Employers within certain large cities and political subdivisions that don’t already offer their employees a retirement plan may soon have more administrative work on their hands. 

The Department of Labor (DOL) just issued a final rule that allow some cities and subdivisions that meet certain requirements to establish IRA accounts for private-sector workers who do not have access to company-sponsored retirement accounts.

The rule closely mirrors one that allows states to set up similar plans.

The DOL claims that city officials had been interested in establishing retirement accounts for private-sector employers but feared being subject to ERISA. This rule alleviates those fears by creating a safe harbor describing how cities and political subdivisions may design and operate retirement savings programs without triggering ERISA coverage.

The plans would be run by the city or subdivision, who could work with private-sector retirement planning firms. The city or qualified political subdivision would be responsible for investing the employee savings or for selecting investment alternatives from which employees may choose.

For private-sector employees, enrollment in the plans would be voluntary. As a result, if a plan contains an auto-enrollment feature, employees must be given a chance to opt out.

What employers would have to do

So what would you as an employer be required to do if your city or subdivision elects to create one of these retirement plans?

For employers required to participate in such a plan, the rule says employer activity must be limited to “ministerial activities,” such as:

  • collecting payroll deductions and remitting them to the plan
  • providing required notices to employees
  • maintaining records of payroll deductions and remittance of payments
  • providing information to the government body running the plan, and
  • distributing plan information to employees.

Employers wouldn’t be allowed to contribute their own funds to the plan.

‘Qualified’ city or subdivision

Not just any city or subdivision can create a retirement plan under the rule. Certain requirements must be met first to be “qualified.” These include:

  • not already having a state-required payroll deduction savings program in place for private-sector employers
  • having explicit authority from the state to create such a savings plan, and
  • having a population equal to or greater than the population of the least populous state (currently Wyoming — 600,000).

The rule will go into effect 30 days after its December 20 publication in the Federal Register.

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