Complying with a directive from the White House, the Departmentof Labor on Monday released a proposed rule and interpretivebulletin to help guide states in developing state-run retirementplans that don't run afoul of the ERISA.

Noting the nearly 70 million workers without access toretirement plans at work, Labor Secretary Thomas Perez said inreleasing the plan that employees' inability to save through workis not only a “potential financial crisis for these individuals andtheir families, but a critical economic issue for the nation.”

Monday's guidance, Perez said, “is another plank in the economicsecurity platform that President Obama and this administration havebeen building to help create new savings options, ensure workersare getting sound retirement advice, and bolster bedrock programssuch as Social Security.”

The DOL filed Sept. 3 with the Office of Management and Budgetits proposed rule designed to make it easier for states to offertheir own retirement plans without running afoul of ERISA, or theEmployee Retirement Income Security Act.

During the White House's Conference on Aging, held in July, President Obama directed Perez to publish a proposedrule to “provide a clear path forward for the states to createretirement savings programs” by year-end.

Specific to the proposal is a new safe harbor from ERISA for state-sponsoredIRAs that conform to certain provisions. The proposal would adopt astandard stating that state-sponsored payroll deduction IRAprograms must be “voluntary” for workers, rather than “completelyvoluntary” as defined in a 1975 rule.

“This will allow for automatic enrollment of employees in suchprograms so long as they are given the ability to opt-out, andemployers are minimally involved,” the DOL stated.

For instance, “employers would make the automatic deductionsfrom employee paychecks, but the employees and states would retaincontrol of the program and IRA accounts,” the DOL said. “Employerscould not prevent workers from declining to participate in theprogram.”

Comments on the proposed rule are due by Jan. 19.

The DOL also published an interpretive bulletin regard creatingstate-based ERISA-compliant 401(k) plans that are open tobusinesses and workers. In addition to payroll deduction IRAsand state-based 401(k)s, the bulletin provides examples of how tocreate state retirement savings programs that may avoid beingpreempted under ERISA.

Illinois Treasurer Michael Frerichs said that nearly 1.2 millionworkers are poised to benefit from Illinois' state-run plan, theSecure Choice Retirement Savings Program.

“With these new federal rules, my administration can moveforward with helping some of our state's most vulnerable workers,”Frerichs said.

While automatic IRAs and state-based ERISA plans have beencreated, or are being considered, by various states, the DOL sais,the lack of clarity in how to develop state-run plans has madeother states “reluctant to move forward” with their own plans. TheDOL said its Monday guidance “is meant to give states clearinformation as they move forward in creating programs.”

Similar state-run initiatives to Illionois' are underway inOregon and California, with Washington launching earlier this yeara small plan marketplace. Approximately half the states arecurrently considering state-run measures, according to the AmericanRetirement Association, which takes issue with allowing state-runplans.

The DOL's proposal “modifies the current payroll deduction safeharbor to allow automatic enrollment provisions without making theplan an ERISA arrangement, if there is a mandate to offer the planand the state program is the default option,” the ARA said in aMonday statement. “This would now allow states to mandate theseofferings without the protections and fiduciary oversights ERISAprovides.”

While some state-run programs – notably Illinois – allow atraditional ERISA retirement plan, such as a 401(k), to satisfy themandates, the DOL's proposal “would extend an ERISA shield withoutthat option,” the ARA said.

The ARA also argued the DOL's “sub-regulatory guidance – whichis effective immediately – would allow states to sponsor retirementmultiple employer plans (MEPs) for employers operating in thestate,” which “stands in sharp contrast to the Labor Department'slong-standing reluctance to enthusiastically embrace or sanctionthe use of these so-called 'open' MEPs for these programs in theprivate sector.”

Brian Graff, the ARA's CEO, said the proposal as well as theguidance are “misplaced attempts by the Administration to promotecoverage by giving marketplace advantages to states as retirementplan providers, with no reasonably apparent policy justification tosuggest states are somehow going to do a better job providingretirement plan products.”

The ARA, Graff continued, believes the DOL proposal “creates anunlevel playing field, and uses regulation to give state-runalternatives an unfair, and unwarranted competitive advantage inthe retirement plan marketplace.”

However, Nancy LeaMond, AARP's executive vice president, saidthe DOL's proposed rule “provides greater clarity and sends astrong signal that states should continue to pursue solutions forworkers who are well behind in their savings.”

The state plans, what AARP calls “Work and Save,” provide“a dynamic route to retirement savings for millions in the privatesector, in partnership with private sector employers and stategovernment,” she added.

The Investment Company Institute, meanwhile, expressed its “deepconcern” that the administration is pursuing “policies that couldfragment and undermine our nation's voluntary retirement system forprivate-sector workers.”

More retirement plan access to workers, ICI argued, “should beprovided through national legislation that builds on the currentvoluntary system, not through a confusing patchwork of stateprograms, and with the cooperation — not coercion — of employerswho best know the demographics and needs of their workers.”