PA 08-118—sSB 157

Select Committee on Aging

Insurance and Real Estate Committee

Labor and Public Employees Committee

Finance, Revenue and Bonding Committee

AN ACT CONCERNING AUTOMATIC ENROLLMENT IN RETIREMENT PLANS

SUMMARY: This act allows an employer to withhold a certain percentage of an employee's salary to invest in an automatic enrollment retirement plan unless the employee opts out of the plan or chooses to make contributions in a different amount. If an employee does not provide any investment direction, the act requires contributions to be invested according to federal Department of Labor regulations under Section 404 (c)(5) of the 1974 Employee Retirement Income Security Act. An employer or other plan official who makes investment decisions on behalf of a participating employee is not liable for the decisions if the participating employee is:

1. allowed to select investments available under the plan at least quarterly;

2. notified of all investment alternatives available under the plan, procedures for changing investments, and how contributions will be invested if the employee does not provide any direction; and

3. notified at least annually of the actual investments made on the employee's behalf.

EFFECTIVE DATE: October 1, 2008

BACKGROUND

Automatic Contribution Arrangements

To qualify as an “automatic contribution arrangement” under the Pension Protection Act of 2006 (PL 109-280), a defined contribution plan must contribute 3% of each employee's salary in the first enrollment year, increasing 1% each year up to a maximum of 10%. Employers must match 100% of the first 1% of employee contributions and 50% of the next 5% of contributions for each employee. Employer matching contributions must be 100% vested after two years of service.

ERISA Pre-emption

The Pension Protection Act preempts any state law that restricts the use of automatic enrollment plans if participant notification and default investment rules are met. But, this preemption applies only to plans covered by the Employee Retirement Income Security Act of 1974 (ERISA). Non-ERISA plans, which include government and church plans, remain subject to state wage law restrictions.

Fiduciary Liability

Under the Pension Protection Act, employers are not held liable for financial losses when investing contributions under automatic enrollment plans on behalf of employees who do not provide investment direction. But, plans must comply with default investment and notification regulations. Employees must be notified annually of their right to opt out of the plan, how their contributions will be invested if they do not provide any direction, and their ability to choose to contribute in a different amount. If an employee does not provide any investment direction, contributions must be invested in a “qualified default investment alternative” as prescribed in federal Department of Labor regulations.

OLR Tracking: ND: JF: PF: ts