Interpretive Bulletin Relating to State Savings Programs That Sponsor or Facilitate Plans Covered by the Employee Retirement Income Security Act of 1974, 71936-71940 [2015-29427]

Download as PDF 71936 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Rules and Regulations 1. Office of the Federal Register, ‘‘Current Good Manufacturing Practice, Hazard Analysis, and Risk-Based Preventive Controls for Human Food,’’ September 10, 2015. Available at https://s3.amazonaws.com/ public-inspection.federalregister.gov/201521920.pdf. 2. FDA, ‘‘FSMA Webinar Series: Preventive Controls for Human and Animal Food Final Rules,’’ 2015. Available at http:// www.fda.gov/Food/GuidanceRegulation/ FSMA/ucm461512.htm. 3. FDA, ‘‘Contact FDA About FSMA,’’ 2015. Available at http://www.fda.gov/Food/ GuidanceRegulation/FSMA/ucm459719.htm. 4. FDA, ‘‘Current Good Manufacturing Practice, Hazard Analysis, and Risk-Based Preventive Controls for Human Food; Clarification of Compliance Date for Certain Food Establishments,’’ 2015. Available at: http://www.fda.gov/AboutFDA/ ReportsManualsForms/Reports/ EconomicAnalyses/default.htm. Dated: November 10, 2015. Leslie Kux, Associate Commissioner for Policy. [FR Doc. 2015–29340 Filed 11–17–15; 8:45 am] BILLING CODE 4164–01–P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket Nos. FR 5797–I–01 and FR 5797– C–02] RIN 2506–AC39 Changes to Accounting Requirements for the Community Development Block Grants (CDBG) Program; Correction Office of the General Counsel, HUD. ACTION: Correction In interim final rule FR Doc. 2015– 28700, published on November 12, 2015 (80 FR 69864), make the following correction: On page 69872, in the first column, in § 570.489, correct paragraph (a)(3)(ii) to read as follows: § 570.489 Program administrative requirements. 24 CFR Part 570 AGENCY: requirements for the CDBG program, including 24 CFR 570.489. The amendments included clarification of how HUD determines compliance with planning and administration cost limits. In the preamble to the rule, at page 69867, first column, HUD stated that the regulations revised by rule modify the limits on administrative and planning expenses by adding to the existing compliance test a new test for grants with an origin year of 2015and subsequent years, which would continue to remain in place for all grants. However, language was inadvertently included in the regulatory text that limited the existing test to CDBG grants with an origin year prior to 2015. This document corrects that limiting language. Interim final rule; correction. This document corrects a technical error in HUD’s interim final rule on CDBG accounting requirements, published November 12, 2015. DATES: Effective date: December 14, 2015. SUMMARY: (a) * * * (3) * * * (ii) The combined expenditures by the State and its funded units of general local government for planning, management, and administrative costs shall not exceed 20 percent of the aggregate amount of the origin year grant, any origin year grant funds reallocated by HUD to the State, and the amount of any program income received during the program year. * * * * * Dated: November 13, 2015. Camille Acevedo, Associate General Counsel for Legislation and Regulations. [FR Doc. 2015–29478 Filed 11–17–15; 8:45 am] BILLING CODE 4210–67–P wgreen on DSK2VPTVN1PROD with RULES FOR FURTHER INFORMATION CONTACT: Stanley Gimont, Director, Office of Block Grant Assistance, Department of Housing and Urban Development, Office of Community Planning and Development, 451 7th Street SW., Suite 7286, Washington, DC 20410 at 202– 708–3587, (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service, toll-free, at 800–877– 8339. HUD published a document in the Federal Register on November 12, 2015, at 80 FR 69864, amending the accounting SUPPLEMENTARY INFORMATION: VerDate Sep<11>2014 14:36 Nov 17, 2015 Jkt 238001 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2509 RIN 1210–AB74 Interpretive Bulletin Relating to State Savings Programs That Sponsor or Facilitate Plans Covered by the Employee Retirement Income Security Act of 1974 Employee Benefits Security Administration, Labor. AGENCY: PO 00000 Frm 00008 Fmt 4700 Sfmt 4700 ACTION: Interpretive bulletin. This document sets forth the views of the Department of Labor (Department) concerning the application of the Employee Retirement Income Security Act of 1974 (ERISA) to certain state laws designed to expand the retirement savings options available to private sector workers through ERISAcovered retirement plans. Concern over adverse social and economic consequences of inadequate retirement savings levels has prompted several states to adopt or consider legislation to address this problem. The Department separately released a proposed regulation describing safe-harbor conditions for states and employers to avoid creation of ERISA-covered plans as a result of state laws that require private sector employers to implement in their workplaces state-administered payroll deduction IRA programs (autoIRA laws). This Interpretive Bulletin does not address such state auto-IRA laws. DATES: This interpretive bulletin is effective on November 18, 2015. FOR FURTHER INFORMATION CONTACT: Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693– 8500. This is not a toll-free number. SUPPLEMENTARY INFORMATION: In order to provide a concise and ready reference to its interpretations of ERISA, the Department publishes its interpretive bulletins in the Rules and Regulations section of the Federal Register. The Department is publishing in this issue of the Federal Register, ERISA Interpretive Bulletin 2015–02, which interprets ERISA section 3(2)(A), 29 U.S.C. 1002(2)(A), section 3(5), 29 U.S.C. 1002(5), and section 514, 29 U.S.C. 1144, as they apply to state laws designed to expand workers’ access to retirement savings programs. Some states have adopted laws or are exploring approaches designed to expand the retirement savings options available to their private sector workers through ERISA-covered retirement plans. One of the challenges the states face in expanding retirement savings opportunities for private sector employees is uncertainty about ERISA preemption of such efforts. ERISA generally would preempt a state law that required employers to establish and maintain ERISA-covered employee benefit pension plans. The Department also has a strong interest in promoting retirement savings by employees. The Department recognizes that some employers currently do not provide pension plans for their employees. The SUMMARY: E:\FR\FM\18NOR1.SGM 18NOR1 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Rules and Regulations Department believes that it is important that employees of such employers be encouraged to save for retirement, and it is in the interest of the public that employers be encouraged to provide opportunities for their employee retirement savings. The Department therefore believes that states, employers, other plan sponsors, workers, and other stakeholders would benefit from guidance on the application of ERISA to these state initiatives. List of Subjects in 29 CFR Part 2509 Employee benefit plans, Pensions. For the reasons set forth in the preamble, the Department is amending Subchapter A, Part 2509 of Title 29 of the Code of Federal Regulations as follows: Subchapter A—General PART 2509—INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 1. The authority citation for part 2509 continues to read as follows: ■ Authority: 29 U.S.C. 1135. Secretary of Labor’s Order No. 1–2011, 77 FR 1088 (Jan. 9, 2012). Sections 2509.75–10 and 2509.75– 2 issued under 29 U.S.C. 1052, 1053, 1054. Sec. 2509.75–5 also issued under 29 U.S.C. 1002. Sec. 2509.95–1 also issued under sec. 625, Public Law 109–280, 120 Stat. 780. 2. Add § 2509.2015–02 to read as follows: ■ § 2509.2015–02 Interpretive bulletin relating to state savings programs that sponsor or facilitate plans covered by the Employee Retirement Income Security Act of 1974. wgreen on DSK2VPTVN1PROD with RULES (a) Scope. This document sets forth the views of the Department of Labor (Department) concerning the application of the Employee Retirement Income Security Act of 1974 (ERISA) to certain state laws designed to expand the retirement savings options available to private sector workers through ERISAcovered retirement plans. Concern over adverse social and economic consequences of inadequate retirement savings levels has prompted several states to adopt or consider legislation to address this problem.1 An impediment 1 For information on the problem of inadequate retirement savings, see the May 2015 Report of the United States Government Accountability Office (GAO), RETIREMENT SECURITY—Most Households Approaching Retirement Have Low Savings (GAO Report–15–419) (available at www.gao.gov/assets/680/670153.pdf). Also see GAO’s September 2015 Report–15–566, RETIREMENT SECURITY—Federal Action Could Help State Efforts to Expand Private Sector Coverage (available at www.gao.gov/assets/680/ 672419.pdf). VerDate Sep<11>2014 14:36 Nov 17, 2015 Jkt 238001 to state adoption of such measures is uncertainty about the effect of ERISA’s broad preemption of state laws that ‘‘relate to’’ private sector employee benefit plans. In the Department’s view, ERISA preemption principles leave room for states to sponsor or facilitate ERISA-based retirement savings options for private sector employees, provided employers participate voluntarily and ERISA’s requirements, liability provisions, and remedies fully apply to the state programs. (b) In General. There are advantages to utilizing an ERISA plan approach. Employers as well as employees can make contributions to ERISA plans, contribution limits are higher than for other state approaches that involve individual retirement plans (IRAs) that are not intended to be ERISA-covered plans,2 and ERISA plan accounts have stronger protection from creditors. Tax credits may also allow small employers to offset part of the costs of starting certain types of retirement plans.3 Utilizing ERISA plans also provides a well-established uniform regulatory structure with important consumer protections, including fiduciary obligations, automatic enrollment rules, recordkeeping and disclosure requirements, legal accountability provisions, and spousal protections. The Department is not aware of judicial decisions or other ERISA guidance directly addressing the application of ERISA to state programs that facilitate or sponsor ERISA plans, and, therefore, believes that the states, employers, other plan sponsors, workers, and other stakeholders would benefit from guidance setting forth the 2 Some states are developing programs to encourage employees to establish tax-favored IRAs funded by payroll deductions rather than encouraging employers to adopt ERISA plans. Oregon, Illinois, and California, for example, have adopted laws along these lines. Oregon 2015 Session Laws, Ch. 557 (H.B. 2960) (June 2015); Illinois Secure Choice Savings Program Act, 2014 Ill. Legis. Serv. P.A. 98–1150 (S.B. 2758) (West); California Secure Choice Retirement Savings Act, 2012 Cal. Legis. Serv. Ch. 734 (S.B. 1234) (West). These IRA-based initiatives generally require specified employers to deduct amounts from their employees’ paychecks, unless the employee affirmatively elects not to participate, in order that those amounts may be remitted to stateadministered IRAs for the employees. The Department is addressing these state ‘‘payroll deduction IRA’’ initiatives separately through a proposed regulation that describes safe-harbor conditions for employers to avoid creation of ERISA-covered plans when they comply with state laws that require payroll deduction IRA programs. This Interpretive Bulletin does not address those laws. 3 For more information, see Choosing a Retirement Solution for Your Small Business, a joint project of the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) and the Internal Revenue Service. Available at www.irs.gov/pub/irs-pdf/p3998.pdf. PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 71937 general views of the Department on the application of ERISA to these state initiatives. The application of ERISA in an individual case would present novel preemption questions and, if decided by a court, would turn on the particular features of the state-sponsored program at issue, but, as discussed below, the Department believes that neither ERISA section 514 specifically, nor federal preemption generally, are insurmountable obstacles to all state programs that promote retirement saving among private sector workers through the use of ERISA-covered plans. Marketplace Approach One state approach is reflected in the 2015 Washington State Small Business Retirement Savings Marketplace Act.4 This law requires the state to contract with a private sector entity to establish a program that connects eligible employers with qualifying savings plans available in the private sector market. Only products that the state determines are suited to small employers, provide good quality, and charge low fees would be included in the state’s ‘‘marketplace.’’ Washington State employers would be free to use the marketplace or not and would not be required to establish any savings plans for their employees. Washington would merely set standards for arrangements marketed through the marketplace. The marketplace arrangement would not itself be an ERISA-covered plan, and the arrangements available to employers through the marketplace could include ERISA-covered plans and other nonERISA savings arrangements. The state would not itself establish or sponsor any savings arrangement. Rather, the employer using the state marketplace would establish the savings arrangement, whether it is an ERISAcovered employee pension benefit plan or a non-ERISA savings program. ERISA’s reporting and disclosure requirements, protective standards and remedies would apply to the ERISA plans established by employers using the marketplace. On the other hand, if the plan or arrangement is of a type that would otherwise be exempt from ERISA (such as a payroll deduction IRA arrangement that satisfies the conditions of the existing safe harbor at 29 CFR 2510.3–2(d)), the state’s involvement as organizer or facilitator of the marketplace would not by itself cause that arrangement to be covered by ERISA. Similarly, if, as in Washington State, a marketplace includes a type of 4 2015 Wash. Sess. Laws chap. 296 (SB 5826) (available at http://app.leg.wa.gov/billinfo/ summary.aspx?bill=5826&year=2015). E:\FR\FM\18NOR1.SGM 18NOR1 71938 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Rules and Regulations plan that is subject to special rules under ERISA, such as the SIMPLE–IRA under section 101(h) of ERISA, the state’s involvement as organizer or facilitator of the marketplace would not by itself affect the application of the special rules. wgreen on DSK2VPTVN1PROD with RULES Prototype Plan Approach Another potential approach is a state sponsored ‘‘prototype plan.’’ At least one state, Massachusetts, has enacted a law to allow nonprofit organizations with fewer than 20 employees to adopt a contributory retirement plan developed and administered by the state.5 Banks, insurance companies and other regulated financial institutions commonly market prototype plans to employers as simple means for them to establish and administer employee pension benefit plans.6 The financial institutions develop standard form 401(k) or other tax-favored retirement plans (such as SIMPLE–IRA plans) and secure IRS approval. Typically, employers may choose features such as contribution rates to meet their specific needs. Each employer that adopts the prototype sponsors an ERISA plan for its employees. The individual employers would assume the same fiduciary obligations associated with sponsorship of any ERISA-covered plans. For example, the prototype plan documents often specify that the employer is the plan’s ‘‘named fiduciary’’ and ‘‘plan administrator’’ responsible for complying with ERISA, but they may allow the employer to delegate these responsibilities to others. The plan documents for a stateadministered prototype plan could designate the state or a state designee to perform these functions. Thus, the state or a designated third-party could assume responsibility for most 5 The retirement plan will be overseen by the Massachusetts State Treasurer’s Office. Mass. Gen. Laws ch.29, § 64E (2012). In June 2014, the Massachusetts Treasurer’s Office announced that the IRS had issued a favorable ruling on the proposal, but noted that additional approval from the IRS is still needed (see www.massnonprofitnet.org/blog/ nonprofitretirement/). See also GAO’s Report 2015 Report–15–566, RETIREMENT SECURITY—Federal Action Could Help State Efforts to Expand Private Sector Coverage, which included the following statement at footnote 93 regarding the Massachusetts program: ‘‘The Massachusetts official told us that each participating employer would be considered to have created its own plan, characterizing the state’s effort as development of a volume submitter 401(k) plan, which is a type of employee benefit plan that is typically preapproved by the Internal Revenue Service.’’ (GAO report is available at www.gao.gov/assets/680/ 672419.pdf). 6 See IRS Online Publication, Types of PreApproved Retirement Plans at www.irs.gov/ Retirement-Plans/Types-of-Pre-ApprovedRetirement-Plans. VerDate Sep<11>2014 14:36 Nov 17, 2015 Jkt 238001 administrative and asset management functions of an employer’s prototype plan. The state could also designate low-cost investment options and a thirdparty administrative service provider for its prototype plans. Multiple Employer Plan (MEP) Approach A third approach, (referenced, for example, in the ‘‘Report of the Governor’s Task Force to Ensure Retirement Security for All Marylanders’’),7 involves a state establishing and obtaining IRS tax qualification for a ‘‘multiple employer’’ 401(k)-type plan, defined benefit plan, or other tax-favored retirement savings program. The Department anticipates that such an approach would generally involve permitting employers that meet specified eligibility criteria to join the state multiple employer plan. The plan documents would provide that the plan is subject to Title I of ERISA and is intended to comply with Internal Revenue Code tax qualification requirements. The plan would have a separate trust holding contributions made by the participating employers, the employer’s employees, or both. The state, or a designated governmental agency or instrumentality, would be the plan sponsor under ERISA section 3(16)(B) and the named fiduciary and plan administrator responsible (either directly or through one or more contract agents, which could be private-sector providers) for administering the plan, selecting service providers, communicating with employees, paying benefits, and providing other plan services. A state could take advantage of economies of scale to lower administrative and other costs. As a state-sponsored multiple employer plan (‘‘state MEP’’), this type of arrangement could also reduce overall administrative costs for participating employers in large part because the Department would consider this arrangement as a single ERISA plan. Consequently, only a single Form 5500 Annual Return/Report would be filed for the whole arrangement. In order to participate in the plan, employers simply would be required to execute a participation agreement. Under a state MEP, each employer that chose to participate would not be considered to have established its own ERISA plan, and the state could design its defined contribution MEP so that the participating employers could have 7 Governor’s Task Force to Ensure Retirement Security for All Marylanders, 1,000,000 of Our Neighbors at Risk: Improving Retirement Security for Marylanders (February 2015) (available at www.dllr.state.md.us/retsecurity/). PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 limited fiduciary responsibilities (the duty to prudently select the arrangement and to monitor its operation would continue to apply). The continuing involvement by participating employers in the ongoing operation and administration of a 401(k)-type individual account MEP, however, generally could be limited to enrolling employees in the state plan and forwarding voluntary employee and employer contributions to the plan. When an employer joins a carefully structured MEP, the employer is not the ‘‘sponsor’’ of the plan under ERISA, and also would not act as a plan administrator or named fiduciary. Those fiduciary roles, and attendant fiduciary responsibilities, would be assigned to other parties responsible for administration and management of the state MEP.8 Adoption of a defined benefit plan structure would involve additional funding and other employer obligations.9 For a person (other than an employee organization) to sponsor an employee benefit plan under Title I of ERISA, such person must either act directly as the employer of the covered employees or ‘‘indirectly in the interest of an employer’’ in relation to a plan.10 ERISA sections 3(2), 3(5). A person will be considered to act ‘‘indirectly in the interest of an employer, in relation to a plan,’’ if such person is tied to the contributing employers or their employees by genuine economic or representational interests unrelated to the provision of benefits.11 In the 8 A state developing a state sponsored MEP could submit an advisory opinion request to the Department under ERISA Procedure 76–1 to confirm that the MEP at least in form has assigned those fiduciary functions to persons other than the participating employers. ERISA Procedure 76–1 is available at www.dol.gov/ebsa/regs/aos/ao_ requests.html. 9 State laws authorizing defined benefit plans for private sector employers (as prototypes or as multiple employer plans) might create plans covered by Title IV of ERISA and subject to the jurisdiction of the Pension Benefit Guaranty Corporation (PBGC). Subject to some exceptions, the PBGC protects the retirement incomes of workers in private-sector defined benefit pension plans. A defined benefit plan provides a specified monthly benefit at retirement, often based on a combination of salary and years of service. PBGC was created by ERISA to encourage the continuation and maintenance of private-sector defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. More information is available on the PBGC’s Web site at www.pbgc.gov. 10 Different rules may apply under the Internal Revenue Code for purposes of determining the plan sponsor of a tax-qualified retirement plan. 11 See, e.g., Advisory Opinion 2012–04A. See also MDPhysicians & Associates, Inc. v. State Bd. Ins., 957 F.2d 178,185 (5th Cir.), cert. denied, 506 U.S. 861 (1992) (‘‘the entity that maintains the plan and the individuals that benefit from the plan [must be] E:\FR\FM\18NOR1.SGM 18NOR1 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Rules and Regulations wgreen on DSK2VPTVN1PROD with RULES Department’s view, a state has a unique representational interest in the health and welfare of its citizens that connects it to the in-state employers that choose to participate in the state MEP and their employees, such that the state should be considered to act indirectly in the interest of the participating employers.12 Having this unique nexus distinguishes the state MEP from other business enterprises that underwrite benefits or provide administrative services to several unrelated employers.13 (c) ERISA Preemption. The Department is aware that a concern for states adopting an ERISA plan approach is whether or not those state laws will be held preempted. ERISA preemption analysis begins with the ‘‘presumption that Congress does not intend to supplant state law.’’ New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654 (1995). The question turns on Congress’s intent ‘‘to avoid a multiplicity of regulation in order to permit nationally uniform administration of employee benefit plans.’’ Id. at 654, 657. See also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987) (goal of ERISA preemption is to ‘‘ensure . . . that the administrative practices of a benefit plan will be governed by only a single set of regulations.’’). Section 514 of ERISA provides that Title I ‘‘shall supersede any and all State laws insofar as they . . . relate to any employee benefit plan’’ covered by the statute. The U.S. Supreme Court has held that ‘‘[a] law ‘relates to’ an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a tied by a common economic or representation interest, unrelated to the provision of benefits.’’ (quoting Wisconsin Educ. Assoc. Ins. Trust v. Iowa State Bd., 804 F.2d 1059, 1063 (8th Cir. 1986)). 12 The Department has also recognized other circumstances when a person sponsoring a plan is acting as an ‘‘employer’’ indirectly rather than as an entity that underwrites benefits or provides administrative services. See Advisory Opinion 89– 06A (Department would consider a member of a controlled group which establishes a benefit plan for its employees and/or the employees of other members of the controlled group to be an employer within the meaning of section 3(5) of ERISA); Advisory Opinion 95–29A (employee leasing company may act either directly or indirectly in the interest of an employer in establishing and maintaining employee benefit plan). 13 See Advisory Opinion 2012–04A (holding that a group of employers can collectively act as the ‘‘employer’’ in sponsoring a multiple employer plan only if the employers group was formed for purposes other than the provision of benefits, the employers have a basic level of commonality (such as the participating employers all being in the same industry), and the employers participating in the plan in fact act as the ‘‘employer’’ by controlling the plan). VerDate Sep<11>2014 14:36 Nov 17, 2015 Jkt 238001 plan.’’ Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96–97 (1983) (footnote omitted); see, e.g., Travelers, 514 U.S. at 656. A law has a ‘‘reference to’’ ERISA plans if the law ‘‘acts immediately and exclusively upon ERISA plans’’ or ‘‘the existence of ERISA plans is essential to the law’s operation.’’ California Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., 519 U.S. 316, 325–326 (1997). In determining whether a state law has a ‘‘connection with ERISA plans,’’ the U.S. Supreme Court ‘‘look[s] both to ‘the objectives of the ERISA statute as a guide to the scope of the state laws that Congress understood would survive,’ as well as to the nature of the effect of the state law on ERISA plans,’’ to ‘‘determine whether [the] state law has the forbidden connection’’ with ERISA plans. Egelhoff v. Egelhoff, 532 U.S. 141, 147 (2001) (quoting Dillingham, 519 U.S. at 325). In various decisions, the Court has concluded that ERISA preempts state laws that: (1) Mandate employee benefit structures or their administration; (2) provide alternative enforcement mechanisms; or (3) bind employers or plan fiduciaries to particular choices or preclude uniform administrative practice, thereby functioning as a regulation of an ERISA plan itself.14 In the Department’s view, state laws of the sort outlined above interact with ERISA in such a way that section 514 preemption principles and purposes would not appear to come into play in the way they have in past preemption cases. Although the approaches described above involve ERISA plans, they do not appear to undermine ERISA’s exclusive regulation of ERISAcovered plans. The approaches do not mandate employee benefit structures or their administration, provide alternative regulatory or enforcement mechanisms, bind employers or plan fiduciaries to particular choices, or preclude uniform administrative practice in any way that would regulate ERISA plans. Moreover, the approaches appear to contemplate a state acting as a participant in a market rather than as a regulator. The U.S. Supreme Court has found that, when a state or municipality acts as a participant in the market and does so in a narrow and focused manner consistent with the behavior of other market participants, such action does not constitute state regulation. Compare Building and Construction Trades Council v. Associated Builders and Contractors of Massachusetts/Rhode 14 Travelers, 514 U.S. at 658 (1995); IngersollRand Co. v. McClendon, 498 U.S. 133, 142 (1990); Egelhoff v. Egelhoff, 532 U.S. 141, 148 (2001); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 14 (1987). PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 71939 Island, Inc., 507 U.S. 218 (1993); Wisconsin Department of Industry, Labor and Human Relations v. Gould, 475 U.S. 282 (1986); see also American Trucking Associations, Inc. v. City of Los Angeles, 133 S. Ct. 2096, 2102 (2013) (Section 14501(c)(1) of the Federal Aviation Administration Authorization Act, which preempts a state ‘‘law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier,’’ 49 U.S.C. 14501(c)(1), ‘‘draws a rough line between a government’s exercise of regulatory authority and its own contract-based participation in a market’’); Associated General Contractors of America v. Metropolitan Water District of Southern California, 159 F.3d 1178, 1182–84 (9th Cir. 1998) (recognizing a similar distinction between state regulation and state market participation). By merely offering employers particular ERISAcovered plan options 15 (or non-ERISA plan options), these approaches (whether used separately or together as part of a multi-faceted state initiative) do not dictate how an employer’s plan is designed or operated or make offering a plan more costly for employers or employees. Nor do they make it impossible for employers operating across state lines to offer uniform benefits to their employees.16 Rather than impair federal regulation of employee benefit plans, the state laws would leave the plans wholly subject to ERISA’s regulatory requirements and protections. Of course, a state must implement these approaches without establishing standards inconsistent with ERISA or providing its own regulatory or judicial remedies for conduct governed exclusively by ERISA. ERISA’s system of rules and remedies would apply to these arrangements. A contractor retained by a state using the marketplace approach would be subject 15 In the Department’s view, a state law that required employers to participate in a state prototype plan or state sponsored multiple employer plan unless they affirmatively opted out would effectively compel the employer to decide whether to sponsor an ERISA plan in a way that would be preempted by ERISA. 16 The Court in Travelers approved a New York statute that gave employers a strong incentive to provide health care benefits through Blue Cross and Blue Shield as opposed to other providers. The Court noted that the law did not ‘‘mandate’’ employee benefit plans or their administration, or produce such acute economic effects, either directly or indirectly, by intent or otherwise ‘‘as to force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers.’’ Travelers, 514 U.S. at 668. See also De Buono v. NYSA–ILA Medical and Clinical Services Fund, 520 U.S. 806, 816 (1997). E:\FR\FM\18NOR1.SGM 18NOR1 wgreen on DSK2VPTVN1PROD with RULES 71940 Federal Register / Vol. 80, No. 222 / Wednesday, November 18, 2015 / Rules and Regulations to the same ERISA standards and remedies that apply to any company offering the same services to employers. Similarly, a prototype plan or multiple employer plan program that a state offers to employers would have to comply with the same ERISA requirements and would have to be subject to the same remedies as any private party offering such products and services.17 Even if the state laws enacted to establish programs of the sort described above ‘‘reference’’ employee benefit plans in a literal sense, they should not be seen as laws that ‘‘relate to’’ ERISA plans in the sense ERISA section 514(a) uses that statutory term because they are completely voluntary from the employer’s perspective, the state program would be entirely subject to ERISA, and state law would not impose any outside regulatory requirements beyond ERISA. They do not require employers to establish ERISA-covered plans, forbid any type of plan or restrict employers’ choices with respect to benefit structures or their administration. These laws would merely offer a program that employers could accept or reject. See Dillingham, 519 U.S. at 325–28. In addition, none of the state approaches described above resemble the state laws that the Court held preempted in its pre-Travelers ‘‘reference to’’ cases. Those laws targeted ERISA plans as a class with affirmative requirements or special exemptions. See, e.g., District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 128, 129–133 (1992) (workers’ compensation law that required employee benefits ‘‘set by reference to [ERISA] plans’’) (citation omitted); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 135–136, 140 (1990) (common law claim for wrongful discharge to prevent attainment of ERISA benefits); Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 828 & n.2, 829–830 (1988) (exemption from garnishment statute for ERISA plans). In the case of the state actions outlined above, any restriction on private economic activity arises, not from state regulatory actions, but from the application of ERISA requirements to the plans, service providers, and investment products, that the state, as any other private sector participant in the market, selects in deciding what it is willing to offer. 17 State laws relating to sovereign immunity for state governments and their employees would have to be evaluated carefully to ensure they do not conflict with ERISA’s remedial provisions. VerDate Sep<11>2014 14:36 Nov 17, 2015 Jkt 238001 Finally, it is worth noting that even if the state laws implementing these approaches ‘‘relate to’’ ERISA plans in some sense of that term, it is only because they create or authorize arrangements that are fully governed by ERISA’s requirements. By embracing ERISA in this way, the state would not on that basis be running afoul of section 514(a) because ERISA fully applies to the arrangement and there is nothing in the state law for ERISA to ‘‘supersede.’’ In this regard, section 514(a) of ERISA, in relevant part, provides that Title I of ERISA ‘‘shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan . . . .’’ To the extent that the state makes plan design decisions in fashioning its prototype plan or state sponsored plan, or otherwise adopts rules necessary to run the plan, those actions would be the same as any other prototype plan provider or employer sponsor of any ERISA-covered plan, and the arrangement would be fully and equally subject to ERISA. This conclusion is supported by the Department’s position regarding state governmental participation in ERISA plans in another context. Pursuant to section 4(b)(1) of ERISA, the provisions of Title I of ERISA do not apply to a plan that a state government establishes for its own employees, which ERISA section 3(32) defines as a ‘‘governmental plan.’’ The Department has long held the view, however, that if a plan covering governmental employees fails to qualify as a governmental plan, it would still be subject to Title I of ERISA.18 In these circumstances, the failure to qualify as a governmental plan does not prohibit a governmental employer from providing benefits through, and making contributions to, an ERISA-covered employee benefit plan.19 Thus, the effect of ERISA is not to prohibit the state from offering benefits, but rather to make those benefits subject to ERISA. Here too, ERISA does not supersede state law to the extent it merely creates an arrangement that is fully governed by ERISA. Phyllis C. Borzi, Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2015–29427 Filed 11–16–15; 4:15 pm] BILLING CODE 4510–29–P 18 See, e.g., Advisory Opinion 2004–04A. Information Letter to Michael T. Scaraggi and James M. Steinberg from John J. Canary (April 12, 2004). 19 See PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 147 [Docket No. USCG–2015–0318] RIN 1625–AA00 Safety Zone; Turritella FPSO, Walker Ridge 551, Outer Continental Shelf on the Gulf of Mexico Coast Guard, DHS. Final rule. AGENCY: ACTION: The Coast Guard is establishing a safety zone around the Turritella FPSO system, Walker Ridge 551 on the Outer Continental Shelf (OCS) in the Gulf of Mexico. The purpose of the safety zone is to protect the facility from all vessels operating outside the normal shipping channels and fairways that are not providing services to or working with the facility. Placing a safety zone around the facility will significantly reduce the threat of allisions, collisions, security breaches, oil spills, releases of natural gas, and thereby protect the safety of life, property, and the environment. DATES: This rule is effective December 18, 2015. ADDRESSES: To view documents mentioned in this preamble as being available in the docket, go to http:// www.regulations.gov, type USCG–2015– 0318 in the ‘‘SEARCH’’ box and click ‘‘SEARCH.’’ Click on Open Docket Folder on the line associated with this rulemaking. FOR FURTHER INFORMATION CONTACT: If you have questions on this rule, call or email Mr. Rusty Wright, U.S. Coast Guard, District Eight Waterways Management Branch; telephone 504– 671–2138, rusty.h.wright@uscg.mil. SUPPLEMENTARY INFORMATION: SUMMARY: I. Table of Abbreviations DHS Department of Homeland Security FR Federal Register FPSO Floating Production Storage Offloading Vessel NPRM Notice of Proposed Rulemaking OCS Outer Continental Shelf USCG United States Coast Guard II. Background Information and Regulatory History Shell Exploration & Production Company requested that the Coast Guard establish a safety zone around the Turritella FPSO, which is a ship-shaped offshore production facility that stores crude oil in tanks located in its hull. It will attach to a moored turret buoy and E:\FR\FM\18NOR1.SGM 18NOR1

Agencies

[Federal Register Volume 80, Number 222 (Wednesday, November 18, 2015)]
[Rules and Regulations]
[Pages 71936-71940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29427]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2509

RIN 1210-AB74


Interpretive Bulletin Relating to State Savings Programs That 
Sponsor or Facilitate Plans Covered by the Employee Retirement Income 
Security Act of 1974

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Interpretive bulletin.

-----------------------------------------------------------------------

SUMMARY: This document sets forth the views of the Department of Labor 
(Department) concerning the application of the Employee Retirement 
Income Security Act of 1974 (ERISA) to certain state laws designed to 
expand the retirement savings options available to private sector 
workers through ERISA-covered retirement plans. Concern over adverse 
social and economic consequences of inadequate retirement savings 
levels has prompted several states to adopt or consider legislation to 
address this problem. The Department separately released a proposed 
regulation describing safe-harbor conditions for states and employers 
to avoid creation of ERISA-covered plans as a result of state laws that 
require private sector employers to implement in their workplaces 
state-administered payroll deduction IRA programs (auto-IRA laws). This 
Interpretive Bulletin does not address such state auto-IRA laws.

DATES: This interpretive bulletin is effective on November 18, 2015.

FOR FURTHER INFORMATION CONTACT: Office of Regulations and 
Interpretations, Employee Benefits Security Administration, (202) 693-
8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION: In order to provide a concise and ready 
reference to its interpretations of ERISA, the Department publishes its 
interpretive bulletins in the Rules and Regulations section of the 
Federal Register. The Department is publishing in this issue of the 
Federal Register, ERISA Interpretive Bulletin 2015-02, which interprets 
ERISA section 3(2)(A), 29 U.S.C. 1002(2)(A), section 3(5), 29 U.S.C. 
1002(5), and section 514, 29 U.S.C. 1144, as they apply to state laws 
designed to expand workers' access to retirement savings programs. Some 
states have adopted laws or are exploring approaches designed to expand 
the retirement savings options available to their private sector 
workers through ERISA-covered retirement plans. One of the challenges 
the states face in expanding retirement savings opportunities for 
private sector employees is uncertainty about ERISA preemption of such 
efforts. ERISA generally would preempt a state law that required 
employers to establish and maintain ERISA-covered employee benefit 
pension plans. The Department also has a strong interest in promoting 
retirement savings by employees. The Department recognizes that some 
employers currently do not provide pension plans for their employees. 
The

[[Page 71937]]

Department believes that it is important that employees of such 
employers be encouraged to save for retirement, and it is in the 
interest of the public that employers be encouraged to provide 
opportunities for their employee retirement savings. The Department 
therefore believes that states, employers, other plan sponsors, 
workers, and other stakeholders would benefit from guidance on the 
application of ERISA to these state initiatives.

List of Subjects in 29 CFR Part 2509

    Employee benefit plans, Pensions.

    For the reasons set forth in the preamble, the Department is 
amending Subchapter A, Part 2509 of Title 29 of the Code of Federal 
Regulations as follows:

Subchapter A--General

PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE 
RETIREMENT INCOME SECURITY ACT OF 1974

0
1. The authority citation for part 2509 continues to read as follows:

    Authority: 29 U.S.C. 1135. Secretary of Labor's Order No. 1-
2011, 77 FR 1088 (Jan. 9, 2012). Sections 2509.75-10 and 2509.75-2 
issued under 29 U.S.C. 1052, 1053, 1054. Sec. 2509.75-5 also issued 
under 29 U.S.C. 1002. Sec. 2509.95-1 also issued under sec. 625, 
Public Law 109-280, 120 Stat. 780.


0
2. Add Sec.  2509.2015-02 to read as follows:


Sec.  2509.2015-02  Interpretive bulletin relating to state savings 
programs that sponsor or facilitate plans covered by the Employee 
Retirement Income Security Act of 1974.

    (a) Scope. This document sets forth the views of the Department of 
Labor (Department) concerning the application of the Employee 
Retirement Income Security Act of 1974 (ERISA) to certain state laws 
designed to expand the retirement savings options available to private 
sector workers through ERISA-covered retirement plans. Concern over 
adverse social and economic consequences of inadequate retirement 
savings levels has prompted several states to adopt or consider 
legislation to address this problem.\1\ An impediment to state adoption 
of such measures is uncertainty about the effect of ERISA's broad 
preemption of state laws that ``relate to'' private sector employee 
benefit plans. In the Department's view, ERISA preemption principles 
leave room for states to sponsor or facilitate ERISA-based retirement 
savings options for private sector employees, provided employers 
participate voluntarily and ERISA's requirements, liability provisions, 
and remedies fully apply to the state programs.
---------------------------------------------------------------------------

    \1\ For information on the problem of inadequate retirement 
savings, see the May 2015 Report of the United States Government 
Accountability Office (GAO), RETIREMENT SECURITY--Most Households 
Approaching Retirement Have Low Savings (GAO Report-15-419) 
(available at www.gao.gov/assets/680/670153.pdf). Also see GAO's 
September 2015 Report-15-566, RETIREMENT SECURITY--Federal Action 
Could Help State Efforts to Expand Private Sector Coverage 
(available at www.gao.gov/assets/680/672419.pdf).
---------------------------------------------------------------------------

    (b) In General. There are advantages to utilizing an ERISA plan 
approach. Employers as well as employees can make contributions to 
ERISA plans, contribution limits are higher than for other state 
approaches that involve individual retirement plans (IRAs) that are not 
intended to be ERISA-covered plans,\2\ and ERISA plan accounts have 
stronger protection from creditors. Tax credits may also allow small 
employers to offset part of the costs of starting certain types of 
retirement plans.\3\ Utilizing ERISA plans also provides a well-
established uniform regulatory structure with important consumer 
protections, including fiduciary obligations, automatic enrollment 
rules, recordkeeping and disclosure requirements, legal accountability 
provisions, and spousal protections.
---------------------------------------------------------------------------

    \2\ Some states are developing programs to encourage employees 
to establish tax-favored IRAs funded by payroll deductions rather 
than encouraging employers to adopt ERISA plans. Oregon, Illinois, 
and California, for example, have adopted laws along these lines. 
Oregon 2015 Session Laws, Ch. 557 (H.B. 2960) (June 2015); Illinois 
Secure Choice Savings Program Act, 2014 Ill. Legis. Serv. P.A. 98-
1150 (S.B. 2758) (West); California Secure Choice Retirement Savings 
Act, 2012 Cal. Legis. Serv. Ch. 734 (S.B. 1234) (West). These IRA-
based initiatives generally require specified employers to deduct 
amounts from their employees' paychecks, unless the employee 
affirmatively elects not to participate, in order that those amounts 
may be remitted to state-administered IRAs for the employees. The 
Department is addressing these state ``payroll deduction IRA'' 
initiatives separately through a proposed regulation that describes 
safe-harbor conditions for employers to avoid creation of ERISA-
covered plans when they comply with state laws that require payroll 
deduction IRA programs. This Interpretive Bulletin does not address 
those laws.
    \3\ For more information, see Choosing a Retirement Solution for 
Your Small Business, a joint project of the U.S. Department of 
Labor's Employee Benefits Security Administration (EBSA) and the 
Internal Revenue Service. Available at www.irs.gov/pub/irs-pdf/p3998.pdf.
---------------------------------------------------------------------------

    The Department is not aware of judicial decisions or other ERISA 
guidance directly addressing the application of ERISA to state programs 
that facilitate or sponsor ERISA plans, and, therefore, believes that 
the states, employers, other plan sponsors, workers, and other 
stakeholders would benefit from guidance setting forth the general 
views of the Department on the application of ERISA to these state 
initiatives. The application of ERISA in an individual case would 
present novel preemption questions and, if decided by a court, would 
turn on the particular features of the state-sponsored program at 
issue, but, as discussed below, the Department believes that neither 
ERISA section 514 specifically, nor federal preemption generally, are 
insurmountable obstacles to all state programs that promote retirement 
saving among private sector workers through the use of ERISA-covered 
plans.

Marketplace Approach

    One state approach is reflected in the 2015 Washington State Small 
Business Retirement Savings Marketplace Act.\4\ This law requires the 
state to contract with a private sector entity to establish a program 
that connects eligible employers with qualifying savings plans 
available in the private sector market. Only products that the state 
determines are suited to small employers, provide good quality, and 
charge low fees would be included in the state's ``marketplace.'' 
Washington State employers would be free to use the marketplace or not 
and would not be required to establish any savings plans for their 
employees. Washington would merely set standards for arrangements 
marketed through the marketplace. The marketplace arrangement would not 
itself be an ERISA-covered plan, and the arrangements available to 
employers through the marketplace could include ERISA-covered plans and 
other non-ERISA savings arrangements. The state would not itself 
establish or sponsor any savings arrangement. Rather, the employer 
using the state marketplace would establish the savings arrangement, 
whether it is an ERISA-covered employee pension benefit plan or a non-
ERISA savings program. ERISA's reporting and disclosure requirements, 
protective standards and remedies would apply to the ERISA plans 
established by employers using the marketplace. On the other hand, if 
the plan or arrangement is of a type that would otherwise be exempt 
from ERISA (such as a payroll deduction IRA arrangement that satisfies 
the conditions of the existing safe harbor at 29 CFR 2510.3-2(d)), the 
state's involvement as organizer or facilitator of the marketplace 
would not by itself cause that arrangement to be covered by ERISA. 
Similarly, if, as in Washington State, a marketplace includes a type of

[[Page 71938]]

plan that is subject to special rules under ERISA, such as the SIMPLE-
IRA under section 101(h) of ERISA, the state's involvement as organizer 
or facilitator of the marketplace would not by itself affect the 
application of the special rules.
---------------------------------------------------------------------------

    \4\ 2015 Wash. Sess. Laws chap. 296 (SB 5826) (available at 
http://app.leg.wa.gov/billinfo/summary.aspx?bill=5826&year=2015).
---------------------------------------------------------------------------

Prototype Plan Approach

    Another potential approach is a state sponsored ``prototype plan.'' 
At least one state, Massachusetts, has enacted a law to allow nonprofit 
organizations with fewer than 20 employees to adopt a contributory 
retirement plan developed and administered by the state.\5\ Banks, 
insurance companies and other regulated financial institutions commonly 
market prototype plans to employers as simple means for them to 
establish and administer employee pension benefit plans.\6\ The 
financial institutions develop standard form 401(k) or other tax-
favored retirement plans (such as SIMPLE-IRA plans) and secure IRS 
approval. Typically, employers may choose features such as contribution 
rates to meet their specific needs. Each employer that adopts the 
prototype sponsors an ERISA plan for its employees. The individual 
employers would assume the same fiduciary obligations associated with 
sponsorship of any ERISA-covered plans. For example, the prototype plan 
documents often specify that the employer is the plan's ``named 
fiduciary'' and ``plan administrator'' responsible for complying with 
ERISA, but they may allow the employer to delegate these 
responsibilities to others. The plan documents for a state-administered 
prototype plan could designate the state or a state designee to perform 
these functions. Thus, the state or a designated third-party could 
assume responsibility for most administrative and asset management 
functions of an employer's prototype plan. The state could also 
designate low-cost investment options and a third-party administrative 
service provider for its prototype plans.
---------------------------------------------------------------------------

    \5\ The retirement plan will be overseen by the Massachusetts 
State Treasurer's Office. Mass. Gen. Laws ch.29, Sec.  64E (2012). 
In June 2014, the Massachusetts Treasurer's Office announced that 
the IRS had issued a favorable ruling on the proposal, but noted 
that additional approval from the IRS is still needed (see 
www.massnonprofitnet.org/blog/nonprofitretirement/). See also GAO's 
Report 2015 Report-15-566, RETIREMENT SECURITY--Federal Action Could 
Help State Efforts to Expand Private Sector Coverage, which included 
the following statement at footnote 93 regarding the Massachusetts 
program: ``The Massachusetts official told us that each 
participating employer would be considered to have created its own 
plan, characterizing the state's effort as development of a volume 
submitter 401(k) plan, which is a type of employee benefit plan that 
is typically pre-approved by the Internal Revenue Service.'' (GAO 
report is available at www.gao.gov/assets/680/672419.pdf).
    \6\ See IRS Online Publication, Types of Pre-Approved Retirement 
Plans at www.irs.gov/Retirement-Plans/Types-of-Pre-Approved-Retirement-Plans.
---------------------------------------------------------------------------

Multiple Employer Plan (MEP) Approach

    A third approach, (referenced, for example, in the ``Report of the 
Governor's Task Force to Ensure Retirement Security for All 
Marylanders''),\7\ involves a state establishing and obtaining IRS tax 
qualification for a ``multiple employer'' 401(k)-type plan, defined 
benefit plan, or other tax-favored retirement savings program. The 
Department anticipates that such an approach would generally involve 
permitting employers that meet specified eligibility criteria to join 
the state multiple employer plan. The plan documents would provide that 
the plan is subject to Title I of ERISA and is intended to comply with 
Internal Revenue Code tax qualification requirements. The plan would 
have a separate trust holding contributions made by the participating 
employers, the employer's employees, or both. The state, or a 
designated governmental agency or instrumentality, would be the plan 
sponsor under ERISA section 3(16)(B) and the named fiduciary and plan 
administrator responsible (either directly or through one or more 
contract agents, which could be private-sector providers) for 
administering the plan, selecting service providers, communicating with 
employees, paying benefits, and providing other plan services. A state 
could take advantage of economies of scale to lower administrative and 
other costs.
---------------------------------------------------------------------------

    \7\ Governor's Task Force to Ensure Retirement Security for All 
Marylanders, 1,000,000 of Our Neighbors at Risk: Improving 
Retirement Security for Marylanders (February 2015) (available at 
www.dllr.state.md.us/retsecurity/).
---------------------------------------------------------------------------

    As a state-sponsored multiple employer plan (``state MEP''), this 
type of arrangement could also reduce overall administrative costs for 
participating employers in large part because the Department would 
consider this arrangement as a single ERISA plan. Consequently, only a 
single Form 5500 Annual Return/Report would be filed for the whole 
arrangement. In order to participate in the plan, employers simply 
would be required to execute a participation agreement. Under a state 
MEP, each employer that chose to participate would not be considered to 
have established its own ERISA plan, and the state could design its 
defined contribution MEP so that the participating employers could have 
limited fiduciary responsibilities (the duty to prudently select the 
arrangement and to monitor its operation would continue to apply). The 
continuing involvement by participating employers in the ongoing 
operation and administration of a 401(k)-type individual account MEP, 
however, generally could be limited to enrolling employees in the state 
plan and forwarding voluntary employee and employer contributions to 
the plan. When an employer joins a carefully structured MEP, the 
employer is not the ``sponsor'' of the plan under ERISA, and also would 
not act as a plan administrator or named fiduciary. Those fiduciary 
roles, and attendant fiduciary responsibilities, would be assigned to 
other parties responsible for administration and management of the 
state MEP.\8\ Adoption of a defined benefit plan structure would 
involve additional funding and other employer obligations.\9\
---------------------------------------------------------------------------

    \8\ A state developing a state sponsored MEP could submit an 
advisory opinion request to the Department under ERISA Procedure 76-
1 to confirm that the MEP at least in form has assigned those 
fiduciary functions to persons other than the participating 
employers. ERISA Procedure 76-1 is available at www.dol.gov/ebsa/regs/aos/ao_requests.html.
    \9\ State laws authorizing defined benefit plans for private 
sector employers (as prototypes or as multiple employer plans) might 
create plans covered by Title IV of ERISA and subject to the 
jurisdiction of the Pension Benefit Guaranty Corporation (PBGC). 
Subject to some exceptions, the PBGC protects the retirement incomes 
of workers in private-sector defined benefit pension plans. A 
defined benefit plan provides a specified monthly benefit at 
retirement, often based on a combination of salary and years of 
service. PBGC was created by ERISA to encourage the continuation and 
maintenance of private-sector defined benefit pension plans, provide 
timely and uninterrupted payment of pension benefits, and keep 
pension insurance premiums at a minimum. More information is 
available on the PBGC's Web site at www.pbgc.gov.
---------------------------------------------------------------------------

    For a person (other than an employee organization) to sponsor an 
employee benefit plan under Title I of ERISA, such person must either 
act directly as the employer of the covered employees or ``indirectly 
in the interest of an employer'' in relation to a plan.\10\ ERISA 
sections 3(2), 3(5). A person will be considered to act ``indirectly in 
the interest of an employer, in relation to a plan,'' if such person is 
tied to the contributing employers or their employees by genuine 
economic or representational interests unrelated to the provision of 
benefits.\11\ In the

[[Page 71939]]

Department's view, a state has a unique representational interest in 
the health and welfare of its citizens that connects it to the in-state 
employers that choose to participate in the state MEP and their 
employees, such that the state should be considered to act indirectly 
in the interest of the participating employers.\12\ Having this unique 
nexus distinguishes the state MEP from other business enterprises that 
underwrite benefits or provide administrative services to several 
unrelated employers.\13\
---------------------------------------------------------------------------

    \10\ Different rules may apply under the Internal Revenue Code 
for purposes of determining the plan sponsor of a tax-qualified 
retirement plan.
    \11\ See, e.g., Advisory Opinion 2012-04A. See also MDPhysicians 
& Associates, Inc. v. State Bd. Ins., 957 F.2d 178,185 (5th Cir.), 
cert. denied, 506 U.S. 861 (1992) (``the entity that maintains the 
plan and the individuals that benefit from the plan [must be] tied 
by a common economic or representation interest, unrelated to the 
provision of benefits.'' (quoting Wisconsin Educ. Assoc. Ins. Trust 
v. Iowa State Bd., 804 F.2d 1059, 1063 (8th Cir. 1986)).
    \12\ The Department has also recognized other circumstances when 
a person sponsoring a plan is acting as an ``employer'' indirectly 
rather than as an entity that underwrites benefits or provides 
administrative services. See Advisory Opinion 89-06A (Department 
would consider a member of a controlled group which establishes a 
benefit plan for its employees and/or the employees of other members 
of the controlled group to be an employer within the meaning of 
section 3(5) of ERISA); Advisory Opinion 95-29A (employee leasing 
company may act either directly or indirectly in the interest of an 
employer in establishing and maintaining employee benefit plan).
    \13\ See Advisory Opinion 2012-04A (holding that a group of 
employers can collectively act as the ``employer'' in sponsoring a 
multiple employer plan only if the employers group was formed for 
purposes other than the provision of benefits, the employers have a 
basic level of commonality (such as the participating employers all 
being in the same industry), and the employers participating in the 
plan in fact act as the ``employer'' by controlling the plan).
---------------------------------------------------------------------------

    (c) ERISA Preemption. The Department is aware that a concern for 
states adopting an ERISA plan approach is whether or not those state 
laws will be held preempted. ERISA preemption analysis begins with the 
``presumption that Congress does not intend to supplant state law.'' 
New York State Conference of Blue Cross & Blue Shield Plans v. 
Travelers Ins. Co., 514 U.S. 645, 654 (1995). The question turns on 
Congress's intent ``to avoid a multiplicity of regulation in order to 
permit nationally uniform administration of employee benefit plans.'' 
Id. at 654, 657. See also Fort Halifax Packing Co. v. Coyne, 482 U.S. 
1, 11 (1987) (goal of ERISA preemption is to ``ensure . . . that the 
administrative practices of a benefit plan will be governed by only a 
single set of regulations.'').
    Section 514 of ERISA provides that Title I ``shall supersede any 
and all State laws insofar as they . . . relate to any employee benefit 
plan'' covered by the statute. The U.S. Supreme Court has held that 
``[a] law `relates to' an employee benefit plan, in the normal sense of 
the phrase, if it has a connection with or reference to such a plan.'' 
Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983) (footnote 
omitted); see, e.g., Travelers, 514 U.S. at 656. A law has a 
``reference to'' ERISA plans if the law ``acts immediately and 
exclusively upon ERISA plans'' or ``the existence of ERISA plans is 
essential to the law's operation.'' California Div. of Labor Standards 
Enforcement v. Dillingham Constr., N.A., 519 U.S. 316, 325-326 (1997). 
In determining whether a state law has a ``connection with ERISA 
plans,'' the U.S. Supreme Court ``look[s] both to `the objectives of 
the ERISA statute as a guide to the scope of the state laws that 
Congress understood would survive,' as well as to the nature of the 
effect of the state law on ERISA plans,'' to ``determine whether [the] 
state law has the forbidden connection'' with ERISA plans. Egelhoff v. 
Egelhoff, 532 U.S. 141, 147 (2001) (quoting Dillingham, 519 U.S. at 
325). In various decisions, the Court has concluded that ERISA preempts 
state laws that: (1) Mandate employee benefit structures or their 
administration; (2) provide alternative enforcement mechanisms; or (3) 
bind employers or plan fiduciaries to particular choices or preclude 
uniform administrative practice, thereby functioning as a regulation of 
an ERISA plan itself.\14\
---------------------------------------------------------------------------

    \14\ Travelers, 514 U.S. at 658 (1995); Ingersoll-Rand Co. v. 
McClendon, 498 U.S. 133, 142 (1990); Egelhoff v. Egelhoff, 532 U.S. 
141, 148 (2001); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 14 
(1987).
---------------------------------------------------------------------------

    In the Department's view, state laws of the sort outlined above 
interact with ERISA in such a way that section 514 preemption 
principles and purposes would not appear to come into play in the way 
they have in past preemption cases. Although the approaches described 
above involve ERISA plans, they do not appear to undermine ERISA's 
exclusive regulation of ERISA-covered plans. The approaches do not 
mandate employee benefit structures or their administration, provide 
alternative regulatory or enforcement mechanisms, bind employers or 
plan fiduciaries to particular choices, or preclude uniform 
administrative practice in any way that would regulate ERISA plans.
    Moreover, the approaches appear to contemplate a state acting as a 
participant in a market rather than as a regulator. The U.S. Supreme 
Court has found that, when a state or municipality acts as a 
participant in the market and does so in a narrow and focused manner 
consistent with the behavior of other market participants, such action 
does not constitute state regulation. Compare Building and Construction 
Trades Council v. Associated Builders and Contractors of Massachusetts/
Rhode Island, Inc., 507 U.S. 218 (1993); Wisconsin Department of 
Industry, Labor and Human Relations v. Gould, 475 U.S. 282 (1986); see 
also American Trucking Associations, Inc. v. City of Los Angeles, 133 
S. Ct. 2096, 2102 (2013) (Section 14501(c)(1) of the Federal Aviation 
Administration Authorization Act, which preempts a state ``law, 
regulation, or other provision having the force and effect of law 
related to a price, route, or service of any motor carrier,'' 49 U.S.C. 
14501(c)(1), ``draws a rough line between a government's exercise of 
regulatory authority and its own contract-based participation in a 
market''); Associated General Contractors of America v. Metropolitan 
Water District of Southern California, 159 F.3d 1178, 1182-84 (9th Cir. 
1998) (recognizing a similar distinction between state regulation and 
state market participation). By merely offering employers particular 
ERISA-covered plan options \15\ (or non-ERISA plan options), these 
approaches (whether used separately or together as part of a multi-
faceted state initiative) do not dictate how an employer's plan is 
designed or operated or make offering a plan more costly for employers 
or employees. Nor do they make it impossible for employers operating 
across state lines to offer uniform benefits to their employees.\16\ 
Rather than impair federal regulation of employee benefit plans, the 
state laws would leave the plans wholly subject to ERISA's regulatory 
requirements and protections.
---------------------------------------------------------------------------

    \15\ In the Department's view, a state law that required 
employers to participate in a state prototype plan or state 
sponsored multiple employer plan unless they affirmatively opted out 
would effectively compel the employer to decide whether to sponsor 
an ERISA plan in a way that would be preempted by ERISA.
    \16\ The Court in Travelers approved a New York statute that 
gave employers a strong incentive to provide health care benefits 
through Blue Cross and Blue Shield as opposed to other providers. 
The Court noted that the law did not ``mandate'' employee benefit 
plans or their administration, or produce such acute economic 
effects, either directly or indirectly, by intent or otherwise ``as 
to force an ERISA plan to adopt a certain scheme of substantive 
coverage or effectively restrict its choice of insurers.'' 
Travelers, 514 U.S. at 668. See also De Buono v. NYSA-ILA Medical 
and Clinical Services Fund, 520 U.S. 806, 816 (1997).
---------------------------------------------------------------------------

    Of course, a state must implement these approaches without 
establishing standards inconsistent with ERISA or providing its own 
regulatory or judicial remedies for conduct governed exclusively by 
ERISA. ERISA's system of rules and remedies would apply to these 
arrangements. A contractor retained by a state using the marketplace 
approach would be subject

[[Page 71940]]

to the same ERISA standards and remedies that apply to any company 
offering the same services to employers. Similarly, a prototype plan or 
multiple employer plan program that a state offers to employers would 
have to comply with the same ERISA requirements and would have to be 
subject to the same remedies as any private party offering such 
products and services.\17\
---------------------------------------------------------------------------

    \17\ State laws relating to sovereign immunity for state 
governments and their employees would have to be evaluated carefully 
to ensure they do not conflict with ERISA's remedial provisions.
---------------------------------------------------------------------------

    Even if the state laws enacted to establish programs of the sort 
described above ``reference'' employee benefit plans in a literal 
sense, they should not be seen as laws that ``relate to'' ERISA plans 
in the sense ERISA section 514(a) uses that statutory term because they 
are completely voluntary from the employer's perspective, the state 
program would be entirely subject to ERISA, and state law would not 
impose any outside regulatory requirements beyond ERISA. They do not 
require employers to establish ERISA-covered plans, forbid any type of 
plan or restrict employers' choices with respect to benefit structures 
or their administration. These laws would merely offer a program that 
employers could accept or reject. See Dillingham, 519 U.S. at 325-28.
    In addition, none of the state approaches described above resemble 
the state laws that the Court held preempted in its pre-Travelers 
``reference to'' cases. Those laws targeted ERISA plans as a class with 
affirmative requirements or special exemptions. See, e.g., District of 
Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 128, 129-133 
(1992) (workers' compensation law that required employee benefits ``set 
by reference to [ERISA] plans'') (citation omitted); Ingersoll-Rand Co. 
v. McClendon, 498 U.S. 133, 135-136, 140 (1990) (common law claim for 
wrongful discharge to prevent attainment of ERISA benefits); Mackey v. 
Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 828 & n.2, 829-
830 (1988) (exemption from garnishment statute for ERISA plans). In the 
case of the state actions outlined above, any restriction on private 
economic activity arises, not from state regulatory actions, but from 
the application of ERISA requirements to the plans, service providers, 
and investment products, that the state, as any other private sector 
participant in the market, selects in deciding what it is willing to 
offer.
    Finally, it is worth noting that even if the state laws 
implementing these approaches ``relate to'' ERISA plans in some sense 
of that term, it is only because they create or authorize arrangements 
that are fully governed by ERISA's requirements. By embracing ERISA in 
this way, the state would not on that basis be running afoul of section 
514(a) because ERISA fully applies to the arrangement and there is 
nothing in the state law for ERISA to ``supersede.'' In this regard, 
section 514(a) of ERISA, in relevant part, provides that Title I of 
ERISA ``shall supersede any and all state laws insofar as they may now 
or hereafter relate to any employee benefit plan . . . .'' To the 
extent that the state makes plan design decisions in fashioning its 
prototype plan or state sponsored plan, or otherwise adopts rules 
necessary to run the plan, those actions would be the same as any other 
prototype plan provider or employer sponsor of any ERISA-covered plan, 
and the arrangement would be fully and equally subject to ERISA.
    This conclusion is supported by the Department's position regarding 
state governmental participation in ERISA plans in another context. 
Pursuant to section 4(b)(1) of ERISA, the provisions of Title I of 
ERISA do not apply to a plan that a state government establishes for 
its own employees, which ERISA section 3(32) defines as a 
``governmental plan.'' The Department has long held the view, however, 
that if a plan covering governmental employees fails to qualify as a 
governmental plan, it would still be subject to Title I of ERISA.\18\ 
In these circumstances, the failure to qualify as a governmental plan 
does not prohibit a governmental employer from providing benefits 
through, and making contributions to, an ERISA-covered employee benefit 
plan.\19\ Thus, the effect of ERISA is not to prohibit the state from 
offering benefits, but rather to make those benefits subject to ERISA. 
Here too, ERISA does not supersede state law to the extent it merely 
creates an arrangement that is fully governed by ERISA.
---------------------------------------------------------------------------

    \18\ See, e.g., Advisory Opinion 2004-04A.
    \19\ See Information Letter to Michael T. Scaraggi and James M. 
Steinberg from John J. Canary (April 12, 2004).

Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2015-29427 Filed 11-16-15; 4:15 pm]
BILLING CODE 4510-29-P