Retirement Legislation Springing Forth in Massachusetts
Legislators in the Bay State have been busy developing bills that could impact the private employer sponsored retirement system should they become state law.
In the current legislative session, two bills have been offered that attempt to regulate 401(k) plans — apparently overlooking the preemption provision in ERISA that expressly prohibits states from doing that.
On March 11, Rep. Peter Kocot (D-1st, Hampshire) introduced legislation that would allow “individuals participating in private employee retirement accounts, including so-called 401K type accounts,” to access those funds for personal uses, requiring only a 30-day notification to the plan administer prior to withdrawal. This proposal could dramatically increase leakage from retirement savings since current rules and practices only allow withdrawals under certain circumstances. It might also greatly increase the administrative burdens on plan sponsors and record keepers if participants gain the ability to access their employer-sponsored retirement funds with such ease.
The same day, Rep. Robert Koczera (D-11th, Bristol) introduced legislation that would prohibit private employers from making 401(k) contributions to participants in a single lump sum at any point during the taxable year. Instead, employers would be required to make those contributions during the same pay period in which the compensation on which they are based is received. This proposal would limit plan design flexibility, might discourage small businesses on a tight budget from adopting retirement plans, and could cause some employers to terminate their plans currently in operation due to cash flow concerns. This, in turn, would erode the retirement security of rank-and-file employees who get a meaningful benefit from saving in these arrangements.
Again, both proposals would run afoul of the federal preemption provisions in ERISA that prohibit states from meddling with the rules governing the private employer-sponsored retirement system. It is unclear at this early stage when — or if — the bills will start to move through the legislative process. The American Retirement Association’s Government Affairs team is closely monitoring developments in Boston, and we encourage members in Massachusetts to weigh in with their state representatives to prevent these two initiatives from becoming state law.
Andrew Remo is the Congressional Affairs Manager at the American Retirement Association.