[Federal Register Volume 80, Number 222 (Wednesday, November 18, 2015)]
[Proposed Rules]
[Pages 72006-72014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29426]



Employee Benefits Security Administration

29 CFR Part 2510

RIN 1210-AB71

Savings Arrangements Established by States for Non-Governmental 

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Proposed rule.


SUMMARY: This document contains a proposed regulation under the 
Employee Retirement Income Security Act of 1974 (ERISA) setting forth a 
safe harbor describing circumstances in which a payroll deduction 
savings program, including one with automatic enrollment, would not 
give rise to an employee pension benefit plan under ERISA. A program 
described in this proposal would be established and maintained by a 
state government, and state law would require certain private-sector 
employers to make the program available to their employees. Several 
states are considering or have adopted measures to increase access to 
payroll deduction savings for individuals employed or residing in their 
jurisdictions. By making clear that state payroll deduction savings 
programs with automatic enrollment that conform to the safe harbor in 
this proposal do not establish ERISA plans, the objective of the safe 
harbor is to reduce the risk of such state programs being preempted if 
they were ever challenged. If adopted, this rule would affect 
individuals and employers subject to such laws.

DATES: Written comments should be received by the Department of Labor 
on or before January 19, 2016.

ADDRESSES: You may submit comments, identified by RIN 1210-AB71, by one 
of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: e-ORI@dol.gov. Include RIN 1210-AB71 in the subject 
line of the message.
     Mail: Office of Regulations and Interpretations, Employee 
Benefits Security Administration, Room N-5655, U.S. Department of 
Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention: 
State Savings Arrangements Safe Harbor.
    Instructions: All submissions must include the agency name and 
Regulatory Identification Number (RIN) for this rulemaking. Persons 
submitting comments electronically are encouraged to submit only by one 
electronic method and not to submit paper copies. Comments will be 
available to the public, without charge, online at www.regulations.gov 
and www.dol.gov/ebsa and at the Public Disclosure Room, Employee 
Benefits Security Administration, U.S. Department of Labor, Suite N-
1513, 200 Constitution Avenue NW., Washington, DC 20210. WARNING: Do 
not include any personally identifiable or confidential business 
information that you do not want publicly disclosed. Comments are 
public records and are posted on the Internet as received, and can be 
retrieved by most internet search engines.

FOR FURTHER INFORMATION CONTACT: Janet Song, Office of Regulations and 
Interpretations, Employee Benefits Security Administration, (202) 693-
8500; or Jim Craig, Office of the Solicitor, Plan Benefits Security 
Division, (202) 693-5600. These are not toll-free numbers.


A. Background

    Approximately 68 million US employees do not have access to a 
retirement savings plan through their employers.\1\ For older 

[[Page 72007]]

inadequate retirement savings can mean sacrificing or skimping on food, 
housing, health care, transportation, and other necessities. Inadequate 
retirement savings place greater stress on state and federal social 
welfare programs as guaranteed sources of income and economic security 
for older Americans. Accordingly, states have a substantial 
governmental interest in taking steps to address the problem and 
protect the economic security of their residents.\2\ Concerned over the 
low rate of saving among American workers, some state governments have 
already sought to expand access to savings programs for their residents 
and other individuals employed in their jurisdictions by creating their 
own programs and requiring employer participation.\3\

    \1\ Copeland, Craig, Employment-Based Retirement Plan 
Participation: Geographic Differences and Trends, 2013, Employee 
Benefit Research Institute, Issue Brief No. 405 (October 2014) 
(available at www.ebri.org).
    \2\ See Christian E. Weller, Ph.D., Nari Rhee, Ph.D., and 
Carolyn Arcand, Financial Security Scorecard: A State-by-State 
Analysis of Economic Pressures Facing Future Retirees, National 
Institute on Retirement Security (March 2014) (www.nirsonline.org/index.php?option=com_content&task=view&id=830&Itemid=48).
    \3\ See, for example, Report of the Governor's Task Force to 
Ensure Retirement Security for All Marylanders, Kathleen Kennedy 
Townsend, Chair, 1,000,000 of Our Neighbors at Risk: Improving 
Retirement Security for Marylanders (2015). The Georgetown 
University Center for Retirement Initiatives (CRI) of the McCourt 
School of Public Policy has compiled a ``50 state survey'' providing 
information on state legislation that would establish state-
sponsored retirement savings plans at http://cri.georgetown.edu/states/. The stated mission of the CRI is ``[to] strengthen the 
retirement security of American families by developing and promoting 
the bipartisan adoption of innovative state policies, legislation 
and administrative models, such as pooled and professionally managed 
funds, which will expand the availability and effectiveness of 
retirement solutions.''

1. State Payroll Deduction Savings Initiatives

    One approach some states have taken is to establish state payroll 
deduction savings initiatives. Such programs encourage employees to 
establish tax-favored individual retirement plans (IRAs) funded by 
payroll deductions. Oregon, Illinois, and California, for example, have 
adopted laws along these lines.\4\ These initiatives generally require 
specified employers that do not offer workplace savings arrangements to 
deduct amounts from their employees' paychecks in order that those 
amounts may be remitted to state-administered IRAs for the employees. 
Typically, with automatic enrollment, the states would require that the 
employer deduct specified amounts on behalf of the employee, unless the 
employee affirmatively elects not to participate. As a rule, employees 
can stop the payroll deductions at any time. The programs, as currently 
designed, do not require, provide for or permit employers to make 
matching or other contributions of their own into the employees' 
accounts. In addition, the state initiatives typically require that 
employers act as a conduit for information regarding the program, 
including disclosure of employees' rights and various program features, 
often based on state-prepared materials.

    \4\ Illinois Secure Choice Savings Program Act, 2014 Ill. Legis. 
Serv. P.A. 98-1150 (S.B. 2758) (West); California Secure Choice 
Retirement Savings Act, 2012 Cal. Legis. Serv. Ch. 734 (S.B. 1234) 
(West); Oregon 2015 Session Laws, Ch. 557 (H.B. 2960) (June 2015).

2. ERISA's Regulation of Employee Benefit Plans

    ERISA defines the terms ``employee pension benefit plan'' and 
``pension plan'' broadly to mean, in relevant part:

     Any plan, fund, or program which was heretofore or is 
hereafter established or maintained by an employer or by an employee 
organization, or by both, to the extent that by its express terms or 
as a result of surrounding circumstances such plan, fund, or 
    [cir] provides retirement income to employees, or
    [cir] results in a deferral of income by employees for periods 
extending to the termination of covered employment or beyond, 
regardless of the method of calculating the contributions made to 
the plan, the method of calculating the benefits under the plan or 
the method of distributing benefits from the plan.

29 U.S.C. 1002(2)(A). The provisions of Title I of ERISA, ``shall apply 
to any employee benefit plan if it is established or maintained . . . 
by any employer engaged in commerce or in any industry or activity 
affecting commerce.'' \5\ 29 U.S.C. 1003(a).

    \5\ ERISA includes several express exemptions in section 4(b) 
from coverage under Title I, for example, for pension plans 
established or maintained by governmental entities or churches for 
their employees, certain foreign plans, unfunded excess benefit 
plans, and plans maintained solely to comply with applicable state 
laws regarding workers compensation, unemployment, or disability. 29 
U.S.C. 1003(b).

    Despite the express intent of the drafters of those state statutes 
not to have such a result, some have expressed concern that payroll 
deduction programs, such as those enacted in Oregon, California and 
Illinois, may cause employers to establish ERISA-covered plans 
inadvertently. The Department and the courts have interpreted the term 
``established or maintained'' as requiring minimal involvement by the 
employer or employee organization to trigger the protections of ERISA 
coverage. For example, an employer may establish a benefit plan by 
purchasing insurance products for individual employees.\6\ Moreover, 
retirement savings programs involving IRAs also fall within the broad 
definition of pension plan when those programs are established or 
maintained by an employer or employee organization.\7\

    \6\ Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982); 
Harding v. Provident Life and Accident Ins. Co., 809 F. Supp. 2d 
403, 415-419 (W.D. Pa. 2011); DOL Adv. Op. 94-22A (July 1, 1994).
    \7\ ERISA section 404(c)(2) (simple retirement accounts); 29 CFR 
2510.3-2(d) (safe harbor for certain payroll deduction individual 
retirement accounts); 29 CFR 2509-99-1 (interpretive bulletin on 
payroll deduction IRAs); Cline v. The Industrial Maintenance 
Engineering & Contracting Co., 200 F.3d 1223, 1230-31 (9th Cir. 

    Pension plans covered by ERISA are subject to various statutory and 
regulatory requirements to protect the interests of the plan 
participants. These include reporting and disclosure rules and 
stringent conduct standards derived from trust law for plan 
fiduciaries. In addition, ERISA expressly prohibits certain 
transactions involving plans unless a statutory or administrative 
exemption applies.
    Moreover, in order to assure nationwide uniformity of treatment, 
ERISA places the regulation of private-sector employee benefit plans 
(including employment-based pension plans) under federal jurisdiction. 
Section 514(a) of ERISA, 29 U.S.C. 1144(a), provides that the Act 
``shall supersede any and all State laws insofar as they . . . relate 
to any employee benefit plan'' covered by the statute. The U.S. Supreme 
Court has long held that ``[a] law `relates to' an employee benefit 
plan, in the normal sense of the phrase, if it has a connection with or 
reference to such a plan.'' Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 
96-97 (1983) (footnote omitted). In various decisions, the Court has 
concluded that ERISA preempts state laws that: (1) mandate employee 
benefit structures or their administration; (2) provide alternative 
enforcement mechanisms; or (3) bind employers or plan fiduciaries to 
particular choices or preclude uniform administrative practice, thereby 
functioning as a regulation of an ERISA plan itself.\8\

    \8\ New York State Conference of Blue Cross & Blue Shield Plans 
v. Travelers Ins. Co., 514 U.S. 645, 658 (1995); Ingersoll-Rand Co. 
v. McClendon, 498 U.S. 133, 142 (1990); Egelhoff v. Egelhoff, 532 
U.S. 141, 148 (2001); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 
14 (1987).

    IRAs generally are not established or maintained by employers or 
employee organizations, and ERISA coverage is contingent on an employer 
(or employee organization) establishing or maintaining the arrangement. 
29 U.S.C. 1002(1)-(2). The Internal Revenue Code is the principal 
federal law that governs

[[Page 72008]]

such IRAs. The Code includes prohibited transaction provisions (very 
similar to those in ERISA), which are primarily enforced through 
imposition of excise taxes against IRA fiduciaries by the Internal 
Revenue Service. 26 U.S.C. 4975.
    In other contexts, the Department has provided guidance to help 
employers determine whether their involvement in voluntary payroll 
deduction arrangements for sending employee retirement savings 
contributions to IRAs would amount to establishing or maintaining 
ERISA-covered plans. For example, in 1975, the Department promulgated a 
safe harbor regulation to clarify the circumstances under which IRAs 
funded by payroll deductions would not be treated as ERISA plans. 29 
CFR 2510.3-2(d); 40 FR 34,526 (Aug. 15, 1975). This safe harbor is part 
of a more general regulation that ``clarifies the limits of the defined 
terms `employee pension benefit plan' and `pension plan' for purposes 
of title I of the Act . . . by identifying specific plans, funds and 
programs which do not constitute employee pension benefit plans for 
those purposes.'' 29 CFR 2510.3-2(a). Other similar safe harbors were 
published in the same Federal Register notice.\9\

    \9\ 29 CFR 2510.3-1(j), Certain group or group-type insurance 
arrangements; 29 CFR 2510.3-2(f), Tax sheltered annuities. 40 FR 
34530 (Aug. 15, 1975).

    The 1975 regulation provides that ERISA does not cover a payroll 
deduction IRA arrangement so long as four conditions are met: the 
employer makes no contributions, employee participation is ``completely 
voluntary,'' the employer does not endorse the program and acts as a 
mere facilitator of a relationship between the IRA vendor and 
employees, and the employer receives no consideration except for its 
own expenses.\10\ In essence, if the employer merely allows a vendor to 
provide employees with information about an IRA product and then 
facilitates payroll deduction for employees who voluntarily initiate 
action to sign up for the vendor's IRA, the arrangement is not an ERISA 
pension plan.

    \10\ The payroll deduction IRA safe harbor regulation, 29 CFR 
2510.3-2(d), Individual Retirement Accounts.

    In 1999, the Department published additional guidance on this safe 
harbor in the form of Interpretive Bulletin 99-1. 29 CFR 2509.99-1. 
This guidance explains that employers may, consistent with the third 
condition in the regulation, furnish materials from IRA vendors to the 
employees, answer employee inquiries about the program, and encourage 
retirement savings through IRAs generally, as long as the employer 
makes clear to employees its neutrality concerning the program and that 
its involvement is limited to collecting the deducted amounts and 
remitting them promptly to the IRA sponsor, just as it remits other 
payroll deductions to taxing authorities and other third parties. 29 
CFR 2510.99-1(c).\11\

    \11\ The Department has also issued advisory opinions discussing 
the application of the safe harbor regulation to particular facts. 
See, e.g., Advisory Opinion 82-67A (Dec. 21, 1982), 1982 WL 21250; 
DOL Adv. Op. 84-25A (June 18, 1984), 1984 WL 23439.

    The Department's publication of the 1975 payroll deduction IRA safe 
harbor was prompted by comments on an earlier proposal indicating 
``considerable uncertainty concerning Title I coverage of individual 
retirement programs . . . .'' 40 FR 34528. When it promulgated the safe 
harbor regulation, the Department did not consider payroll deduction 
savings arrangements for private-sector employees with terms required 
by state laws. Instead, the payroll deduction IRA safe harbor and the 
group insurance safe harbor published that day focused on employers 
acting in coordination with IRA and other vendors, without state 
involvement. Under those circumstances, it was important for both safe 
harbors to contain conditions to limit employer involvement, both to 
avoid establishing or maintaining an employee benefit plan and to 
prevent undue employer influence in arrangements that would not be 
subject to ERISA's protective provisions. When a program meets the 
conditions of the safe harbor, employer involvement in the arrangement 
is minimal and employees' control of their participation in the program 
is nearly complete. In such circumstances, it is fair to say that each 
employee, rather than the employer, individually establishes and 
maintains the program.
    One of the 1975 payroll deduction IRA safe harbor's conditions is 
that an employee's participation must be ``completely voluntary.'' The 
Department intended this term to mean considerably more than that 
employees are free to opt out of participation in the program. Instead, 
the employee's enrollment must be self-initiated. In various contexts, 
courts have held that opt-out arrangements are not consistent with a 
requirement for a ``completely voluntary'' arrangement.\12\ This 
condition is important because where the employer is acting on his or 
her own volition to provide the benefit program, the employer's 
actions--e.g., requiring an automatic enrollment arrangement--would 
constitute its ``establishment'' of a plan within the meaning of 
ERISA's text, and trigger ERISA's protections for the employees whose 
money is deposited into an IRA. As a result, state payroll deduction 
savings initiatives with automatic enrollment do not meet the 1975 safe 
harbor's ``completely voluntary'' requirement.

    \12\ See Doe v. Wood Co. Bd. Of Educ., 888 F.Supp.2d 771, 775-77 
(S.D. W. Va. 2012) (Education Department regulations requiring 
``completely voluntary'' choice of single-gender education not 
satisfied by opt-out provision); Schear v. Food Scope America, Inc., 
297 F.R.D. 114, 125 (S.D.N.Y. 2014) (``For a voluntary `tip pooling' 
arrangement to exist, it must be `undertaken by employees on a 
completely voluntary basis and may not be mandated or initiated by 
employers' and an employer can take `no part in the organization or 
the conduct of [the] tip-pool.' '') (quoting N.Y. Dept. of Labor 
Opinion Letter RO-08-0049). See also Carter v. Guardian Life Ins. 
Co., Civil No. 11-3-ART, 2011 WL 1884625, *1 (W.D. Ky. May 18, 2011) 
(``Courts have held that employees' participation is not `completely 
voluntary' if their enrollment in the plan is `automatic.' ''); 
Thompson v. Unum Life Ins. Co., No. Civ.A. 3:03-CV-0277-B, 2005 WL 
722717, *6 (N.D. Tex. Mar. 29, 2005) (analyzing group welfare plan 
safe harbor, ``Thompson's participation in the plan was automatic 
rather than voluntary''); cf. The Meadows v. Employers Health Ins., 
826 F. Supp. 1225, 1229 (D. Ariz. 1993) (enrollment not ``completely 
voluntary'' where health insurance contract required 75 percent of 
employees to participate); Davis v. Liberty Mut. Ins. Co., Civ. A. 
No. 87-2851, 1987 WL 16837, *2 (D.D.C. Aug. 31, 1987) (health 
insurance enrollment not completely voluntary because employee would 
receive no alternative compensation for refusing coverage, therefore 
making refusal comparable to a cut in pay). See generally Advisory 
Council On Employee Welfare And Pension Benefit Plans, Current 
Challenges And Best Practices For ERISA Compliance For 403(b) Plan 
Sponsors (2011) (available at www.dol.gov/ebsa/publications/2011ACreport1.html) (``The Council also considered, but is not 
recommending, that DOL permit the inclusion of an automatic 
enrollment feature within the context of an ERISA safe harbor 403(b) 
plan. The majority of Council members concluded that automatic 
enrollment would require actions typically performed by a plan 
sponsor/fiduciary (e.g., designation of a default investment 
alternative), and consequently, an automatic enrollment option in 
the plan may not be viewed as voluntary even in light of the 
participant's right to opt out of the automatic contributions.''). 
DOL Field Assistance Bulletin (FAB) 2004-1 stated that an employer 
could open a health savings account (HSA) and deposit employer funds 
into it without the employee's affirmative consent so long as, among 
other things, the arrangement was ``completely voluntary on the part 
of the employees'' and also that employees exercised control over 
the account with the power to withdraw or transfer the employer 
money. FAB 2004-1 was focused on the effect of employer 
contributions, so there was no specific discussion of what was meant 
by ``completely voluntary'' in the context of an HSA. Field 
Assistance Bulletin 2006-2 clarified that the completely voluntary 
requirement in FAB 2004-1 related to employee contributions to an 
HSA and confirms that completely voluntary employee contributions to 
the HSA must be self-initiated. The only ``opt out'' considered in 
FAB 2004-1 was the employees' power to move employer contributions 
out of the HSA. Neither FAB suggested that employee contributions to 
an HSA could be completely voluntary under an opt out arrangement.


[[Page 72009]]

    However, when a state government sets the terms for and administers 
a payroll deduction savings arrangement, the situation is far different 
than when the employer sets the terms and administers the program--the 
1975 safe harbor was not written with such state laws in mind. 
Therefore, the Department is promulgating this new safe harbor that 
does permit automatic enrollment in such state payroll deduction 
savings arrangements. Where states require employers to offer savings 
arrangements, undue employer influence or pressure to enroll is far 
less of a concern. Moreover, the state's active involvement and the 
limitations on the employers' role removes the employer from the 
equation such that the payroll deduction arrangements are not 
established or maintained by an employer or employee organization 
within the meaning of ERISA section 3(2). Accordingly, the safe harbor 
proposed today permits automatic enrollment with an opt-out provision 
in the context of state required and administered programs that meet 
the terms of the proposal. The safe harbor should remove uncertainty 
about Title I coverage of such state payroll deduction savings 
arrangements by promulgating a ``voluntary'' standard that permits 
automatic enrollment arrangements with employee opt-out features. By 
removing this uncertainty, the objective of the proposed safe harbor is 
to diminish the chances that, if the issue were ultimately litigated, 
the courts would conclude that state payroll deduction savings 
arrangements are preempted by ERISA.

3. Purpose and Scope of Proposed Regulation

    Section 505 of ERISA gives the Secretary of Labor broad authority 
to prescribe such regulations as he finds necessary and appropriate to 
carry out the provisions of Title I of the Act. The Department believes 
that regulatory guidance in this area is necessary to ensure that 
governmental bodies, employers, and others in the regulated community 
have guidelines concerning whether state efforts to encourage savings 
implicate Title I of ERISA by requiring the establishment or 
maintenance of ERISA-covered employee pension benefit plans.
    The 1975 payroll deduction IRA safe harbor sets forth standards for 
judging whether employer conduct crosses the line between permitted 
ministerial activities with respect to non-plan IRAs and activities 
that involve the establishment or maintenance of an ERISA-covered plan. 
State payroll deduction savings initiatives are similar to arrangements 
covered under the 1975 safe harbor if the employer's involvement is 
limited to withholding and forwarding payroll deductions and performing 
other related ministerial duties and the state has sole authority to 
determine the terms and administration of the state savings 
arrangement. The 1975 safe harbor, however, does not envision state 
involvement in the IRA programs nor does it envision use of automatic 
enrollment and related provisions.
    The proposed regulation thus would provide a new and additional 
``safe harbor'' for state savings arrangements that conform to the 
proposed regulation's provisions. The proposed regulation departs from 
the 1975 safe harbor for payroll deduction IRA programs by adopting a 
standard that enrollment be ``voluntary'' rather than ``completely 
voluntary.'' The new safe harbor's voluntary standard will allow 
employees' participation in state required programs to be initiated by 
automatic enrollment with an opt-out provision. The Department is also 
proposing to add other provisions to assure that employer involvement 
remains minimal.
    The proposed regulation, however, as a ``safe harbor,'' does not 
purport to define every possible program that could fall outside of 
Title I of ERISA because it was not ``established or maintained'' by an 
employer. The Department also is not expressing any view regarding the 
application of provisions of the Internal Revenue Code (Code).

B. Description of the Proposed Regulation

    The proposed regulation Sec.  2510.3-2(h) provides that for 
purposes of Title I of ERISA, the terms ``employee pension benefit 
plan'' and ``pension plan'' do not include an individual retirement 
plan (as defined in 26 U.S.C. 7701(a)(37)) established and maintained 
pursuant to a state payroll deduction savings program if the program 
satisfies all of the conditions set forth in paragraphs (h)(1)(i) 
through (xii) of the proposed regulation. In the Department's view, 
compliance with these conditions will assure that the employer's 
involvement in the state program is limited to the ministerial acts 
necessary to implement the payroll deduction program as required by 
state law. In addition, the proposed conditions would give employees 
sufficient freedom not to enroll or to discontinue their enrollment, as 
well as meaningful control over their IRAs.
    The term ``individual retirement plan'' means an individual 
retirement account described in section 408(a) and an individual 
retirement annuity described in section 408(b) of the Code.\13\ Thus, 
by limiting the safe harbor to programs that use such individual 
retirement plans (which would include both traditional and Roth IRAs), 
the proposal incorporates the applicable protections under the Code, 
including the prohibited transaction provisions.

    \13\ Whether a state program meets the statutory requirements 
under the Code is a question within the jurisdiction of the Internal 
Revenue Service.

    The safe harbor conditions under the proposed regulations require 
that the program be established by a state government pursuant to state 
law. As discussed above, if an employer's activities are limited to 
those ministerial functions required by the state law, the arrangement 
is not established or maintained by the employer. The term ``State'' in 
the proposed regulation has the same meaning as in Title I of ERISA 
generally. As in section 3(10) of ERISA, a ``State'' includes any 
``State of the United States, the District of Columbia,'' and certain 
territories.\14\ 29 U.S.C. 1002(10). The state must also administer the 
program either directly or through a governmental agency or other 
instrumentality. The safe harbor also contemplates that a state or the 
governmental agency or instrumentality could contract with commercial 
service providers, such as investment managers and recordkeepers, to 
operate and administer its program.

    \14\ The term ``State'' in the proposed regulation has the same 
meaning as in section 3(10) of ERISA. This would not include Indian 
tribes, tribal subdivisions, or agencies or instrumentalities of 
either in coverage under the regulation. To date, the Department is 
unaware of any tribal initiatives similar to the state initiatives 
described elsewhere in this preamble. Comments are welcome on 
whether, on what basis, and under what circumstances, payroll 
deduction programs required by Indian tribes might be covered under 
the safe harbor.

    The proposal does not address whether the employees that 
participate in the program must be employed within the state that 
establishes the program, or alternatively whether the covered employees 
must be residents of the state or employed by employers doing business 
within the state. The extent to which a state can regulate employers is 
already established under existing legal principles. The proposal 
simply requires that the program be established by a state pursuant to 
state law. The Department solicits comments on whether the safe harbor 
should be limited to require some connection between the employers and 
employees covered by the program and the state that establishes the 
program, and if so, what kind of connection.

[[Page 72010]]

    The proposed regulation requires that participation in the program 
be voluntary for employees. As discussed above, this requirement is 
different from the current payroll deduction IRA safe harbor in 29 CFR 
2510.3-2(d), which requires that participation be ``completely 
voluntary.'' The proposed regulation expressly permits opt-out programs 
and, accordingly, does not require that participation be ``completely 
voluntary.'' By using only the term ``voluntary,'' the Department 
intends to make clear that the proposed regulation, unlike the existing 
safe harbor, would allow the state to require employers to 
automatically enroll employees, unless they affirmatively elect not to 
participate in the program.\15\

    \15\ If a program requires automatic enrollment, adequate notice 
of their right to opt out must be furnished to employees in order 
for the program to meet the safe harbor's voluntariness condition. 
The proposal does not define the manner and content of ``adequate 
notice'' for this purpose. The Department expects that states and 
their vendors would look to analogous notice requirements contained 
in federal laws pertaining to automatic enrollment provisions. See, 
e.g., 26 U.S.C. 401(k)(13)(E) and 414(w); 29 U.S.C. 1144(e)(3); and 
29 CFR 2550.404c-5(d). The Department solicits comments on this 

    The proposed regulation also includes conditions to assure that 
control of the payroll deduction program and the savings accounts lies 
with the state and the employees, and not the employer. These include 
requirements that (1) the program does not require that an employee or 
beneficiary retain any portion of contributions or earnings in his or 
her IRA and does not otherwise impose any restrictions on withdrawals 
or impose any cost or penalty on transfers or rollovers permitted under 
the Internal Revenue Code; (2) all rights of the employee, former 
employee, or beneficiary under the program are enforceable only by the 
employee, former employee, or beneficiary, an authorized representative 
of such person, or by the state (or the designated agency or 
instrumentality); and (3) the state adopts measures to ensure that 
employees are notified of their rights under the program and creates a 
mechanism for enforcement of those rights. In addition, the proposal 
requires the state to assume responsibility for the security of payroll 
deductions and employee savings. These conditions assure that the 
employees will have meaningful control over their retirement savings, 
that the state will enforce the employer's payroll deduction 
obligations and oversee the security of retirement savings, and that 
the employer will have no role in enforcing employee rights under the 
    Limited employer involvement in the program is the key to a 
determination that a state savings program is not an employee pension 
benefit program. Thus, the employer's facilitation must be required by 
state law--if it is voluntary, the safe harbor does not apply. Further, 
the proposal does not permit the employer to contribute to the 
program.\16\ All contributions under the program must be made 
voluntarily by the employees. When employers make contributions to fund 
benefits of the type enumerated in Section 3(2) of ERISA, they 
effectively sponsor an ERISA-covered plan. Similarly, the employer may 
not have discretionary authority, control, or responsibility under the 
program and may not receive any direct or indirect compensation in the 
form of cash or otherwise in connection with the program, other than 
the reimbursement of the actual costs of the program to the employer. 
Finally, the proposal specifies that employer involvement must be 
limited to all or some of the following: (1) Collecting employee 
contributions through payroll deductions and remitting them to the 
program; (2) providing notice to the employees and maintaining records 
regarding the employer's collection and remittance of payments under 
the program; (3) providing information to the state necessary to 
facilitate the operation of the program; and (4) distributing program 
information to employees from the state and permitting the state to 
publicize the program to employees.

    \16\ This provision, of course, would not prohibit an employer 
from allowing employees to review program materials on company time 
or to use an employer's computer to make elections under the 

    A program could fit within the safe harbor and include terms that 
require employers to certify facts within the employer's knowledge as 
employer, such as employee census information (e.g., status of a full 
time employee, employee addresses, attendance records, compensation 
levels, etc.). The employer could also conduct reviews to ensure it was 
complying with program eligibility requirements and limitations 
established by the state. The Department requests comments on whether 
the final regulation should provide more clarity and specificity on the 
types of functions that could be permitted consistent with the 
requirements of the safe harbor.\17\

    \17\ In previous guidance issued by the Department under other 
safe harbors involving private parties, the Department concluded 
that employers could take certain corrective actions to stay within 
the safe harbor and that such actions, in and of themselves, did not 
lead to the establishment of an employee benefit plan. See DOL 
Information Letter to Siegel Benefit Consultants (Feb. 27, 1996) and 
Field Assistance Bulletin 2007-02 on the safe harbor for tax 
sheltered annuity programs under 29 CFR 2510.3-2(f).

    A state program that meets all of the foregoing conditions will not 
fail to qualify for the safe harbor merely because the program is 
directed toward employees who are not already eligible for some other 
workplace savings arrangement. Nor will it fail merely because it 
requires automatic enrollment subject to employees having a right to 
opt out. Similarly, if the state program offers employees a choice of 
multiple IRA sponsors to which employees may make payroll deduction 
contributions, the state program can create a default option, i.e., 
designate the IRA provider to which the employer must remit the payroll 
withholding contributions in the absence of an affirmative election by 
the employee.
    ERISA's expansive plan definition is critical to its protective 
purposes. When employers establish or maintain ERISA-covered plans, the 
plan's participants are protected by trust-law obligations of fiduciary 
conduct, reporting requirements, and a regulatory regime designed to 
ensure the security of promised benefits. In the circumstances 
specified by the proposed regulation, however, the employer does not 
``establish or maintain'' the plan. Instead, the program is created and 
administered by the state for the benefit of those employees who 
voluntarily participate with minimal employer involvement. State 
administration of the voluntary program does not give rise to ERISA 
coverage, and presumably ensures that the program will be administered 
in accordance with the interests of the state's citizens.\18\

    \18\ To the extent that the state program allows employees not 
subject to the automatic enrollment requirement to voluntarily 
choose to participate, the employee's voluntarily participation 
would not result in the employer establishing an ERISA-covered plan 
or the state program including an ERISA-covered plan if the employer 
and the state program satisfy the conditions in the Department's 
existing safe harbor for payroll deduction IRAs at 29 CFR 2510.3-
2(d). Of course, as described above, automatic enrollment of 
employees is not permitted under the existing payroll deduction IRA 
safe harbor.

    As noted above, ERISA generally preempts state laws that relate to 
employee benefit plans. The U.S. Supreme Court has long held that ``[a] 
law `relates to' an employee benefit plan, in the normal sense of the 
phrase, if it has a connection with or reference to such a plan.'' Shaw 
v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983) (footnote omitted); 
see, e.g., New York State Conference of Blue Cross & Blue Shield Plans 
v. Travelers Ins. Co., 514 U.S. 645, 656 (1995). This proposed 
regulation would provide that certain state savings

[[Page 72011]]

programs would not create employee benefit plans. However, the fact 
that state programs do not create ERISA covered plans does not 
necessarily mean that, if the issue were litigated, the state laws 
would not be preempted by ERISA. The courts' determinations would 
depend on the precise details of the statute at issue, including 
whether that state's program successfully met the requirements of the 
safe harbor.
    Moreover, states should be advised that a program may be preempted 
by other Federal laws apart from ERISA. A state law that alters, 
amends, modifies, invalidates, impairs or supersedes a Federal law 
would risk being preempted by the Federal law so affected. Such 
preemption issues are beyond the scope of this proposed rule, however, 
which addresses only the question of whether particular programs 
involve the establishment of one or more ERISA covered employee benefit 
    Finally, some states are considering approaches that differ from 
state payroll deduction savings initiatives. In 2012, Massachusetts, 
for example, enacted a law providing for a state-sponsored plan for 
non-profit employers with 20 or fewer employees.\19\ Washington enacted 
a law to establish a small business retirement market place to assist 
small employers by making available a number of approved savings plans, 
some of which may be covered by ERISA, even though the marketplace 
arrangement itself is not.\20\ This proposal does not address such 
state initiatives.

    \19\ Mass. Gen. Laws ch. 29, sec. 64E (2014)
    \20\ 2015 Wash. Sess. Laws chap. 296 (SB 5826).

C. Effective Date

    The Department proposes to make this regulation effective 60 days 
after the date of publication of the final rule in the Federal 

D. Regulatory Impact Analysis

1. Executive Order 12866 Statement

    Under Executive Order 12866, the Office of Management and Budget 
(OMB) must determine whether a regulatory action is ``significant'' and 
therefore subject to the requirements of the Executive Order and 
subject to review by the OMB. Section 3(f) of the Executive Order 
defines a ``significant regulatory action'' as an action that is likely 
to result in a rule (1) having an annual effect on the economy of $100 
million or more, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local or tribal governments or communities 
(also referred to as an ``economically significant'' action); (2) 
creating serious inconsistency or otherwise interfering with an action 
taken or planned by another agency; (3) materially altering the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    OMB has tentatively determined that this regulatory action is not 
economically significant within the meaning of section 3(f)(1) of the 
Executive Order. However, it has been determined that the action is 
significant within the meaning of section 3(f)(4) of the Executive 
Order and the Department accordingly provides the following assessment 
of its potential benefits and costs.
a. Direct Benefits
    As stated earlier in this preamble, some state governments have 
passed laws designed to expand workers' access to workplace savings 
programs. Some states are looking at ways to encourage employers to 
provide coverage under state-administered 401(k)-type plans, while 
others have adopted or are considering approaches that combine several 
retirement alternatives including IRAs, ERISA-covered plans and the 
Department of the Treasury's new starter savings program, myRA.
    One of the challenges states face in expanding retirement savings 
opportunities for private sector employees is uncertainty about ERISA 
preemption of such efforts. ERISA generally would preempt a state law 
that required employers to establish and maintain ERISA-covered 
employee benefit pension plans. The Department therefore believes that 
states and other stakeholders would benefit from clear guidelines to 
determine whether state saving initiatives would effectively require 
employers to create ERISA-covered plans. The proposed rule would 
provide a new ``safe harbor'' from coverage under Title I of ERISA for 
state savings arrangements that conform to certain requirements. State 
initiatives within the safe harbor would not result in the 
establishment of employee benefit plans under ERISA. The Department 
expects that the proposed rule would reduce legal costs, including 
litigation costs, by (1) removing uncertainty about whether such state 
savings arrangements are covered by title I of ERISA, and (2) creating 
efficiencies by eliminating the need for multiple states to incur the 
same costs to determine their non-plan status.
    The Department notes that the proposal would not prevent states 
from identifying and pursuing alternative policies, outside the safe 
harbor, that also would not require employers to establish or maintain 
ERISA-covered plans. Thus, while the proposal would reduce uncertainty 
about state activity within the safe harbor, it would not impair state 
activity outside it.
b. Direct Costs
    The proposed rule does not require any new action by employers or 
the states. It merely clarifies that certain state initiatives that 
encourage workplace savings would not result in the creation of 
employee benefit plans covered by Title I of ERISA.
    States may incur legal costs to analyze the rule and determine 
whether their laws fall within the proposed rule's safe harbor. 
However, the Department expects that these costs will be less than the 
savings that will be generated. Moreover, states will avoid incurring 
the greater costs that might be incurred to determine their programs' 
non-plan status without benefit of this proposed rule.
    States that design their payroll deduction programs to conform to 
the safe harbor may incur costs to develop notices to be provided to 
participants and beneficiaries covered by the program and enter into 
contracts with investment managers and other service providers to 
operationalize and administer the programs. The Department's review of 
existing state payroll deduction legislation indicates that these 
requirements are customarily part of most state programs, and the 
initiatives generally could not operate without such requirements. 
Therefore, to the extent that state programs would exist even in the 
absence of this rule, only the relatively minor costs of revisions for 
conformity to the safe harbor are attributable to the rule, because 
other cost-generating activities are necessary and essential to operate 
and administer the programs. On the other hand, if state programs are 
adopted more widely in the rule's presence than in its absence, there 
would be more general state operational and administrative costs that 
are attributable to the rule. The Department does not have sufficient 
data to estimate the number of systems that would need to be updated; 
therefore, the Department invites comments and any relevant data that 
would allow it to make a more thorough assessment.

[[Page 72012]]

c. Uncertainty
    The Department is confident that the proposed regulation, by 
clarifying that certain state programs do not require employers to 
establish ERISA-covered plans, will benefit states and many other 
stakeholders otherwise beset by greater uncertainty. However, the 
Department is unsure as to the magnitude of these benefits. The 
magnitude of the proposed regulation's benefits, costs and transfer 
impacts will depend on the states' independent decisions on whether and 
how best to take advantage of the safe harbor, and on the cost that 
otherwise would have attached to uncertainty about the legal status of 
the states' actions. The Department cannot predict what actions states 
will take, stakeholders' propensity to challenge such actions' legal 
status, either absent or pursuant to the proposed regulation, or 
courts' resultant decisions, and therefore the Department invites data 
submission or other comment that would allow for more thorough 
assessment of these issues.
d. Impact of State Initiatives
    There are a number of cases in which this rulemaking could increase 
the prevalence of state workplace savings initiatives, thus bringing 
the effects of these initiatives within the scope of this regulatory 
impact analysis. For instance, if this issue were ultimately resolved 
in the courts, the courts could make a different preemption decision in 
the rule's presence than in its absence. Furthermore, even if a 
potential court decision would be the same with or without the 
rulemaking, the potential reduction in states' uncertainty-related 
costs could induce more states to pursue these workplace savings 
initiatives. An additional possibility is that the rule would not 
change the prevalence of state retirement savings programs, but would 
accelerate the implementation of programs that would exist anyway. With 
any of these possibilities, there would be benefits, costs and transfer 
impacts that are indirectly attributable to this rule, via the 
increased or accelerated creation of state-level workplace savings 
    Employers may incur costs to update their payroll systems to 
transmit payroll deductions to the state or its agent and develop 
recordkeeping systems to document their collection and remittance of 
payments under the program. As with states' operational and 
administrative costs (discussed in section D.1.b, above), some portion 
of these employer costs would be attributable to the rule if more state 
workplace savings programs are implemented in the rule's presence than 
in its absence. Because employers' role in the programs must be minimal 
in order to satisfy the safe harbor, they will incur little cost beyond 
the costs associated with updating payroll systems. However, the costs 
that are incurred could fall most heavily on small and start-up 
companies, which tend to be least likely to offer pensions. Most state 
payroll deduction programs do exempt the smallest companies, which 
could significantly mitigate such costs. The Department does not have 
sufficient data to estimate the number of payroll systems that would 
have to be updated. Therefore, the Department invites the public to 
provide comments and relevant data that would allow it to make a more 
thorough assessment.
    The Department believes that well-designed state-level initiatives 
have the potential to effectively reduce gaps in retirement security. 
Relevant variables such as pension coverage,\21\ labor market 
conditions,\22\ population demographics,\23\ and elderly poverty,\24\ 
vary widely across the states, suggesting a potential opportunity for 
progress at the state level. For example, payroll deduction savings 
statutes in California and Illinois could extend savings opportunities 
for 7.8 million workers in California and 1.7 million workers in 
Illinois who currently do not have access to employment-based savings 
arrangements.\25\ The Department offers the following policy discussion 
for consideration, and invites public input on the issues raised, on 
the potential for state initiatives to foster retirement security, and 
on the potential for this proposal or other Departmental action to 
facilitate effective state activity.

    \21\ See for example Craig Copeland, ``Employment-Based 
Retirement Plan Participation: Geographic Differences and Trends, 
2013,'' Employee Benefit Research Institute, Issue Brief No. 405 
(October 2014) (available at www.ebri.org).
    \22\ See for example US Bureau of Labor Statistics, ``Regional 
and State Employment and Unemployment--JUNE 2015,'' USDL-15-1430, 
July 21, 2015.
    \23\ See for example Lindsay M. Howden and Julie A. Meyer, ``Age 
and Sex Composition: 2010,'' US Bureau of the Census, 2010 Census 
Briefs C2010BR-03, May 2011.
    \24\ Constantijn W. A. Panis & Michael Brien, August 28, 2015, 
``Target Populations of State-Level Automatic IRA Initiatives.''
    \25\ Id.

    Effective state initiatives will advance retirement security. Some 
workers currently may save less than would be optimal because of 
behavioral biases (such as myopia or inertia) or labor market frictions 
that prevent them from accessing plans at work. Effective state 
initiatives would help such workers save more. Such workers will have 
traded some consumption today for more in retirement, potentially 
reaping some net gain in overall lifetime well-being. Their additional 
saving may also reduce fiscal pressure on publicly financed retirement 
programs and other public assistance programs, such as the Supplemental 
Nutritional Assistance Program, that support low-income Americans, 
including older Americans.
    The Department believes that well-designed state initiatives can 
achieve their intended, positive effects of fostering retirement 
security. However, the initiatives might have some unintended 
consequences as well. Those workers least equipped to make good 
retirement savings decisions arguably stand to benefit most from state 
initiatives, but also arguably are most at risk of suffering adverse 
unintended effects. Workers who would not benefit from increased 
retirement savings could opt out, but some might fail to do so. Such 
workers might increase their savings too much, unduly sacrificing 
current economic needs. Consequently they might be more likely to cash 
out early and suffer tax losses, and/or to take on more expensive debt. 
Similarly, state initiatives directed at workers who do not currently 
participate in workplace savings arrangements may be imperfectly 
targeted to address gaps in retirement security. For example, a college 
student might be better advised to take less in student loans rather 
than open an IRA, and a young family might do well to save more first 
for their children's education and later for their own retirement.
    Employers that wish to provide retirement benefits are likely to 
find that ERISA-covered programs, such as 401(k) plans, have advantages 
for them and their employees over participation in state programs. 
Potential advantages include: Greater tax preferences, greater 
flexibility in plan selection and design, opportunity for employers to 
contribute, ERISA protections, and larger positive recruitment and 
retention effects. Therefore it seems unlikely that state initiatives 
will ``crowd-out'' many ERISA-covered plans. However, if they do, some 
workers might lose ERISA-protected benefits that would have been more 
generous and more secure than state-based (or IRA) benefits, unless 
states adopt consumer protections similar to those Congress provided 
under ERISA. Some workers who would otherwise have saved more might 
reduce their savings to the low, default levels associated with some 
state programs. States can address this last concern by incorporating 
into their programs ``auto-escalation'' features that increase default 
contribution rates over time and/or as pay increases.

[[Page 72013]]

2. Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public 
understands the Department's collection instructions, respondents can 
provide the requested data in the desired format, reporting burden 
(time and financial resources) is minimized, collection instruments are 
clearly understood, and the Department can properly assess the impact 
of collection requirements on respondents.
    The Department has determined this proposed rule is not subject to 
the requirements of the PRA, because it does not contain a collection 
of information as defined in 44 U.S.C. 3502(3). The rule does not 
require any action by or impose any requirements on employers or the 
states. It merely clarifies that certain state payroll deduction 
programs that encourage retirement savings would not result in the 
creation of employee benefit plans covered by Title I of ERISA.
    Moreover, the PRA definition of burden excludes time, effort, and 
financial resources necessary to comply with a collection of 
information that would be incurred by respondents in the normal course 
of their activities. See 5 CFR 1320.3(b)(2). The definition of burden 
also excludes burdens imposed by a state, local, or tribal government 
independent of a Federal requirement. See 5 CFR 1320.3(b)(3). The 
Department's review of existing state payroll deduction programs 
indicates that they customarily have notification and recordkeeping 
requirements and that the initiatives could not operate without such 
requirements, especially programs that include automatic enrollment. 
Therefore, the proposed rule imposes no burden, because states 
customarily include notice and recordkeeping requirements that are an 
essential and routine part of administering state payroll deduction 
programs. In addition, employers are responding to state, not Federal, 
requirements when providing notices to individuals covered under state 
payroll deduction programs and maintaining records regarding the 
employers' collection and remittance of payments under the program.
    Although the Department has determined that the proposed rule does 
not contain a collection of information, when rules contain information 
collections the Department invites comments that:
     Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the burden of the collection of information, 
including the validity of the methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    In addition to having an opportunity to file comments with the 
Department, comments may also be sent to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Room 10235, New 
Executive Office Building, Washington, DC 20503; Attention: Desk 
Officer for the Employee Benefits Security Administration. OMB requests 
that comments be received within 30 days of publication of the proposed 
rule to ensure their consideration.
3. Regulatory Flexibility Act
    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are 
likely to have a significant economic impact on a substantial number of 
small entities. Unless an agency certifies that a rule will not have a 
significant economic impact on a substantial number of small entities, 
section 603 of the RFA requires the agency to present an initial 
regulatory flexibility analysis at the time of the publication of the 
notice of proposed rulemaking describing the impact of the rule on 
small entities. Small entities include small businesses, organizations 
and governmental jurisdictions.
    Because the proposed rule imposes no requirements or costs on 
employers, the Department believes that it would not have a significant 
economic impact on a substantial number of small entities. Accordingly, 
pursuant to section 605(b) of the RFA, the Assistant Secretary of the 
Employee Benefits Security Administration hereby certifies that the 
proposed rule, if promulgated, will not have a significant economic 
impact on a substantial number of small entities.

4. Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1501 et seq.), as well as Executive Order 12875, this rule does not 
include any federal mandate that may result in expenditures by state, 
local, or tribal governments, or the private sector, which may impose 
an annual burden of $100 million.

5. Congressional Review Act

    The proposed rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and, if finalized, would be transmitted to 
Congress and the Comptroller General for review.

6. Federalism Statement

    Executive Order 13132 outlines fundamental principles of 
federalism. It also requires adherence to specific criteria by federal 
agencies in formulating and implementing policies that have 
``substantial direct effects'' on the states, the relationship between 
the national government and states, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with state and local officials, and describe 
the extent of their consultation and the nature of the concerns of 
state and local officials in the preamble to the final regulation.
    In the Department's view, the proposed regulations, by clarifying 
that certain workplace savings arrangements under consideration or 
adopted by certain states will not result in the establishment or 
maintenance by employers or employee organizations of employee benefit 
plans under ERISA, would provide more latitude and certainty to state 
governments and employers regarding the treatment of such arrangements 
under ERISA. The Department will affirmatively engage in outreach with 
officials of states, and with employers and other stakeholders, 
regarding the proposed rule and seek their input on the proposed rule 
and any federalism implications that they believe may be presented by 

List of Subjects in 29 CFR Part 2510

    Accounting, Employee benefit plans, Employee Retirement Income 
Security Act, Pensions, Reporting, Coverage.

[[Page 72014]]

    For the reasons stated in the preamble, the Department of Labor 
proposes to amend 29 CFR 2510 as set forth below:


1. The authority citation for part 2510 is revised to read as follows:

    Authority:  29 U.S.C. 1002(2), 1002(21), 1002(37), 1002(38), 
1002(40), 1031, and 1135; Secretary of Labor's Order No. 1-2011, 77 
FR 1088 (Jan. 9, 2012); Sec. 2510.3-101 also issued under sec. 102 
of Reorganization Plan No. 4 of 1978, 43 FR 47713 (Oct. 17, 1978), 
E.O. 12108, 44 FR 1065 (Jan. 3, 1979) and 29 U.S.C. 1135 note. Sec. 
2510.3-38 is also issued under sec. 1, Pub. L. 105-72, 111 Stat. 
1457 (1997).

2. Section 2510.3-2 is amended by adding paragraph (h) to read as 

Sec.  2510.3-2  Employee pension benefit plans.

* * * * *
    (h) Certain State Savings Programs. (1) For the purpose of Title I 
of the Act and this chapter, the terms ``employee pension benefit 
plan'' and ``pension plan'' shall not include an individual retirement 
plan (as defined in 26 U.S.C. 7701(a)(37)) established and maintained 
pursuant to a State payroll deduction savings program, provided that:
    (i) The program is established by a State pursuant to State law;
    (ii) The program is administered by the State establishing the 
program, or by a governmental agency or instrumentality of the State, 
which is responsible for investing the employee savings or for 
selecting investment alternatives for employees to choose;
    (iii) The State assumes responsibility for the security of payroll 
deductions and employee savings;
    (iv) The State adopts measures to ensure that employees are 
notified of their rights under the program, and creates a mechanism for 
enforcement of those rights;
    (v) Participation in the program is voluntary for employees;
    (vi) The program does not require that an employee or beneficiary 
retain any portion of contributions or earnings in his or her IRA and 
does not otherwise impose any restrictions on withdrawals or impose any 
cost or penalty on transfers or rollovers permitted under the Internal 
Revenue Code;
    (vii) All rights of the employee, former employee, or beneficiary 
under the program are enforceable only by the employee, former 
employee, or beneficiary, an authorized representative of such a 
person, or by the State (or the designated governmental agency or 
instrumentality described in paragraph (h)(1)(ii) of this section);
    (viii) The involvement of the employer is limited to the following:
    (A) Collecting employee contributions through payroll deductions 
and remitting them to the program;
    (B) Providing notice to the employees and maintaining records 
regarding the employer's collection and remittance of payments under 
the program;
    (C) Providing information to the State (or the designated 
governmental agency or instrumentality described in paragraph 
(h)(1)(ii) of this section) necessary to facilitate the operation of 
the program; and
    (D) Distributing program information to employees from the State 
(or the designated governmental agency or instrumentality described in 
paragraph (h)(1)(ii) of this section) and permitting the State or such 
entity to publicize the program to employees;
    (ix) The employer contributes no funds to the program and provides 
no bonus or other monetary incentive to employees to participate in the 
    (x) The employer's participation in the program is required by 
State law;
    (xi) The employer has no discretionary authority, control, or 
responsibility under the program; and
    (xii) The employer receives no direct or indirect consideration in 
the form of cash or otherwise, other than the reimbursement of the 
actual costs of the program to the employer of the activities referred 
to in paragraph (h)(1)(viii) of this section.
    (2) A State savings program will not fail to satisfy the provisions 
of paragraph (h)(1) of this section merely because the program--
    (i) Is directed toward those employees who are not already eligible 
for some other workplace savings arrangement;
    (ii) Utilizes one or more service or investment providers to 
operate and administer the program, provided that the State (or the 
designated governmental agency or instrumentality described in 
paragraph (h)(1)(ii) of this section) retains full responsibility for 
the operation and administration of the program; or
    (iii) Treats employees as having automatically elected payroll 
deductions in an amount or percentage of compensation, including any 
automatic increases in such amount or percentage, specified under State 
law until the employee specifically elects not to have such deductions 
made (or specifically elects to have the deductions made in a different 
amount or percentage of compensation allowed by the program), provided 
that the employee is given adequate notice of the right to make such 
elections; provided, further, that a program may also satisfy this 
paragraph (h) without requiring or otherwise providing for the 
automatic elections described in this paragraph (h)(2)(iii).
    (3) For purposes of this section, the term State shall have the 
same meaning as defined in section 3(10) of ERISA.

Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2015-29426 Filed 11-16-15; 4:15 pm]