The Green Book, published May 11 by the Treasury Department, contains further details on Obama's workplace pensions first described in his budget proposals (on which we blogged in March). See pages 7-9 of the Treasury report for details.
It really does create a new scheme of individual pensions, much akin to the 403(b) arrangements of the past. I strongly suspect that there will be many similarities to the manner in which private industry approaches these to the way industry had approached "non-ERISA" 403(b)s.
It will cover employers who had been in business for two or more years and who have 10 or more employees. Eligibility will be a lot like the "universal eligibility" rules under 403(b), in that those employees who are eligible (or who are excluded under a statutory exclusion) under a plan of the employer (even if not participating) can be excluded from this automatic program. If an employer excludes a class of employees for reasons other than the statutory exclusions, they must be covered by the IRA program.
The default rate of deferral is proposed to be 3%, which the employee could lower or raise (but who cannot "opt out").
It would be by payroll deduction, mostly with direct deposit to the IRA. There would be default IRA investments set by statute, for employers who did not wish to be involved in vendor selection. Employers would have the option of designating a private sector custodian, or permit employees to choose their private vendor.
Like the 403(b) plans of old, employers would have no responsibility for compliance with "qualified plan-like" requirements, nor have any responsibility for monitoring IRA eligibility or contribution limitations. The individuals, not the employers, would bear ultimate responsibility for compliance. A national website would be maintained with information and investment educational material.
Like 403(b) plans of old, the variable investments among these products these will be registered which need to be sold by registered reps. They will be individual arrangements, typically with higher costs and fees, and in different asset classes than employer products. Inevitably, group arrangements will be offered by vendors to attempt to garner more assets from larger employers or groups of employers in order to offer more competitively priced products. Eventually, there will be RFPs and competition at the employer level for access to payroll slots. This all can create some ERISA tensions.
This proposal really means something for 403(b)plans down the road. But even now, given the Administration's position that it is OK to rely upon participant representations under circumstances such as these, perhaps the IRS should take a closer look at allowing such representations under its current 403(b) regulatory attempts as a way in which to resolve many of the tough transition rules which we are now facing.
