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State-sponsored retirement plans for private-sector workers

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“Which states, if any, have enacted or proposed legislation that would enable them to offer retirement savings programs to private-sector workers?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Illinois is representative of a common inquiry related to states and retirement plans.

Highlights of the Discussion

As of August 20, 2019, 10 states have succeeded in enacting laws creating retirement savings programs for private-sector workers. [1]

State Plan Name Type of Plan
1.     California California Secure Choice Retirement Savings Program Automatic Roth IRA
2.     Connecticut Connecticut Retirement Security Program Automatic Traditional or Roth IRA
3.     Illinois Illinois Secure Choice Savings Program Automatic Roth IRA
4.     Maryland Maryland Small Business Retirement Savings Program Automatic Traditional IRA
5.     Massachusetts Massachusetts Defined Contribution CORE Plan

 

 A multiple employer plan that is a pre-tax and post-tax 401(k) savings plan developed for employees of eligible small nonprofit organizations.
6.     New Jersey New Jersey Small Business Retirement Marketplace

 

 A marketplace for diverse retirement plans, including, at least, life insurance plans, Savings Incentive Match Plans for Employees (SIMPLE) IRAs and payroll-deduction IRAs.
7.     New York New York State Secure Choice Savings Program Payroll Deduction Roth IRA
8.     Oregon OregonSaves

 

 Automatic Roth IRA
9.     Vermont Vermont Green Mountain Secure Retirement Plan

 

 A multiple employer plan that is a tax-deferred, pre-tax 401(k) savings plan with optional future employer contributions
10.  Washington Washington’s Small Business Retirement Marketplace

 

 A marketplace where qualified financial services firms offer low-cost retirement savings plans to businesses and individuals

Another 24 states have introduced legislation on this topic that is still under consideration: Arizona, Colorado, Georgia, Iowa, Indiana, Kentucky, Louisiana, Maine, Michigan, Minnesota, New Hampshire, Nebraska, New York, North Carolina, North Dakota, Ohio, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia and Wisconsin.

Conclusion

Considering that federal legislation to address the retirement security of American works has progressed at a snail’s pace, some state legislatures have taken on the task and enacted laws that create state-sponsored retirement savings plans for private-sector workers. Many other states are considering similar action.

[1] AARP Public Policy Institute, State Retirement Savings Resource Center, August 2019

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What is a 10b5-1 plan?

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“Is a 10b5-1 plan a type of qualified retirement plan?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Kansas is representative of a common inquiry related to trading securities.

Highlights of the Discussion

No, it is not a “qualified plan” in the sense of a 401(k) or profit sharing plan, which meets requirements for favorable tax treatment under Internal Revenue Code 401(a). A 10b5-1 plan is a buy/sell agreement for securities that meets the requirements of the Securities Exchange Commission’s Rule 10b5-1 related to “insider trading.”

Legal insider trading occurs when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies and report their trades to the SEC. Illegal insider trading refers to an insider using material, nonpublic information to buy or sell securities to his or her  advantage.  A 10b5-1 plan is a written contract between an insider and his or her broker to buy or sell company stock at a time when the insider is not in possession of any restricted information related to the stock. A 10b5-1 plan is a way for insiders to trade company securities and minimize legal exposure by giving them an affirmative legal defense. An affirmative defense is not a safe harbor nor will it protect a person from allegations of wrongdoing. It allows a person to refute allegations of wrongdoing.

In order for a 10b5-1 plan to serve as a defense against charges of insider trading, it must meet the following criteria:

  1. Entered into in good faith without intent to abuse Rule 10b5-1;
  2. Adopted when the individual trading the security was not aware of any material, nonpublic information;
  3. The terms of the plan contains a pre-set formula for determining the amount, price and date of transactions;
  4. The individual subsequently cannot affect criterion #3 once it is in place;
  5. The purchase or sale of the security was made according to the plan.

Anyone can adopt a 10b5-1 plan, although it is generally used by large stock holders, directors and officers of the company. A company’s internal trading policies should address 10b5-1 plans, if they are offered.

EXAMPLE

Erin, an executive at Enrun Corporation, executes a written, one-year contract between herself and her broker that instructs the broker to sell 10,000 shares of Enrun on the first trading day of each month and twice as many shares (20,000) if the price has increased by 5% since the prior sale date. On the surface, this contract, generally, would meet the requirements to be a 10b5-1 plan.

Conclusion

A properly executed 10b5-1 plan can stand as an affirmative defense against allegations of insider trading for someone who is in a position to have material, nonpublic information. Extreme care should be used when establishing and using such plans as they are not infallible, however. Consult a legal expert.

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Financial Wellness

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“I’ve heard the broad term ‘financial wellness or wellbeing’ more and more frequently in relation to retirement plan participants. What is financial wellness?” 

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with a financial advisor from Colorado is representative of a common inquiry related to plan participant education.

Highlights of the Discussion

The phrase likely started with the Consumer Financial Protection Bureau (CFPB). It seems the CFPB had concluded employee financial education has not been successful in encouraging plan participants to save more for retirement. The CFPB suggests the way to fix the problem of faulty employee education is by redefining 1) what the goal of financial education is, and 2) how employees can get there, within the context of behavioral economics/finance.

In 2015, the CFPB defined the goal of financial education as “financial wellbeing,” in its report Financial Well-being: The Goal of Finance Education. Financial well-being is a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in his or her financial future, and is able to make choices that allow enjoyment of life. The CFPB has concluded overall financial wellness consists of four elements as illustrated below.

In the last four years, the percentage of plans that offer a comprehensive financial wellness program has grown from 16% to 23%, according to the Plan Sponsor Council of America. What are the most common employee concerns addressed by financial wellness programs?

  • Getting overall spending under control (41%),
  • Preparing for retirement (39%),
  • Paying off debt (31%),
  • Saving more for major goals (e.g., purchases, home, education) (27%),
  • Better management of my investments/asset allocation (23%), and
  • Better manage of healthcare expenses/saving for future healthcare expenses (12%).

The Employee Benefits Research Institute (EBRI) found an overwhelming majority of workers thought the following financial wellness programs would be either very or somewhat helpful:

  • Help calculating how much to save for a secure retirement (75%);
  • Help calculating how much to anticipate spending each month in retirement (72%);
  • Planning for health care expenses in retirement (72%); and
  • Help with comprehensive financial planning (68%).

The CFPB conducted a five-year study on consumer financial education, which culminated in a 2017 report in which it identified five principles of financial education that make the biggest difference between financial success and failure.

Principle 1: Tailor information to the specific circumstances, challenges, goals, and situational factors of the individuals served. Avoid a one-size-fits-all approach.

Principle 2: Provide timely information that is relevant and actionable to a specific situation or goal, so that information and skills are more likely to be retained.

Principle 3: Improve key financial skills.

Principle 4: Help people build qualities that strengthen and reinforce their determination to take specific steps to achieve their financial goals.

Principle 5: Help create habits and systems so that it’s easy to follow through on decisions.

The CFPB has a resource guide available on how to launch a workplace financial wellness program by following eight basic steps:

  1. Focus on your human resources (HR) strategy;
  2. Identify possible internal challenges;
  3. Understand your workforce’s unique needs;
  4. Decide which financial topics to highlight;
  5. Leverage existing employee benefits;
  6. Expand your employee offerings with more financial education resources;
  7. Use existing or new channels and opportunities to deliver resources; and
  8. Establish metrics for success for your financial wellness program.

Conclusion

Financial wellness is more than educating plan participants. It is taking financial education to the next level to help plan participants fully meet current and ongoing financial obligations, feel secure in their financial future, and be able to make choices that allow enjoyment of life.

 

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