State Run Retirement Plans: Exploring emerging trends and federal alternatives to the coverage gap Lee Covington Senior Vice President & General Counsel Insured Retirement Institute

Current State Since 2010, 25 states have considered state-run plans 6 states rejected proposals in 2015 19 states introduced bills in 2016 (NJ, MD, CT, VT passed) Pending: CA, MA, NY & NYC 8 states have passed study bills (CA, CT, VT, WV, MD, MN, and OR) 5 States (IL, MA, MD, OR, CT) have passed plans 2 states (NJ, WA) have passed voluntary marketplace bills

Current State - DOL DOL directed by President Obama to create rules or guidance to facilitate state-run plans DOL issued regulatory guidance (Interpretive Bulletin 2015-02) in January Safe harbor for states to auto-enroll private sector employees if employers don’t offer plan Three approaches for states under ERISA Marketplace, prototype plan, open-network MEPs

Concerns about DOL Proposal Significant Costs to State; Significant Costs and Risk to Employers No Need Nearly 80 percent of full-time workers have access to a plan. More than 80 percent of workers with access participate. IRAs and individual annuities are available to 100% of workers. In Competitive Market, States Should Not Compete with Private Sector Plans Discourages employers from offering private plans because easier to administer state-run plans based on plan features (auto-enroll)

Concerns about DOL Proposal Safe harbor Only applies to certain state arrangements; leaves out others with private non-ERISA arrangements through existing DOL safe harbors Creates multiple classes of employers across state lines Only for states; limited options to employers

Concerns about DOL Proposal New automatic contribution option independent of existing IRS Code guidance No specific requirements or time limitation applicable to auto-contributions Could result in loss of participant protections Portability issue/plans across state lines

Comments to DOL Allow auto enrollment and auto escalation features for all private sector plans currently covered by safe harbor; not just state plans Demonstrated benefits: increased earnings and overall savings for participants Clarify existing IRA safe harbor is available for IRA state programs as long as voluntary.

Federal Alternatives Encourage employers to make private-sector solutions available to employees Permit Open MEPs Starter 401(k)s for small employers Auto-IRA Legislation (Mandating Auto-Enrollment) Plan Start-up Credit Simple IRAs and 401(k)s

QUESTIONS? Lee Covington Senior Vice President & General Counsel Insured Retirement Institute Email: lcovington@irionline.org Phone: 202-469-3002