This document summarizes a presentation given by David E. Morse of K&L Gates LLP on the Department of Labor's proposed rulemaking regarding state-run retirement savings programs. The proposed rule would establish a new safe harbor exemption from ERISA for state programs that meet certain requirements, such as being established and administered by the state, assuming responsibility for security of funds, and only allowing employer involvement in ministerial acts. The proposed rule generally supports state efforts but raises some issues for public comment. It aims to provide clarity on ERISA exemptions for state programs while protecting employee rights.

1. © Copyright 2015 by K&L Gates LLP. All rights reserved.
DOL’s Proposed Rulemaking (NPRM):
Savings Arrangements Established by States
for Non-Government Employees
Presentation to the Georgetown Center for Retirement Initiatives
December 10, 2015
David E. Morse, Partner - K&L Gates LLP
david.morse@klgates.com

2. A Little Background – Existing Safe Harbor
 1975 DOL safe harbor exempts IRA-based employer
payroll withholding programs from ERISA if:
 No employer contributions;
 Completely voluntary;
 No employer endorsement, just ministerial acts;
 No employer compensation.
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3. What is ERISA and Why Safe Harbors?
 ERISA was established in 1974 to establish uniform
standards for private sector pension plans
 Plan sponsor fiduciary duties;
 Reporting & disclosure requirements;
 Prohibited transactions;
 Other participant protections.
 Established safe harbor exemption makes ERISA
preemption of state laws less likely.
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4. Enter the States, Private Sector Retirement
Plans and the U.S. Department of Labor (DOL)
 A number of states are crafting or considering
employer-based payroll withholding IRA savings
program, but…
 ONLY IF EXEMPT FROM ERISA.
 DOL argued 1975 exemption would NOT cover most of
these state-initiated programs.
 Instead, DOL has now issued proposed regulations
establishing a new safer harbor and exempting state
programs meeting a new set of requirements.
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5. DOL’s New Safe Harbor Proposed Rule
(NPRM)
• Generally supportive of state efforts.
• Needs to be finalized as soon as possible to
eliminate uncertainty and allow other states to
consider their options.
• Potential issues for consideration and comment.
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6. Proposed Rule (NPRM) – New Safe Harbor
Requirements
1. Plan must be established by a state under state law.
2. Administered by state/instrumentality “responsible for
investing employee contributions or for selecting
investment alternatives.”
3. State “assumes responsibility for security of payroll
deductions and employee savings.”
4. State “creates mechanism for enforcement” of
employees’ rights under program.
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7. Proposed Rule (NPRM)- New Safe Harbor
Requirements
5. Voluntary for employees.
6. No restrictions on withdrawals or costs or penalties on
rollovers and transfers.
7. Participant rights enforceable by only participant,
his/her representative or state.
8. Employer involvement limited to ministerial acts like
payroll processing, keeping records, distributing
information.
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8. Proposed Rule (NPRM) -New Safe Harbor
Requirements
9. No employer contributions; no employer kick-backs or
other benefits.
10.State can outsource administration if it retains “full
responsibility for operation and administration.”
11. Auto-enrollment and escalation are allowed only if:
 Required by state law;
 Adequate notice to employees; and
 Employer mandate - employer required to join program and
auto-enrollment/escalation only applies to employees affected by
mandate.
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9. Why the Special Attention on Auto-enrollment
and Auto-escalation?
 According to the DOL: contributions of auto-enrolled
employees are “voluntary” but not “completely voluntary,”
as required by the 1975 safe harbor.
 State’s active involvement diminishes potential for undue
employer influence and a State mandate requires
employers to join program with auto-enrollment, so
employee contributions will be voluntary.
 Without a state mandate, or for individuals not covered
by the mandate, employees may only opt-in
(affirmatively elect to contribute).
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10. Proposed Rule (NPRM) –Public Comment and Timing
• Public comments due to DOL no later than January
19, 2016
• The rule and instructions for how to submit public
comments can be found at www.dol.gov/ebsa
• DOL is expected to issue a final rule before the
end of 2016.
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