On Dec. 20, 2016, the DOL issued final regulations on savings arrangements established by political subdivisions, such as cities and counties. As background, the DOL issued final rules for state-run IRA programs back in August 2016 (covered in the Sep. 7, 2016, edition of Compliance Corner). Those final rules created a safe harbor from ERISA for state-run IRA programs that met certain conditions. In addition to those final rules, the DOL issued proposed rules that would allow political subdivisions of states to establish similar programs.
The final regulations reflected in this article amend the current regulations to cover programs offered through certain qualified political subdivisions. The regulations specify that qualified political subdivisions are governmental units of a state which meet the following criteria:
- The political subdivision must have implicit or explicit authority under state law to require employers’ participation in the payroll deduction savings program.
- The political subdivision must have a population equal to or greater than the population of the least populous state.
- The political subdivision cannot be within a state that has enacted a mandatory statewide payroll deduction savings program for private-sector employees; nor can the political subdivision have geographic overlap with another political subdivision that has enacted such a program.
- The political subdivision must implement and administer a retirement plan for its employees.
Qualified political subdivisions may design and operate payroll deduction savings programs, which non-governmental employees may participate in, without causing the city or county or the participating employers to become subject to ERISA. Similar to the rules imposed on state programs, the final rule on qualified political subdivisions reiterates the safe harbor’s conditions, many of which limit the employer’s role in the program.
Specifically the employers’ activity must be limited to certain ministerial activities such as collecting and remitting payroll deductions, providing program information and notice to employees, and keeping records. Additionally, employers cannot contribute to the IRAs and must promptly transmit employee contributions to the program.
The final regulation will be effective 30 days following the Dec. 20, 2016, publication.
While these rules are directed to counties and cities wishing to establish such programs, the rules are important for employers to understand. Please contact your adviser if you become subject to such a program.
Final Regulations »
Fact Sheet »