Chuck Thulin, a fine ERISA attorney from Seattle, WA, chaired the DOL practitioner panel at the latest (and very successful) annual meeting of the 5 regional TE/GE Councils, in Baltimore.  When I commented that we’d  “been there, done that” when discussing some obscure rule,  he told me of reading of the Russian language version of that well worn phrase: Na eti rabli my uzhe nastupali, or  “we’ve already stepped on that rake.” What immediately came to mind was one of my favorite Robert Frost poems, which I share at the end of this blog.

More importantly, however, was that phrase came to mind when I was reviewing some technicalities implementing state-auto-IRAs. Auto-IRAs will be very real, with at least some 17 states at some level of development of a program. This “rake” we are stepping on is  one that which we have stepped on before: that being the same combination of ERISA and federal securities laws which continues to “str(ike) me a blow in the seat of my sense” (as Robert Frost put it so well below) in our dealings with 403(b) plans.

The ERISA issues related to state-auto-IRAs are well recognized, which are similar to the issues related to 403(b) plans: how do you established a payroll based auto-IRA without causing the arrangement to be governed by ERISA?  Like 403(b)s, there is a regulatory safe harbor to prevent the application of ERISA.  Like 403(b)s,  the safe harbor was not exactly  designed with the current state of affairs in mind.

I suggested what I think is the most supportable ERISA analysis on on this point on the AARP Auto-IRA website; and it is helpful that the President’s 2016 Budget would set aside nearly $6.5 million to help implement “State-based automatic enrollment IRAs or 401(k)-type programs.”  This is likely to include the EBSA exploring sound ways to address this issue. Until then, however, we need to work with the existing rules.

A close working of the details also reveals critical issues related to securities laws which, again, are similar to the securities law issues we deal with on the 403(b) side of things-an example being well described in the recent SEC letter to the American Retirement Association (formerly ASPPA) which granted certain disclosure relief from securities law related to non-ERISA 403(b) participant disclosures.  Unlike participant investments in 401(k) plans which enjoy extensive securities law exemptions, providing investments and investment advice to individuals related to their IRA investments enjoy no such exemptions.  Attention needs to be paid to such matters within the SEC’s and FINRAs purview, such as suitability, pooling of assets, the natiure of asset allocation models, and other like- regulated matters. This host of securities law issues is one which IRA providers will need to work around until legislators and securities regulators pay the attention necessary in order to make state-based auto-IRAs work simply. Unfortunately, these issues are not currently getting the attention they need.


In the meantime, here’s the Robert Frost poem:

The Objection To Being Stepped On
By: Robert Frost

At the end of the row
I stepped on the toe
Of an unemployed hoe.
It rose in offense
And struck me a blow
In the seat of my sense.
It wasn’t to blame
But I called it a name.
And I must say it dealt
Me a blow that I felt
Like a malice prepense.
You may call me a fool,
But was there a rule
The weapon should be
Turned into a tool?
And what do we see?
The first tool I step on
Turned into a weapon.