July 23 Tip of the Week
“Planning for the Future…”
Compliance is one of the most difficult aspects of the Human Resources professional’s job. There are federal, state and local laws that affect the employment relationship and cover topics such as wages and hours, paid time off, employee benefits, termination notice requirements, hiring notices, etc. This litany of laws creates a huge burden on employers and makes it seem impossible for Human Resources professionals to stay current on the laws. myHRcounsel can provide the support necessary to keep you up to date on the changes in the law and to ensure that your policies and practices are legally compliant.
One of the newest requirements that is being placed on employers in some states (and localities) is the requirement that employers provide employees with the opportunity to participate in a retirement savings plan. Over the last several years, employee retirement benefits have become a focus of state and federal legislation. For the most part, employee benefits were always seen to be a business decision that was largely left up to each individual employer. Private businesses had the freedom to determine what benefits to offer their employees, whether it be paid time off, health insurance, retirement plans, etc. Some states and local governments have started to interject themselves into those decision by requiring a certain amount of paid sick leave to be provided to employees. This government intrusion into the employment relationship has expanded beyond the basic issues of wages and hours.
Federally, while the Employee Retirement Income Security Act (“ERISA”) set certain parameters and requirements for employer provided benefits, it did not require employers to offer health insurance or retirement benefits. The Affordable Care Act was the first federal law to examine whether employers offered health insurance to their employees and required employers to report the type and cost of health insurance provided to employees to the Internal Revenue Service.
State and federal legislation is now being considered and, in some cases, enacted that requires employers to provide retirement savings plans to employees. The impetus behind these plans is to increase personal retirement savings for low to moderate income workers. This group of employees rarely saves for retirement, as they often are living paycheck to paycheck and don’t feel as though they have the ability to save for retirement.
The first step toward increasing the amount of personal retirement savings was the trend toward adding an automatic enrollment provision to existing retirement plans. While the decision to add an automatic enrollment provision generally rested with employers, there is federal legislation pending which would require this automatic enrollment to be the standard for all employer retirement savings plans. Some states have gone farther than this and are now mandating that employers provide retirement savings plans for their employees. This means an employer must automatically enroll their employees in an employer-sponsored IRA or other qualified retirement plan and, in some states, if the employer does not have such a plan, they must enroll their employees in a state-sponsored retirement plan.
Ten states either require mandatory retirement plans or are in the process of implementing such a requirement. California, Oregon, Illinois, Maryland, Colorado, Connecticut, New York (including New York City), New Jersey, Virginia, Washington State (Seattle only), and Maine. In adopting these requirements, states have phased in their application based on employer size. California introduced the requirement with large employers, gradually reducing the size of the employer impacted until all employers regardless of the size of their workforce were covered.
Although these mandated retirement laws do not require employers to make contributions to the retirement savings plan on behalf of their employees, the laws place an additional cost and administrative burden on employers. They must sponsor a plan or participate in a state-sponsored plan; they must notify employees of their right to participate in the plan; they must implement an automatic deduction from employee wages; and they must provide employees with an opportunity to opt out of the automatic deduction. As with most labor and employment laws, an employer’s failure to meet its obligations under these laws can lead to fines and penalties.
If you are wondering whether you are subject to a mandated retirement plan obligation, the myHRcounsel team can help you navigate this new area of compliance. With two affordable ERISA offerings, we can make sure that your business is compliant with the many requirements.