COMPARISON OF CALIFORNIA, ILLINOIS, AND OREGON STATE-RUN RETIREMENT PLAN LEGISLATION

COMPARISON OF CALIFORNIA, ILLINOIS, AND OREGON STATE-RUN RETIREMENT PLAN LEGISLATION TOPIC / LEGISLATION DATE SIGNED INTO LAW STATED PURPOSE California Secure Choice Retirement Savings Trust Act ( California Act ) (S.B. 1234) See also S.B. 923, which requires a subsequent authorizing statute before the program may be fully implemented. Illinois Secure Choice Savings Program Act ( Illinois Act ) (S.B. 2758) September 28, 2012 January 4, 2015 June 25, 2015 Assist workers by creating an additional retirement savings program to supplement existing savings options. Promote greater retirement savings for privatesector employees in a convenient, low-cost, and portable manner. Relating to retirement investments; and declaring an emergency ( Oregon Act ) (H.B. 2960) PROGRAM / PLAN Promote expanded retirement security for working Californians. California Secure Choice Retirement Savings Program ( California Program ) Illinois Secure Choice Savings Program ( Illinois Program ) Oregon Retirement Savings Plan ( Oregon Plan ) SAVINGS VEHICLE Payroll deposit IRA Payroll deduction Roth IRA Payroll deduction defined contribution plan TRUST FUND California Secure Choice Retirement Savings Trust ( California Trust Fund ), which is divided into the: Program Fund Administrative Fund Illinois Secure Choice Savings Program Fund ( Illinois Trust Fund ) Established as a trust outside of the State treasury. Includes enrollees IRA accounts. 1 November 22, 2015

ADMINISTRATIVE FUND See row above. Transfers may be made from the Program Fund to the Administrative Fund to pay costs associated with administering the trust. Illinois Secure Choice Administrative Fund ( Illinois Administrative Fund ) Non-appropriated separate and apart trust fund within the Illinois State Treasury. May be used to pay expenses incurred by the Illinois Board in performing its duties, including start-up administrative expenses. Oregon Retirement Savings Plan Administrative Fund ( Oregon Administrative Fund ) Established in the Oregon State Treasury, separate from the General Fund. Moneys in the fund are continuously appropriated to the Oregon Board, which may use the fund to pay administrative costs and expenses of the Oregon Plan and Board. Oregon appropriated $250,000 for reimbursing state agencies providing assistance to the Oregon Board, and $743,541 for the Oregon Board s operating expenses. As soon as practicable, the amounts appropriated are to be transferred from the Oregon Administrative Fund back to the General Fund. TRUSTEE / PROGRAM ADMINISTRATOR TIMING OF IMPLEMENTATION California Secure Choice Retirement Savings Investment Board ( California Board ), consisting of 9 members and chaired by the State Treasurer. The California Board, in its capacity as trustee, may appoint an administrator for the California Program. As noted above, further legislation is required before the California Program may be implemented. Among other requirements, the California Board must conduct a market analysis and determine that the California Trust has sufficient funds to be self-sustaining. Illinois Secure Choice Savings Board ( Illinois Board ), consisting of 7 members and chaired by the State Treasurer (or his or her designee). The Illinois Board s duties include designing and operating the Illinois Program so that it provides for the deaccumulation of assets in a manner that maximizes financial security in retirement. The Illinois Program shall be implemented and begin enrollment within 24 months after the effective date of the Illinois Act. Implementation may be delayed if adequate funds to implement the Illinois Program have not been obtained. Oregon Retirement Savings Board ( Oregon Board ), consisting of 7 members and chaired by the State Treasurer (or the State Treasurer s designee). The investment administrator for the Oregon Plan is the trustee of all contributions and earnings under the plan. The Oregon Act requires that individuals may begin making contributions to the Oregon Plan no later than July 1, 2017. Prior to establishing the Oregon Plan, the Oregon Board must conduct a market analysis and meet other prerequisites. 2 November 22, 2015

ADMINISTRATIVE EXPENSES Administrative expenditures shall not exceed 1% of the total Program Fund. May not exceed 0.75% of the Illinois Trust Fund s total trust balance. The Oregon Board must keep administration fees in the Oregon Plan low. The Oregon Board has the power to collect fees to defray administration costs. EMPLOYER PARTICIPATION Employer participation is mandatory for eligible employers. Eligible employer means a person or entity engaged in a business, industry, profession, trade, or other enterprise in the state, whether for profit or not for profit, excluding the federal government, the state, any county, any municipal corporation, or any of the state s units or instrumentalities, that: Has five or more employees; and Satisfies the requirements to establish or participate in a payroll deposit retirement savings arrangement. Eligible employers that do not offer an employer-sponsored retirement plan or automatic enrollment payroll deduction IRA must allow for employee participation within 3, 6, or 9 months of the California Program opening for enrollment, based upon the employer s number of eligible employees. Any employer not required to participate may choose to allow its employees to participate in the California Program. Employer participation is mandatory for persons or entities engaged in a for-profit or not-for-profit business, industry, profession, trade, or other enterprise in Illinois that meet the following requirements: Have employed 25 or more employees in Illinois at all times during the previous calendar year; Have been in business at least 2 years; and Have not offered a qualified retirement plan (e.g., a plan qualified under Code sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b)) in the preceding two years. Employers have the option at all times to set up any type of employer-sponsored retirement plan or to offer an automatic enrollment payroll deduction IRA instead of allowing employees to participate in the Illinois Program. Small employers that have employed less than 25 employees at any time in the previous calendar year and/or that have not been in business at least 2 years may notify Illinois of their interest in participating in the program. Employer participation is mandatory unless the employer obtains an exemption because it offers a qualified retirement plan (e.g., a plan qualified under Code sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b)). Unlike California and Illinois, there is no minimum employee threshold. 3 November 22, 2015

EMPLOYERS THAT OFFER A RETIREMENT PLAN TO SOME (BUT NOT ALL) EMPLOYEES (E.G., PART-TIME WORKERS) EMPLOYER RESPONSIBILITIES Unclear. The mandate appears to apply to employers that do not offer an employersponsored retirement plan or automatic enrollment payroll deduction IRA. On the other hand, the definitions of eligible employee and eligible employer could be read to apply to an employee not covered by the employer s plan. Remit employees contributions to their individual retirement accounts. Supply employee information packets to existing employees upon the California Program s launch and to new hires at the time of hiring. Provide an open enrollment period at least once every two years during which eligible employees that previously opted out of the California Program shall be enrolled unless the employee again elects to opt out. (Employers may permit employees to enroll at a time that is earlier than the open enrollment.) Unclear. The Illinois Act s definitions suggest that an employer is excluded if it offers a plan at all, but it may have been intended that uncovered employees (including those who will be eligible for the plan in the future) may be swept into the mandate. If so, it is not clear whether such an employer needs to have 25 uncovered employees in Illinois, or simply have 25 employees in Illinois and at least one employee uncovered. Note: At meetings, the Treasurer of Illinois, who serves on the Board, has stated that employers with a plan are not covered, but also has said that the Board may decide that if large groups of employees of an employer are not covered, then the mandate applies. Other Illinois officials have suggested the law does not cover employees who simply have not met the age and service requirements. Distribute information packets upon the Illinois Program s launch and to new hires at the time of hiring. Establish a payroll deposit retirement savings arrangement no more than 9 months after the Illinois Program is opened for enrollment and forward contributions to the Illinois Program. Automatically enroll each employee who has not opted out of participation. Provide an open enrollment period at least once a year to allow employees who previously opted out an opportunity to opt in. If required, report information relevant to the employer s compliance with the Illinois Act. Unclear. The mandate appears to apply only to employers that do not offer a plan at all. But the bill also provides that the Board will establish the process and requirements for an employer to obtain an exemption from the mandate if it offers a plan, which suggest there may be substantive requirements, like the plan covering all employees. Withhold employee contributions from wages and send the contributions to the Oregon Plan s investment administrator. By December 31, 2016, the Oregon Board must report an analysis of potential costs to employers, including costs associated with providing automatic payroll deductions, and recommendations on how to eliminate or reduce those costs through incentives, tax credits, or other means. 4 November 22, 2015

EMPLOYER PENALTIES Eligible employers that, without good cause, fail to allow eligible employees to participate in the California Program may be subject to a penalty of $250 per eligible employee if noncompliance extends 90 days or more after receipt of notice. If found to be in noncompliance 180 days or more after the notice, an additional penalty of $500 per eligible employee applies. An employer who fails to timely enroll an employee without reasonable cause (unless the employee opted out) is subject to a penalty of $250 for each employee for the calendar year (or partial calendar year) during which the employee was not enrolled in the program. In subsequent calendar years, the penalty is $500 per employee. DEFINITION OF EMPLOYEE Eligible employee means a person who is employed by an eligible employer, but excludes: Employees covered under the Railway Labor Act Certain employees engaged in interstate commerce so as not to be subject to the legislative powers of the state Employees covered by a collective bargaining agreement that provides for a Taft-Hartley pension plan. Any individual who is at least 18 years old, is employed by an employer, and has wages allocable to Illinois during a calendar year under the Illinois Income Tax Act. No definition of employee is provided in the Oregon Act, but the Oregon Plan must allow eligible individuals employed for compensation in this state to contribute to an account under the plan. EMPLOYEE PARTICIPATION Eligible employees are required to participate unless the employee opts out. Employees of participating employers are automatically enrolled with the option to opt out. Employees are automatically enrolled with the option to opt out. 5 November 22, 2015

CONTRIBUTIONS INVESTMENT OPTIONS 3% default contribution rate, with an option for employees to specify a different amount. The California Board may adjust the default within a 2-4% range. Employees are subject to the minimum and maximum contribution levels set for IRAs in the Code. The California Board may establish a process for individuals and employees of nonparticipating employers to participate in the California Program. Participating employers may be allowed to contribute to their employees accounts, provided that the contributions would be permitted under the Code Instead of providing investment options, the California Board shall annually declare a stated interest rate that will be allocated to account for the California Program year. A Gain and Loss Reserve Account may be established within the Program Fund and used to allocate interest at the stated interest rate for years in which the stated interest rate cannot be met from investment earnings. Excess earnings may be allocated to Gain and Loss Reserve Account. 3% default employee contribution rate, with an option for employees to increase or decrease the rate or dollar amount. Employees are subject to (1) the minimum and maximum contribution levels set for Roth IRAs in the Code, and (2) the income limits on Roth IRAs ($131,000 single and $193,000 married filing jointly for 2015). Other individuals may voluntarily enroll in and make contributions to the Illinois Program. The Illinois Board must make available a target date fund. The Illinois Board may offer (1) a conservative principal protection fund; (2) a growth fund; (3) a secure return fund (i.e., likely a stable value or similar fund); and/or (4) an annuity fund. The default investment option is the target date fund unless the Illinois Board selects a secure return fund (if offered) as the default. A default contribution rate will be set by the Oregon Board. The Oregon Plan must offer default escalation of contribution limits that can be increased or decreased within Code limits. Employees are subject to the minimum and maximum contribution levels established by the Code. The Oregon Board must establish a process for participants to make non-payroll contributions. Employers are not required to contribute to employee accounts. The Oregon Board has the power to direct the investment of funds contributed to accounts in the Oregon Plan consistent with the investment restrictions established by the board. The Oregon Act leaves many of the specifics of the plan, including investment options, up to the Oregon Board to determine or otherwise provide for. 6 November 22, 2015

ERISA CONCERNS 1 The California Board shall not implement the program if it is determined that the program is an employee benefit plan under ERISA. Participating employers may be allowed to contribute to their employees individual retirement accounts, provided that the contributions would not cause the California Program to be treated as an employee benefit plan under ERISA. The Illinois Board must request an opinion or ruling from the Department of Labor regarding the applicability of [ERISA] to the Program. It is unclear what the consequences would be if the Department fails to provide the requested opinion or ruling. The Illinois Board may not implement the Illinois Program if the program is determined to be an employee benefit plan under ERISA such that the state or employers become subject to liability under ERISA. Prior to the establishment of the Oregon Plan, the Oregon Board must obtain legal advice regarding the applicability of ERISA. The Oregon Board shall coordinate with the efforts of other states as those states pursue legal guidance with respect to their similar programs. The Oregon Board may not establish the Oregon Plan if it determines that the plan developed would qualify as an employee benefit plan under ERISA. The Oregon Plan must not impose any duties under ERISA on employers. 1 On November 18, 2015, the Department of Labor published a proposed regulation that would provide an exemption from ERISA for state-run mandatory auto IRA arrangements meeting certain requirements. See 80 Fed. Reg. 72006 (Nov. 18, 2015). 7 November 22, 2015

INTERNAL REVENUE CODE CONCERNS The California Board shall not implement the program if the IRA arrangements offered fail to qualify for the favorable federal income tax treatment ordinarily accorded to IRAs under the Code. The California Board has the authority to facilitate the California Program s compliance with all applicable requirements for the program under the Code, including tax qualification requirements or any other applicable law and accounting requirements, including providing or arranging for assistance to program sponsors and individuals in complying with applicable law and tax qualification requirements in a cost-effective manner. The California Board shall adopt regulations it deems necessary to be consistent with the Code and regulations issued thereunder to ensure that the program meets all criteria for federal taxdeferral or tax-exempt benefits, or both. The Illinois Board may not implement the Illinois Program if the Roth IRAs offered fail to qualify as Roth IRAs under the Code. The Illinois Program must comply with all applicable requirements under the Code, including tax qualification requirements. The Illinois Trust Fund must be operated so that enrollee accounts established under the Illinois Program meet the requirements for IRAs under the Code. Prior to the establishment of the Oregon Plan, the Oregon Board must obtain legal advice regarding the applicability of the Code. The Oregon Board shall coordinate with the efforts of other states as those states pursue legal guidance with respect to their similar programs. LIABILITY OF STATE The funding mechanism secured by the California Board shall protect, indemnify, and hold the state harmless at all times against any and all liability in connection with funding retirement benefits pursuant to the California Act. The state shall not have any liability for the payment of benefits earned by participants. The State of Illinois shall have no duty or liability to any party for the payment of any retirement savings benefits accrued under the Illinois Program. Neither the Oregon Plan, Oregon Board (and its members), nor the State of Oregon may be liable for any loss incurred as a result of participating in the Oregon Plan. The state, and any of the funds of the state, shall have no obligation for payment of the benefits arising from the California Act. 8 November 22, 2015

LIABILITY OF EMPLOYER Employers have no liability for an employee s decision to participate in, or opt out of, the California Program, or for the investment decisions of employees whose assets are deposited in the program. Employers shall not be a fiduciary, or considered to be a fiduciary, over the California Trust or Program. Employers have no liability for an employee s decision whether to participate in the Illinois Program or for the employee s investment choices. The Illinois Act clarifies that employers shall not be a fiduciary, or considered to be a fiduciary, over the Program. Participating employers are not liable for employee decisions made pursuant to the Oregon Act. Employers have no responsibility for the administration, investment, or investment performance of the program. An employer shall not be liable with regard to investment returns, program design, and benefits paid to program participants. 9 November 22, 2015