Strong concerns expressed by the California Chamber of Commerce and a coalition of local chambers of commerce and other employer groups resulted in amendments limiting potential employer liability resulting from legislation mandating a state-run retirement savings program for private sector employees.
Before the August 15 amendments, the bill, SB 1234 (de León; D-Los Angeles), continued to potentially create liabilities, costs and administrative burdens for employers. With the final changes of the August 15 amendments, the CalChamber and coalition removed opposition and had no position on the bill, which now awaits action by the Governor.
The CalChamber and coalition recognize the importance of encouraging people to save for retirement in light of the retirement crisis facing California and the nation.
Low personal savings rates, lack of retirement planning, poor debt and credit management, and general absence of financial literacy outreach regarding these critical life choices have contributed to the challenge. As a result, large portions of the populations in the state and nation face the prospect of outliving retirement assets.
To address employer concerns regarding liability and administrative burdens for employers, the author agreed to coalition-proposed amendments to SB 1234, which establishes the Secure Choice Retirement Savings Program:
• Clarifying Applicability of Federal Law. A concern of employers from the beginning was that if the program was found to be subject to the federal Employee Retirement Income Security Act of 1974 (ERISA), employers could be subject to significant liability, and the entire program could be at risk. Final language in the bill states that the program will not be implemented until the program board reports to the Legislature that the program conforms to federal Department of Labor criteria for the safe harbor under ERISA, and the Individual Retirement Account (IRA) arrangements offered by the Secure Choice program qualify for the same favorable income tax treatment as other IRAs.
• Limiting Employer Liability. The August 15 changes clarified the intent of the Legislature that the employer is not a sponsor of the retirement plan if the program is subsequently found to be pre-empted by any federal law or regulation.
• Enhancing Disclosure to Employees. SB 1234 requires the Employment Development Department to develop a disclosure packet to be provided to each employee along with a form for employees to acknowledge they received the packet. Additional language proposed by the CalChamber and coalition reiterated the message that the retirement plan is not sponsored by the employer, so the employer is not responsible for the plan or liable as a plan sponsor, and that the employer does not provide financial advice.
• Establishing Operational Model that Shields Employers from Misplaced Liability and Administrative Burden. As suggested by the CalChamber and coalition, the plan will have a third-party administrator that limits employer interaction and transactions with the employee.