Background: All regular employees of the state are members of one of the plans of the state retirement system plans. The plans include the Public Employees' Retirement System, the Law Enforcement Officers' and Fire Fighters' Retirement System, the Teachers' Retirement System, and others.

All plans of the state retirement systems are administered by the Department of Retirement Systems (DRS), which also administers the Washington State Investment Board (WSIB) and manages the investment of the funds of the state retirement systems, as well as other nonretirement funds.

Private employers take a wide variety of approaches to pension plans. Some provide their employees with pension benefits that share characteristics with the state retirement plans administered by DRS, and some provide no pension plan to their employees. Private employers may also provide employees the opportunity to participate in a wide variety of other retirement plans, such as 401(k) plans which are plans named after the section of the federal Internal Revenue Code that they implement.

Private employers offering pension plans to their employees must comply with an extensive body of federal law and regulation, the Employee Retirement Income Security Act, commonly referred to as ERISA. Governmental plans, operated by a government for its own employees, are generally exempt from ERISA rules. For a private employer, however, in order to qualify for the significant tax benefits available for both employers and employees, the employer must maintain adequate recordkeeping, fairness, and funding in their pension plans as specified by ERISA.

Privately employed individuals participate in Social Security, and also have federally-regulated personal retirement investment opportunities such as the Individual Retirement Account (IRA), accounts funded with pre-tax dollars, and many others. Banks, investment firms, and financial planners advise and assist individuals in planning and investing for retirement.

Summary of Bill: The Washington Voluntary Account Program (program) is created in DRS. The director of DRS (director) must design a plan to operate the program. The program has two tiers. On one tier, businesses employing fewer than 100 employees may choose to participate in an Internal Revenue Service-approved employer plan. On the other tier, the program is open to all workers on the basis of workplace-based individual retirement accounts. The plans and accounts must include the option for enrollees to roll pretax contributions into an individual retirement account after ceasing participation in the program.

The program must include a range of investment options featuring varying levels of risk, including a plan for participants who do not wish to self-direct their investments.

The WSIB must invest the contributions of the participants; provide investment options; and establish an investment plan for participants who choose not to self-direct investments. Enrollment in the program is not an entitlement. Expenditures exceeding the amount available in the program account may not be made. If it appears the amount available in the program account may be exceeded, the director may freeze new enrollments and establish a waiting list or reduce enrollments.

After the director designs the program, the director must obtain approval, if necessary, from the federal Internal Revenue Service to offer the plans and accounts to Washington employers and workers on a tax-qualified basis. The rules must be written to comply with federal standards, including federal requirements that are conditions for the receipt of federal funds by the state. The director then must adopt rules necessary to implement and operate the program. The director must consult with the participants and any others the director determines relevant.

Two program accounts are created in the custody of the State Treasurer. Employee contributions are paid into the principal account. Federal and philanthropic funds are paid into the administrative account. The program may not be implemented until federal funds, philanthropic funds, or both, sufficient to support the program's start-up costs, have been secured for deposit in the administrative account.

Private employers must provide employees with the opportunity to enroll in the program and may contract to provide payroll deductions for employees who enroll.

The director must make biennial reports to the Legislature.

Staff Summary of Public Testimony: PRO: This bill won't cost the state anything and will actually reduce costs in many state programs by helping Washington residents better prepare themselves financially for retirement. Too many people are too reliant on social security and don't save enough for retirement. This bill would make it easier for private employers to provide retirement savings programs for their employees, therefore making it easier for those employees to save. This bill won't have a negative impact on the financial services sector because firms will be able to contract with the DRS to provide enrollment services and the funds contributed to the Washington Voluntary Accounts Program will end up being invested and managed by private firms.

CON: Though its proponents mean well, this is a bill in search of a problem. Plenty of private firms already provide financial advice and retirement savings opportunities. The state should not engage in direct competition with licensed professionals in the private sector, especially in a time of economic stress.