In Vermont, lawmakers opt for MEP retirement plan - small employer participation will be voluntary
By Nick Thornton
The Green Mountain Secure Retirement Plan is the culmination of a public study committee on the state’s retirement security, initiated in 2014 by the state’s General Assembly and overseen by Beth Pearce, the state’s Democratic Treasurer.
Lawmakers across Vermont’s two legislative chambers—both controlled by Democrats—supported the measure.
More than 104,000 of the approximately 347,000 people in Vermont’s civilian workforce do not have access to a workplace retirement savings plan.
The new retirement legislation comes in the wake of President Trump signing a Congressional resolution to roll back an Obama-era safe harbor that made it easier for states to mandate participation in state-administered retirement plans.
Officials in California, Oregon, Illinois, and Connecticut have said they plan to move forward with implementation of auto-enroll IRA plans, in spite of the Trump administration’s action against the safe harbor, which provided a guarantee that small business owners could not be alleged to create ERISA plans if they enrolled workers in state-administered plans.
Vermont’s plan is unique to those established in other states, and could stand as a more moderate template for state-run options going forward.
It is the only state, so far, to establish a multiple employer plan option, which will allow employers with 50 or fewer employees to participate.
Language in the legislation underscores the voluntary nature of the program and goes to some lengths to assure cohesion with private sector retirement plan providers.
“The plan should not compete with existing private sector solutions,” the law says.
The rollout date is set for January 17, 2019, but may be expedited if the committee tasked with overseeing the plan, which is headed by Treasurer Pearce, can design its functions before then.
At the outset of the program, pre-tax contributions will only come from employees, but lawmakers crafted language that leaves open the possibility for employer contributions down the road, a feature that is also distinct from the programs in California, Oregon, Illinois, and Connecticut. The auto-IRA safe harbor created in the Obama administration prohibited employer contributions.
When an employer does make the choice to participate in the MEP, all of its workers will be automatically enrolled, then given the ability to opt-out of the plan.
Affordability will be a core component of the plan, the bill says. Lawmakers dangled a carrot to industry service providers, suggesting one way to pay for the cost of administering the plan at the outset could be for service providers to subsidize the cost in exchange for longer-term contracts.
The law also instructs the plan’s oversight committee, which will include a member from Vermont’s small business community, to design an investment menu with “sufficient” investment options to meet different investment goals, “but not too many options to induce analysis paralysis,” the law says.
“Every Vermonter deserves an opportunity for a lifetime of financial wellbeing,” Pearce said in a statement, upon the Senate passing the measure. Pearce is widely credited for advancing the initiative over the three-year process.
“The passage of this bill will allow the State to make substantive steps towards implementing a voluntary retirement program for Vermonters who currently lack access to employer-sponsored retirement plans,” she added. “I look forward to working with businesses, advocacy groups, and other stakeholders to implement a program that works for all Vermonters.”