Illinois may face challenges during attempts to implement a binding, state-based auto-individual retirement account (IRA) program for private employers. During the initial proposal of a payroll-deduction auto-IRA, Illinois government officials aimed to create a state-run savings plan that could provide any employer lacking retirement plan options with such. The auto-IRA would have employers automatically enroll employees into retirement plans. Here’s the issue: these plans were previously exempt from rules set forth by the Employee Retirement Income Security Act of 1974 (ERISA), and recent changes in federal legislation may affect their exemption.
Under the Barack Obama administration in 2016, the Department of Labor (DOL) exempt auto-IRAs from ERISA law, allowing the plans to exist. Within that period, Illinois and other states worked to implement their own versions of auto-IRAs. However, recent passage of Congressional Review Act (CRA) regulations in May 2017 rejects the legislation created under the Obama administration. The DOL now argues that auto-IRA plans are involuntary, qualifying them as ERISA plans. Retirement programs that fall into this category must adhere to ERISA rules and regulations, which could prevent auto-IRAs from existing if they fail to follow federal guidelines.
Uncertainties Ahead
As a result of this conundrum, Illinois may not be able to move ahead with this initiative. To further complicate matters, the state-based plan was approved by a democratic governor in 2015, whereas now a republican governor powers the state.
The goal of auto-IRA programs is to provide employees with the option to pay into retirement savings accounts when employers do not offer pension plans. While this IRA initiative is presented as mandatory for employers, employees are able to opt out of the savings program. Employers, it should be noted, are not required to pay into their employees’ auto-IRAs. Illinois’ automatic savings program was originally set to commence June 1, 2017 and be monitored by the Illinois Secure Choice Savings Board. The Board recently announced selection of a service provider for the Plan with a launch date for 2018 at the earliest.
We will keep you updated as further decisions are made surrounding these challenges. For more information on auto-IRA enrollment applicability and rules, or retirement plan solutions offered by Sikich, contact Michael Johnson at michael.johnson@sikich.com or 262-785-4579x 366.
