Washington State House of Representatives Office of Program Research | BILL ANALYSIS |
Consumer Protection & Business Committee |
2E2SSB 5740
This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent. |
Brief Description: Creating the secure choice retirement savings program.
Sponsors: Senate Committee on Ways & Means (originally sponsored by Senators Mullet, Hobbs, Conway and Van De Wege).
Brief Summary of Second Engrossed Second Substitute Bill |
|
Hearing Date: 2/25/20
Staff: Serena Dolly (786-7150).
Background:
Washington Small Business Retirement Marketplace.
The Washington Small Business Retirement Marketplace (Marketplace) is operated by the Department of Commerce and allows self-employed individuals and employers with fewer than 100 employees to participate in retirement plans. The Department of Commerce approves private financial service firms to offer approved plans on the Marketplace. The Marketplace must provide a range of investment options to meet the needs of investors with various levels of risk tolerance. Options include a simple individual retirement account (IRA) plan for employer contributions to participating enrollee accounts, payroll deduction IRA-type plans, and workplace-based IRAs open to all workers in which the employer does not contribute to employees' accounts. Employers are not required to participate in the Marketplace.
The Marketplace must offer the myRA plan, which is a federal government sponsored plan similar to a Roth IRA. The myRA plan was designed to help low-income and middle-income workers who do not have access to a 401(k) or pension at work to start saving for retirement by investing in a risk adverse, interest-bearing account backed by the United States Treasury. The myRA plan was closed in 2018.
Summary of Bill:
The Secure Choice Retirement Savings Program (Program) is established as a retirement investment program for employees who work for employers that do not offer a retirement plan. Covered employers are required to deduct a percentage of wages paid to employees to be invested in an IRA established for each employee under the Program. Employees who do not wish to participate in the Program must affirmatively opt out.
Commissioner Responsibilities.
The Commissioner of the Employment Security Department (Commissioner) is responsible for designing, establishing, and operating the Program. The Commissioner has the authority to determine the types of IRA plans to be offered, a default contribution rate, and an escalation rate. The Program may include traditional and Roth IRAs. The default contribution rate must be no less than 3 percent and no more than 10 percent. The automatic escalation may not increase the employee contribution rate above 10 percent. The Commissioner may establish intervals after which a covered employee must reaffirm elections, including opt-out elections, with regard to participation or escalation.
The Commissioner must structure the Program so that employees are automatically enrolled and covered employer participation is required. The Program must be designed and operated in a manner that will not cause it to be an employee benefit plan as defined by the Employee Retirement Income Security Act of 1974.
The Commissioner must prescribe which records employers are required to maintain. Information obtained by the Commissioner concerning an employer or employee is generally confidential and not subject to public disclosure. Information may be shared only to facilitate operation of the Program.
The Commissioner, in consultation with the Washington State Investment Board and the Department of Financial Institutions, may establish the Program by contracting with another state or partnering with one or more other states. If the Commissioner establishes the Program by contracting with another state, the rate of the administrative fee may not exceed the rate charged to employees of another state participating in the same program. If the Commissioner does not establish the Program by contracting with another state or partnering with one or more other states, the rate may not exceed 1.05 percent.
The Commissioner must establish an outreach plan and provide each employer with: (1) information about the Program, retirement, and general financial education; (2) required disclosures to be provided to employees; and (3) information, forms, and instructions to be provided to employees. The Commissioner must also develop a marketing strategy that includes outreach to communities of color and encourages small business engagement.
Implementation.
The Commissioner must develop an implementation plan that details how the Program will be designed, established, operated, and marketed. By December 1, 2020, the Commissioner must submit a report describing the implementation plan to the appropriate committees of the Legislature.
The Commissioner may establish a pilot project to begin by January 1, 2021. The Commissioner may also provide for a staggered rollout of the Program based on employee headcount or other criteria. The Program must be available to all covered employers no earlier than January 1, 2022, and no later than January 1, 2023.
Covered Employers.
A "covered employer" is an employer that elects to be covered or that:
has been in business for at least five years;
has more than five employees;
does not currently sponsor, maintain, or contribute to an employee retirement plan; and
has not sponsored, maintained, or contributed to an employee retirement plan at any time during the preceding two calendar years.
Covered employers are required to offer their employees an opportunity to contribute, through payroll deduction, to an IRA established under the Program. Employers may not withhold employee contributions in lump sums.
Employers may not endorse, promote, or contribute to the Program.
A covered employer who fails to facilitate enrollment of a covered employee is subject to a $250 annual penalty per employee. The penalty is adjusted annually for inflation. No penalty may be assessed until July 1, 2025.
Covered Employees.
A "covered employee" is an individual who:
is at least 18 years old;
is employed by a covered employer; and
has compensation allocable to the state.
Unless an employee chooses otherwise, the employee is enrolled in the Program, and contributions must be withheld from the covered employee's compensation at a rate determined by the Commissioner. The employee may opt out of the Program. The employee may also increase or decrease his or her contribution rate. The employee's contribution rate must be increased periodically as established by the Commissioner, unless the employee elects not to have such automatic increases apply.
Administrative Fund.
The Secure Choice Retirement Savings Administrative Fund is created in the custody of the State Treasurer as a nonappropriated account. The account is used to administer the Program, and only the Commissioner may authorize expenditures. The account is authorized to maintain a cash deficit for a time period no longer than eight years after the implementation of the Program. The Commissioner must have a spending plan and a fee schedule to discharge any cash deficit by January 1, 2021.
Administrative fees deducted from employee accounts may be used to contract or partner with one or more other states. No other state funds may be used to contract or partner with other states.
The Commissioner must submit an annual report to the Legislature with an update on: (1) administrative fees, including progress on eliminating the cash deficit in the administrative fund; (2) the administrative fee cost basis assigned to each state participating in the program; (3) the use of administrative fees; and (4) a plan to reduce the administrative fee cost basis.
Secure Choice Retirement Savings Trust.
The Secure Choice Retirement Savings Trust (Trust) is created. The Commissioner must appoint an institution to act as a trustee. The assets of the IRAs established for employees must be managed and administered for the exclusive purposes of providing benefits to covered employees and defraying reasonable expenses. The assets of the Trust must, at all times, be preserved, invested, and expended solely for the purposes of the Trust. No property rights will exist in favor of the state or any covered employer. The assets of the Trust must at all times be held separate and apart from the assets of the state. Trust assets may not be transferred or used by the state for any purpose other than the expenses related to operating the Program. Any security issued, managed, or invested by the Commissioner within the Trust on behalf of an individual participating in the Program is exempt from statutes related to the sale or offering of unregistered securities.
Washington Small Business Retirement Marketplace.
An employer with at least one employee may participate in the Marketplace. The Marketplace is no longer required to offer myRA, and the definition of myRA is removed from the Marketplace statutes.
Appropriation: None.
Fiscal Note: Available.
Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.