State Auto IRA Bills Face an Inconvenient Wrinkle

Seventeen states have, or are, considering measures that would allow employers to automatically enroll employees in IRAs. While these measures concern private-sector employers, their consideration reflects state governments’ interest in measures that address retirement plan participation in some manner — an interest that in some states includes consideration of measures that would affect public-sector retirement plans.

None of the state-level auto IRA measures have been enacted, although three states — California, Connecticut and Oregon — have adopted measures that create boards to study the matter, and an executive order in Maryland does so. But 14 of the 17 states, if they enact an auto IRA law, will face an inconvenient little problem — they already have laws on the books that prevent such arrangements.

The laws in three of the 17 — Ohio, Vermont and Wisconsin — do not require that employers obtain authorization from employees before they can make a deduction from an employee’s paycheck. So if those states end up adopting an auto IRA measure one day, there will be a legal green light regarding authorization. 

But the other 14 were not as prescient. In Arizona, California, Colorado, Connecticut, Illinois, Indiana, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Oregon, Washington and West Virginia, an employer cannot take a deduction without an employee’s express authorization. 

That brings the “automatic” part of the equation into question at the very least. More important, it spells a conundrum for those states that is at best interesting and at worst a recipe for lawsuits. If they eventually enact a measure that allows an employer to automatically enroll an employee into an IRA, they have some noodling to do in order to reconcile those inconveniently opposite measures. That is, before a court does it for them. 

This may be easily fixed — if they notice the situation. According to Ellie Lowder, TGPC, TSA Training & Consulting Services, “If an auto IRA is passed into law, I would expect a number of states (but not all) to pass legislation to conform.” NTSA will be covering developments in the states that do — and the states that do not.