Congress Overturns State Retirement Plan Regulation
Connecticut’s new state-run retirement plan is in jeopardy following action by the U.S. Congress this week.
The U.S. Senate on May 3 overturned a regulation that allowed states to develop and run retirement plans that were not required to comply with the Employee Retirement Income Security Act.
The U.S. House of Representatives voted earlier to overturn the regulation, and President Trump is expected to sign the measure.
Connecticut’s General Assembly narrowly approved the retirement mandate last year despite widespread concerns from the business community.
Public Act 16-29 requires Connecticut businesses with five or more employees to automatically enroll any employee not eligible for an employer-sponsored retirement plan into an approved IRA plan.
The proposal initially called for a single retirement plan administered by the state, but as a condition of passage, the language was changed to call for multiple private-sector plan options.
Advocates pushing this proposal rightly claimed that Connecticut citizens are not saving enough for their retirement.
If Connecticut moves forward, the state must comply with the same costly but important consumer safeguards ERISA requires for private sector plans.
The business community, including CBIA, opposed the Connecticut mandate, citing the many administrative tasks and obligations it imposed on businesses and wide availability of private sector options.
Further, the mandate will negatively impact local banks and insurance brokers once Connecticut enters the retirement market and steers people towards state plans.
In addition, there was also a pending federal rule that exempted plans in the state program from complying with ERISA's important consumer protections.
Private sector plans must comply with these federal laws, which protect consumers but drive up compliance costs for employers who must act as fiduciaries.
The now repealed federal regulation was finalized in August 2016, paving the way for Connecticut's plan to move forward.
However, this week's action by Congress and the likelihood the president will sign the measure cast doubts over the future of Connecticut's plan.
If Connecticut moves forward with its own plan, the state must now comply with the same costly but important consumer safeguards ERISA requires for private sector plans.
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