:21
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Proposed rule. | |
| Dates | Written comments should be received by the Department of Labor on or before January 19, 2016. | |
| Contact | Janet Song, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693- 8500; or Jim Craig, Office of the Solicitor, Plan Benefits Security Division, (202) 693-5600. These are not toll-free numbers. | |
| FR Citation | 80 FR 72006 | |
| RIN Number | 1210-AB71 | |
| CFR Associated | Accounting; Employee Benefit Plans; Employee Retirement Income Security Act; Pensions; Reporting and Coverage |
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