States can help their private employees without depriving them of the protections of ERISA

In response to Congressional Review Act (CRA) activity on state-sponsored retirement plans, there is an outcry that Congress is infringing on states’ rights to help their employers and employees save for retirement. That could not be further from the truth.

Under their authority to regulate interstate commerce, Congress enacted the Employee Retirement Income Security Act (ERISA) to regulate private, employer-provided retirement plans in a uniform manner and to protect employees from fraud and abuse. ERISA imposes a fiduciary obligation on employers to act in the sole interest of the plan participant, only allows reasonable fees, and prohibits self-dealing by the employer. As a matter of federalism, states are prohibited from legislating in contradiction of federal law.


Many states are justifiably interested in setting up retirement savings options for their citizens, especially those without employer-sponsored retirement plans. Some states have falsely argued, however, that they cannot provide retirement benefit plans for private employees without an exemption from ERISA.

Bowing to this argument, the Obama administration’s Department of Labor granted state and municipal governments a waiver from ERISA for government sponsored plans for private sector workers.

Contrary to the arguments of some states, there are several options for states that want to enhance retirement savings without requiring an exemption from ERISA. In fact, a handful of states, such as Washington, New Jersey, and Massachusetts have enacted programs that provide innovative plans for small business employees while adhering to ERISA. 

There are three existing options for state retirement plans that do not require exemptions from the requirements of ERISA:  a Marketplace Plan, a Prototype Plan, and a State Multiple Employer Plan. Each of these options makes way for employers and employees to secure retirement savings while still providing ERISA protections.

In addition to these options, states of course remain free to set up all kinds of retirement systems for their citizens provided they are not linked to mandatory participation by employers.

If you are a small business or small business employee, there are plenty of reasons to be concerned about allowing states and local governments to create mandatory retirement plans not governed by ERISA. In addition to the burden on small businesses and lack of uniform rules for employers and uniform protections for employees, state and local governments have a particularly bad track record when it comes to managing the retirement systems of their own employees.

For example, in the city of Jacksonville, Fla., taxpayers had to pony up $153 million into the police and fire pension fund after flagrant mismanagement caused $1.6 billion in debt. Upon evaluation, an expert concluded that the fund was “not subject to ERISA’s comprehensive, heightened standards,” nor did it meet the lower state and local standards.

The last thing a small business owner wants to see is something similar happen to their employees. Mike Harris, co-founder of Uproar PR in Orlando, Fla., put it this way: “Our employees are our product. Making sure our employees thrive means building a great culture and providing the best benefits. Retirement benefits are one of the ways we put our employees’ future at the forefront… Our No. 1 priority is to make sure our employees have everything they need. Congress should make sure that is DOL’s priority too.”

Fortunately Congress has an opportunity to fix the Department of Labor’s mistake and provide protections for employers and employees alike by voting to overturn DOL’s rule exempting state and municipal government private-sector retirement plans from ERISA. Such a move would have the added benefit of upholding federalism.

Wong is executive director of Retirement Policy at U.S. Chamber of Commerce.

The views expressed by this author are their own and are not the views of The Hill.