2017 -- H 6125

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LC002241

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2017

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A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- RHODE ISLAND RETIREMENT

SECURITY PROGRAM

     Introduced By: Representatives Edwards, and Shekarchi

     Date Introduced: April 14, 2017

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Legislative intent. The general assembly intends, by the enactment of this

chapter, to provide and establish a retirement savings program in the form of a payroll deduction

individual retirement account (IRA) program to be administered by a newly created Rhode Island

retirement security board, for the purpose of promoting greater retirement savings by certain

private sector employees in a convenient, voluntary, low-cost, and portable manner.

     SECTION 2. Title 42 of the General Laws entitled "STATE AFFAIRS AND

GOVERNMENT" is hereby amended by adding thereto the following chapter:

CHAPTER 16.2

RHODE ISLAND RETIREMENT SECURITY PROGRAM

     42-16.2-1. Definitions.

     As used in this chapter, the following words shall have the following meanings:

     (1) "Board" means the Rhode Island retirement security board, established pursuant to

§42-16.2-5;

     (2)(i) "Employee" means an individual who is employed by an employer;

     (ii) "Employee" does not include:

     (A) Any employee covered under the federal Railway Labor Act 45 U.S.C. 151 et seq., or

any employee engaged in interstate commerce so as not to be subject to the legislative powers of

this state, except insofar as application of this chapter is authorized under the laws of the United

States;

     (B) Any employee covered by a valid collective bargaining agreement that expressly

provides for a multi-employer Taft-Hartley pension plan; and

     (C) Any employee who is under eighteen (18) years of age before the beginning of the

calendar year;

     (3)(i) "Employer" means an individual or entity engaged in a business, industry,

profession, trade, or other enterprise in this state, whether for-profit or not-for-profit, that has:

     (A) Not offered a qualified retirement plan, including, but not limited to, a plan qualified

under §§401(a), 402(k), 403(a), 403(b), 408(k), 408(p), or 457(b) of the Internal Revenue Code,

in the preceding two (2) years; and

     (B) Satisfies the requirements to establish or participate in a payroll deposit retirement

savings agreement;

     (ii) Employer does not include:

     (A) The federal government;

     (B) The state; or

     (C) Any of the state's units, departments, divisions or instrumentalities, including any

municipal government of the state or its agencies;

     (4) "Enrollee" means any employee who is enrolled in the retirement savings program

established by this chapter;

     (5) "IRA" means a traditional or Roth individual retirement account under §408 A of the

Internal Revenue Code;

     (6) "Office" means office of the general treasurer;

     (7) "Participating employer" means an employer that provides a payroll deposit

retirement savings arrangement for enrolled employees;

     (8) "Payroll deposit retirement savings arrangement" means an arrangement by which an

employer allows employees to remit payroll deduction contributions to a retirement savings

program;

     (9) "Program" means the Rhode Island retirement security program, established pursuant

to this chapter;

     (10)(i) "Vendor" means a registered investment company, life insurance company, or

qualified third-party administrator, authorized to do business in Rhode Island, that provides or

administers retirement investment products, including a company that is authorized to do business

in Rhode Island, that provides payroll services or recordkeeping services, and offers retirement

plans or payroll deposit IRA arrangements using products of regulated investment companies and

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insurance companies qualified to do business in this state;

     (ii) "Vendor" does not include individual registered representatives, brokers, financial

planners or agents;

     (11) "Wages" means any compensation, as defined by §219(f)(l) of the Internal Revenue

Code, that is received by an enrollee from a participating employer during the calendar year.

     42-16.2-2. Administration.

     (a) The program shall be administered by the office of the general treasurer.

     (b) In addition to and not in lieu of any other appropriation, there is appropriated to the

state treasurer out of the general fund, five hundred thousand dollars ($500,000), which must be

used, in part or in full, to procure an executive director, and for operating expenses of the

program. These funds are to be considered an advance, and repayment to the general fund shall be

made by the program no later than ten (10) years from implementation of the program.

     42-16.2-3. Rhode Island retirement security program fund.

     (a) The Rhode Island retirement security program fund is hereby established as a trust

separate from the state treasury, with the board established pursuant to §42-16.2-5, serving as

trustee. The fund shall be composed of the individual retirement accounts of enrollees, which

shall be maintained as individual accounts. Monies in the fund shall consist of monies received

from enrollees and participating employers, pursuant to payroll deductions, and contributions to

savings made under this program. The fund shall be operated in a manner determined by the

board, provided that the fund is operated so that the accounts of enrollees, established under the

program, meet the Internal Revenue Code requirements for IRA accounts.

     (b) The amounts deposited in the fund shall not constitute property of the state and the

fund shall not be construed to be a department, institution, or agency of the state. Amounts on

deposit in the fund shall not be commingled with state funds and the state shall have no claim to

or against, nor any interest in, such funds.

     42-16.2-4. Rhode Island retirement security program administrative fund.

     The Rhode Island retirement security administrative fund ("administrative fund") is

created as a nonappropriated separate and apart, independent trust fund in the state treasury. The

board shall use monies in the administrative fund to pay for administrative expenses incurred in

the performance of its duties under this chapter. The administrative fund may receive any grants

or other monies designated for administrative purposes from the state, or any unit of federal or

local government, or any other person, firm, partnership, or corporation. Any interest earnings

that are attributable to monies in the administrative fund must be deposited into the administrative

fund.

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     42-16.2-5. Retirement security board – Establishment -- Composition.

     There is created the Rhode Island retirement security board.

     (1) The board shall consist of the following seven (7) members, each a resident of the

state:

     (i) The state treasurer, or designee, who shall serve as chair;

     (ii) Two (2) members appointed by the governor, who shall possess excellent skills,

knowledge and experience, one of which is in the interest of retirement plan design and the other

in matters regarding the Federal Retirement Income Security Act of 1974;

     (iii) Two (2) members appointed by the speaker of the house of representatives, who shall

possess excellent skills, knowledge and experience, one of which is in the interests of the needs of

the aging population and the other in the interest of retirement savings products;

     (iv) Two (2) members appointed by the president of the senate, who shall possess

excellent skills, knowledge and experience, one of which is in the interest of employers in

retirement savings and the other in the interest of employees in retirement savings.

     (2) Each appointed member shall serve an initial term of four (4) years. Thereafter, the

speaker of the house of representatives, the president of the senate and the governor shall appoint

members of the board to succeed each appointee whose terms expire and each member so

appointed shall hold office for a term of six (6) years from October 1 in the year of their

appointment.

     (3) All initial appointments to the board shall be made not later than January 1, 2019.

     (4) Members of the board shall serve without compensation but may be reimbursed for

necessary travel expenses incurred in connection with the execution of their board duties, from

funds appropriated for the purpose.

     (5) Each board member, prior to assuming office, shall take an oath that they will

diligently and honestly administer the affairs of the board and that they will not knowingly violate

or willingly permit to be violated any of the provisions of this chapter or other applicable law.

     (6) The office of the general treasurer shall supply staff support to the board.

     42-16.2-6. Fiduciary duty.

     The board, the individual members of the board, the trustee appointed pursuant to

applicable federal law and regulations of the Department of the Treasury relating to the Internal

Revenue Code, any other agents appointed or engaged by the board, and all persons serving as

program staff, shall discharge their duties exclusively in the interest of the program's enrollees

and beneficiaries as follows:

     (1) For the exclusive purposes of providing benefits to enrollees and beneficiaries and

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defraying reasonable expenses of administering the program;

     (2) By investing with the care, skill, prudence, and diligence under the prevailing

standard, that a prudent person acting in a like capacity and familiar with those matters, would

use in the conduct of an enterprise of a like character and with like aims; and

     (3) By using any contributions paid by employees and employers into the trust

exclusively for the purpose of paying benefits to the enrollees of the program, for the cost of

administration of the program, and for investments made for the benefit of the program.

     42-16.2-7. Powers and duties of the board and general treasurer.

     (a) The board shall have the following powers and duties:

     (1) To establish and operate the program in a manner that:

     (i) Following the best practices for retirement savings vehicles:

     (ii) Maximizes participation, savings, and sound investment practices;

     (iii) Maximizes simplicity, including ease of compliance and use, for participating

employers and enrollees;

     (iv) Provides an efficient and cost-effective product to enrollees;

     (v) Ensures the portability of benefits; and

     (vi) Provides for the accumulation of enrollee assets in a manner that maximizes financial

security in retirement;

     (2) To comply with all applicable federal law and regulations of the Department of the

Treasury relating to the Internal Revenue Code;

     (3) To make and enter into contracts necessary for the administration of the program;

     (4) To evaluate and establish the process by which an enrollee is able to contribute a

portion of their wages to the program and the process by which the participating employer

provides a payroll deposit retirement savings arrangement to forward those contributions and

related information of the program;

     (5) To design and establish the process for enrollment under this chapter, including the

process by which an employee may;

     (i) Opt not to participate in the program;

     (ii) Select a contribution level;

     (iii) Select an investment option; and

     (iv) Terminate participation in the program;

     (6) To keep annual administrative expenses as low as possible;

     (7) To facilitate education and outreach to employers and employees;

     (8) To carry out the duties and obligations of the program in an effective, efficient and

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low-cost manner. This includes the authority to explore, with other state entities, the potential

efficiencies which might be achieved by combining vendor contracting opportunities;

     (9) To exercise any other powers reasonably necessary for the effectuation of the

purposes, objectives, and provisions of this chapter;

     (10) To request, if deemed necessary, a written opinion or ruling from the appropriate

entity, with jurisdiction over the federal Employee Retirement Income Security Act (ERISA),

regarding the applicability and interpretation of the federal Employee Retirement Income

Security Act to the program;

     (11) To conduct or cause to be conducted, an audit of regular program-related activities

of any vendor;

     (12) To enter into information-sharing agreements with other state government entities

possessing data helpful and necessary for program administration;

     (13) To accept any grants, appropriations, or any other monies from the state, any unit of

federal, state, or local government, or any other person, firm partnership or corporation solely for

deposit into the fund, whether for investment or administrative purposes;

     (14) To determine the type of IRA program, including assessment as to whether to utilize

a Roth or traditional IRA.

     (b) The general treasurer shall hire an executive director to implement decisions made by

the board and administer the day-to-day operation of the program.

     42-16.2-8. Employment of vendors.

     (a) The board shall engage, through a procurement process, pursuant to the general laws,

a vendor to serve as a default vendor with an eight (8) year request for proposal. In addition, the

board shall have two (2) consecutive one-year options to extend the default contract into a ninth

and tenth year.

     (b) All other vendors selected by employers shall comply with all applicable federal and

state laws, rules and regulations, as well as all administrative program regulations promulgated by

the board.

     (c) All vendors shall provide any reports that the board deems necessary for the board to

oversee the vendor's performance, including, but not limited to, usage reports to monitor

compliance.

     42-16.2-9. Investment options and contribution amount.

     (a) The board shall ensure that investment options include a life-cycle fund or a lifestyle

balanced qualified default investment alternative, with a target date based upon the age of the

enrollee:

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     (1) The life-cycle fund or a lifestyle balanced qualified default investment alternative

shall be the default investment option for enrollees who fail to elect an investment option, unless

and until the board designates by rule a new investment option as the default which it shall

determine from appropriate qualified default investment alternatives;

     (2) The contribution amount for the default option shall be five percent (5%) of wages

earned during a payroll period.

     (b) The board shall exercise its best efforts to also ensure that an appropriate menu of

investment options are available to enrollees.

     42-16.2-10. Implementation of program -- Enrollment.

     (a) Prior to the opening of the program for enrollment, the board shall develop, design,

and disseminate to all employers and employees information packets which shall include

background information on the program and appropriate disclosures.

     (b) The employee information packet shall include, but not be limited to, all of the

following:

     (1) The benefits and risks associated with making contributions to the program;

     (2) The mechanics of how to make contributions to the program;

     (3) How to opt out of the program;

     (4) How to participate in the program;

     (5) The process for withdrawal of retirement savings;

     (6) How to obtain additional information about the program;

     (7) A statement advising employees seeking financial advice to contact financial

advisors, and further stating that participating employers are not in a position to provide financial

advice, and are not liable for the decisions employees made pursuant to this chapter;

     (8) A statement that the program is not an employer-sponsored retirement plan;

     (9) A statement that the program fund is not guaranteed by the state;

     (10) A form for an employee to record their decision to opt out of participation in the

program; and

     (11) Information stating that the default option is a life-cycle qualified default investment

alternative fund and that the initial investment amount shall be five percent (5%) of wages earned

during a payroll period.

     (c) Participating employers shall provide employees with a copy of the employee

information packet, upon the implementation of the program or at the time of hiring.

     (d) Except as otherwise provided, the program shall be implemented and enrollment of

employees shall begin on January 1, 2019.

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     (e) Each employer shall establish a payroll deposit retirement savings arrangement to

allow each employee to participate in the program, within six (6) months after implementation of

the program.

     (f) If an employer chooses to participate in the program the employer shall enroll each

employee, who has not opted out of participation in the program, and shall provide payroll

deduction retirement savings arrangements for these enrollees and deposit the funds into the

program.

     (g) Enrollees must select a contribution level of at least five percent (5%) of wages

earned during each payroll period. This level may be set up to the deductible amount for the

enrollee's taxable year under §219(b)(1)(A) of the Internal Revenue Code.

     (h) If an enrollee fails to select a contribution level using the form described in subsection

(b) of this section, then the enrollee shall contribute five percent (5%) of their wages earned

during a payroll period to the program, as long as this contribution does not cause the enrollee's

total contributions to IRAs for the year to exceed the deductible amount for the enrollee's taxable

year under §219(b)(1)(A) of the Internal Revenue Code.

     (i) Enrollees may change their contribution level at any time, subject to administrative

regulations promulgated by the board.

     (j) Enrollees may select an investment option or a mix of investment options contained

within the program.

     (k) Enrollees may change their investment option at any time, subject to administrative

regulations promulgated by the board.

     (l) If an enrollee fails to select an investment option, that enrollee shall be placed in the

investment option selected by the board as the default under subsection (b)(11) of this section. If

the board has not selected a default investment option, then an enrollee who fails to select an

investment option shall be placed in the life-cycle fund investment option.

     (m) Employers shall retain the option at all times to set up any type of employer

sponsored retirement plan, such as a defined benefit plan or a 401(k), simplified employee

pension (SEP) plan, or savings incentive match plan for employees (SIMPLE), instead of having

a payroll deposit retirement savings arrangement to allow employee participation in the program.

     (n) An employee may terminate their participation in the program at any time in a manner

authorized by the board.

     (o) Enrollee contributions deducted by the participating employer through payroll

deduction shall be paid by the participating employer to the vendors pursuant to payroll deposit

retirement savings arrangements established by the board.

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     42-16.2-11. No liability for retirement savings benefits.

     (a) The state shall have no duty or liability to any party for the payment of any retirement

savings benefits accrued by any individual under the program.

     (b) No board, state commission, commission, or agency, or any officer, employee, or

member thereof, shall be liable for any loss or deficiency resulting from particular investments

selected under this chapter.

     (c)(1) Participating employers shall not have any liability for an employee's decision to

participate in, or opt out of, the program or for the investment decisions of any enrollee.

     (2) A participating employer shall not be a fiduciary, or considered to be a fiduciary, with

respect to the program. A participating employer shall not bear responsibility for the

administration, investment, or investment performance of the program. A participating employer

shall not be liable with regard to investment returns, program design, and benefits paid to

program participants.

     42-16.2-12. Rules and regulations.

     The board shall promulgate administrative rules and regulations, as necessary to carry out

and implement the provisions of this chapter.

     SECTION 3. This act shall take effect on January 1, 2019.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- RHODE ISLAND RETIREMENT

SECURITY PROGRAM

***

     This act would establish a private employer IRA program allowing its employees to

contribute at least five percent (5%) of their payroll period wages into an IRA program, with

oversight by the Rhode Island retirement security board.

     This act would take effect on January 1, 2019.

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