HF 23

as introduced - 91st Legislature, 2020 3rd Special Session (2020 - 2020) Posted on 08/12/2020 12:00pm

A bill for an act
relating to retirement; establishing the Minnesota secure choice retirement program;
proposing coding for new law as Minnesota Statutes, chapter 187.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

[187.01] MINNESOTA SECURE CHOICE RETIREMENT PROGRAM;
CITATION.

This chapter shall be known as and may be cited as the "Minnesota Secure Choice
Retirement Program Act."

Sec. 2.

[187.02] STATEMENT OF PURPOSE.

The state creates and establishes a public-private partnership model for privately
employed workers to save for retirement for the following reasons:

(1) for millions of Americans, including hundreds of thousands of Minnesotans, a secure
retirement is not attainable, with nearly half of working-age households having no more
than approximately $40,000 in retirement savings;

(2) Americans who do not have access to a retirement savings plan through their
workplace are more likely to rely on Social Security as their only source of retirement
income;

(3) in Minnesota, the average monthly Social Security benefit is $1,200, with nearly 30
percent of seniors relying on Social Security as their sole source of income;

(4) increased retirement savings can save Minnesota taxpayers an estimated $124,500,000
over a span of ten years in Medicaid savings alone; and

(5) research has shown that offering workers a way to save through their job increases
their ability to save dramatically and promotes individual responsibility and financial
freedom.

Sec. 3.

[187.03] DEFINITIONS.

Subdivision 1.

Applicability.

For purposes of this chapter, the terms defined in this
section have the meanings given them.

Subd. 2.

Board.

"Board" means the secure choice retirement program board of directors.

Subd. 3.

Eligible employee.

"Eligible employee" means a person who is employed by
an eligible employer and who, for the immediately preceding calendar year, worked 500 or
more hours of service for the eligible employer. Once a person has 500 or more hours of
service in a calendar year, the person continues to be an eligible employee for as long as
the person is employed by an eligible employer, even if the person has fewer than 500 hours
of service in a subsequent calendar year. Eligible employee does not include a person who,
on December 31 of the preceding calendar year, was less than 18 years of age.

Subd. 4.

Eligible employer.

(a) "Eligible employer" means a person or entity:

(1) engaged in a business, industry, profession, trade, or other enterprise in the state,
whether for profit or not for profit; and

(2) that does not sponsor or contribute to a retirement savings plan for its employees or,
in the case of a sole proprietorship, for the sole proprietor.

(b) Eligible employer does not include an employer that has not engaged in a business,
industry, profession, trade, or other enterprise in the state, whether for profit or not for profit,
at any time during the immediately preceding calendar year.

(c) Eligible employer does not include the state or its subdivisions.

Subd. 5.

ERISA.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, United States Code, title 29, section 1001, et seq.

Subd. 6.

Executive director.

"Executive director" means the chief executive and
administrative head of the program.

Subd. 7.

Internal Revenue Code.

"Internal Revenue Code" means the Internal Revenue
Code of 1986, as amended, United States Code, title 26, section 1, et seq.

Subd. 8.

Participating employee.

"Participating employee" means an eligible employee
who is contributing to the secure choice retirement program.

Subd. 9.

Participating employer.

"Participating employer" means an eligible employer
that participates in a payroll deposit retirement savings arrangement for eligible employees
as provided for in this chapter.

Subd. 10.

Payroll deposit retirement savings arrangement.

"Payroll deposit retirement
savings arrangement" means an arrangement by which an employer makes contributions
on behalf of participating employees by deducting a specified portion of the employee's pay
and transmitting the deducted amount to the secure choice retirement program at the same
time and manner as payroll deductions for federal and state tax withholding.

Subd. 11.

Program.

"Program" means the secure choice retirement program, which
consists of the secure choice individual retirement account plan (IRAP) and the secure
choice multiple employer retirement plan (MERP).

Subd. 12.

Retirement savings plan.

"Retirement savings plan" means a plan or program
that permits contributions to be set aside for retirement; provides for the deferral of income
tax on the contributions, unless the employee elects to contribute after-tax amounts; and
permits all employees to participate except those employees who have not satisfied
participation eligibility requirements that are no more restrictive than the eligibility
requirements permitted under section 410(b) of the Internal Revenue Code. Retirement
savings plan includes but is not limited to any plan that satisfies the applicable requirements
of section 401(a) of the Internal Revenue Code, a plan listed in section 219(g)(5) of the
Internal Revenue Code, a plan within the meaning of section 457(b) of the Internal Revenue
Code, a simplified employee pension (SEP) plan, a savings incentive match plan for
employees (SIMPLE) plan, an automatic enrollment payroll deduction individual retirement
account, and a multiemployer pension plan described in section 414(f) of the Internal
Revenue Code.

Subd. 13.

Secure choice individual retirement account plan or IRAP.

"Secure choice
individual retirement account plan" or "IRAP" means the plan established under section
187.05.

Subd. 14.

Secure choice multiple employer retirement plan or MERP.

"Secure choice
multiple employer retirement plan" or "MERP" means the plan established under section
187.04.

Subd. 15.

Secure choice retirement savings trust.

"Secure choice retirement savings
trust" is a trust established to hold contributions and investment earnings on funds contributed
under the IRAP or the MERP. A separate trust may be established for the IRAP and the
MERP.

Sec. 4.

[187.04] SECURE CHOICE MULTIPLE EMPLOYER RETIREMENT
PLAN.

Subdivision 1.

MERP established.

The board shall design, establish, and maintain, as
plan sponsor, a qualified defined contribution plan within the meaning of section 414(i) of
the Internal Revenue Code that satisfies the requirements of section 413(c) of the Internal
Revenue Code as a multiple employer plan. The plan documents for the MERP shall:

(1) include an adoption agreement in which an eligible employer can select terms and
conditions to allow the plan to meet the needs of the employer's particular workforce;

(2) provide eligible employers with the option to make employer contributions or
employee contributions by payroll deduction or a combination of employer and payroll
deduction employee contributions; and

(3) preclude the employer from electing a contribution rate for employee or employer
contributions that is lower than the entry-level contribution rate for the IRAP.

Subd. 2.

Compliance with Internal Revenue Code and ERISA.

The board shall:

(1) submit the MERP plan documents to the Internal Revenue Service for a determination
that the MERP satisfies the applicable requirements of sections 401(a) and 413(c) of the
Internal Revenue Code; and

(2) shall administer the MERP in compliance with sections 401(a) and 413(c) of the
Internal Revenue Code and all other applicable federal and state laws, including ERISA.

Subd. 3.

Eligible employer participation.

The executive director shall enter into a
participation agreement with each eligible employer that submits an application to participate
as a participating employer in the MERP and satisfies the eligibility conditions established
by the board.

Subd. 4.

Contributions held in trust.

Each eligible employer that becomes a participating
employer shall transmit employer contributions and employee payroll deduction
contributions, as applicable, to the MERP trust in the manner and according to the schedule
specified and established by the board.

Sec. 5.

[187.05] SECURE CHOICE INDIVIDUAL RETIREMENT ACCOUNT
PLAN.

Subdivision 1.

IRAP established.

The board shall design, establish, and maintain a
payroll deduction arrangement whereby employee payroll deduction contributions are
transmitted by the employee's eligible employer to an individual retirement account
established for the employee. The board shall establish procedures for opening an individual
retirement account for each employee whose eligible employer transmits employee payroll
deduction contributions under the IRAP.

Subd. 2.

Compliance with Internal Revenue Code.

Each individual retirement account
opened under the IRAP shall be established and administered in compliance with section
408(a) of the Internal Revenue Code for the benefit of the employee for whom the account
was opened.

Subd. 3.

Contributions held in custodial account or trust.

Employee payroll deduction
contributions shall be transmitted by the employer to an account established for the benefit
of the employee that is a custodial account or, if a trust is established to hold contributions
under the IRAP, under the trust in the manner and according to the schedule specified and
established by the board.

Subd. 4.

Contribution rate.

The board shall establish default, minimum, and maximum
contribution levels as well as autoescalation requirements whereby employees' contributions
automatically escalate from year to year until they reach a maximum contribution rate,
subject to the employee's election to change the contribution rate or cease contributions.

Subd. 5.

Vesting.

Employees shall at all times be 100 percent vested in their accounts.

Subd. 6.

Distributions.

The board shall establish alternatives for taking a distribution
of an account following termination of employment, including the option to elect a direct
rollover within the meaning of section 402(c) of the Internal Revenue Code. Distribution
alternatives shall include the option to transfer all or any portion of the account toward the
purchase of an annuity.

Sec. 6.

[187.06] ESTABLISHMENT OF TRUST OR CUSTODIAL ACCOUNTS;
INVESTMENTS.

Subdivision 1.

Trust or custodial accounts established.

The board shall establish and
administer a trust for the MERP to hold and invest contributions under the MERP. The
board shall establish and maintain custodial accounts or a trust for the IRAP to hold and
invest contributions under the IRAP.

Subd. 2.

Individual accounts established.

The trustee or custodian, as applicable, shall
maintain accounts for employer and employee contributions with respect to each employee
under the MERP and for each employee contributing under the IRAP. Interest, earnings,
and losses shall be allocated to accounts as prescribed by the board. An individual's retirement
savings benefit under the program shall be an amount equal to the balance in the individual's
program account on the date the retirement savings benefit becomes payable.

Subd. 3.

Investments.

Each employee or former employee is entitled to direct the
investment of the contributions credited to the employee's account in the trust or custodial
account, as applicable. The board shall make available for investment a diversified array
of investment funds selected by the State Board of Investment under section 356.645 and
shall otherwise comply with the requirements of section 404(c) of ERISA and related
regulations. Members of the board, the executive director of the State Board of Investment,
and all other fiduciaries are relieved of fiduciary responsibility for investment losses resulting
from the employee's investment directions.

Subd. 4.

Default investment fund.

The board shall designate a default investment fund
that satisfies the requirements of section 404(c)(5) of ERISA and related regulations.
Accounts for which no investment direction has been given by the employee or former
employee shall be invested in the default investment fund. Members of the board, the
executive director of the State Board of Investment, and all other fiduciaries are relieved
of fiduciary duty under section 404 of ERISA and section 356A.06, subdivision 10, with
regard to investment of assets in the default investment fund.

Subd. 5.

Inalienability of accounts.

No account under the program is subject to
assignment or alienation, either voluntarily or involuntarily, or to the claims of creditors,
except for a domestic relations order that assigns all or a portion of an account in the MERP
to an alternate payee and satisfies the requirements to be considered a qualified domestic
relations order under section 206(d) of ERISA and section 414(p) of the Internal Revenue
Code.

Sec. 7.

[187.07] RESPONSIBILITIES OF ELIGIBLE EMPLOYERS.

Subdivision 1.

Requirement to offer retirement savings plan.

If an eligible employer
does not execute a participation agreement to become a participating employer in the secure
choice multiple employer retirement plan under section 187.04, the eligible employer shall
enroll eligible employees in the secure choice individual retirement account plan. If an
eligible employer offered a retirement savings plan within the last two years, the eligible
employer may not become a participating employer in the MERP, but shall automatically
enroll eligible employees in the IRAP. An eligible employer may become a participating
employer in the MERP no earlier than two years after the date as of which all assets in any
retirement savings plan sponsored by the eligible employer were distributed or otherwise
transferred to employees, former employees, or any eligible retirement plan, within the
meaning of section 402(c)(8) of the Internal Revenue Code.

Subd. 2.

Remitting contributions.

A participating employer must timely remit
contributions as required by the board. The board may establish penalties for employers for
failing to timely remit contributions.

Subd. 3.

Distribution of plan information.

Participating employers shall provide
information packets prepared by the board to all employees regarding the MERP or IRAP,
as applicable:

(1) for participating employers in the MERP, the information must be provided to an
employee no later than 30 days before the date the employee first begins participation in
the plan; or

(2) for employees contributing to an IRAP, the information must be provided to an
employee no later than 30 days before the date of the first payroll from which employee
contributions are deducted for transmittal to the IRAP.

Subd. 4.

No fiduciary responsibility.

Except for the responsibilities described in
subdivisions 1 to 3, a participating employer has no obligations to employees and is not a
fiduciary or considered to be a fiduciary regarding the secure choice retirement savings trust
or the program. Participating employers do not bear responsibility for the administration,
investment performance, plan design, or benefits paid to plan participants.

Subd. 5.

Employer liability.

An employer is not liable to an employee or former
employee for alleged damages resulting from an employee's participation in or failure to
participate in the program.

Subd. 6.

Enforcement.

The Minnesota attorney general has the power to enforce the
provisions of this chapter. The attorney general may impose, after due process, monthly or
quarterly penalties against any eligible employer that fails to comply with this section, in
an amount or amounts determined by the board. Proceeds of such penalties, after deducting
enforcement expenses, shall be deposited in a special revenue account and are appropriated
to the program.

Sec. 8.

[187.08] SECURE CHOICE RETIREMENT SAVINGS BOARD OF
DIRECTORS.

Subdivision 1.

Membership.

The policy-making function of the program is vested in a
board of directors comprised of seven members as follows:

(1) the executive director of the Minnesota State Retirement System;

(2) the executive director of the State Board of Investment or the executive director's
designee;

(3) three members chosen by the Legislative Commission on Pensions and Retirement,
one from each of the following experience categories:

(i) executive or operations manager with at least ten years' experience in record keeping
for plans under section 401(k) of the Internal Revenue Code;

(ii) executive or operations manager with at least ten years' experience in individual
retirement accounts; and

(iii) executive or other professional with at least ten years' experience in retirement plan
investments;

(4) a human resources or retirement benefits executive from a Fortune 500 corporation
with at least ten years' experience in administering the corporation's 401(k) plan, appointed
by the governor; and

(5) a small business owner or executive appointed by the governor.

Subd. 2.

Appointment.

Public members appointed by the governor shall be appointed
as provided in section 15.0597.

Subd. 3.

Terms of initial appointees and deadline for first appointments.

(a) The
terms of initial appointees are as follows:

(1) the executive directors of the Minnesota State Retirement System and the State Board
of Investment shall serve indefinitely;

(2) the members appointed by the Legislative Commission on Pensions and Retirement
shall initially serve three, four, and five years, respectively; and

(3) the governor's appointees shall serve three-year terms.

(b) The appointing authorities must make their first appointments to the board by January
15, 2021.

Subd. 4.

Membership terms.

Except as provided in subdivision 3 for first appointees,
public members serve a term of four years.

Subd. 5.

Removal; vacancies.

Public members may be removed and vacancies filled,
as provided under section 15.0575, subdivisions 4 and 5.

Subd. 6.

Compensation.

Public members shall be compensated and expenses reimbursed
as provided under section 15.0575, subdivision 3.

Subd. 7.

Chair.

The Legislative Commission on Pensions and Retirement shall appoint
one of the members of the board of directors as its chair.

Subd. 8.

Duties.

In addition to the duties set forth in this chapter, the board has the
following duties:

(1) appoint an executive director, determine the duties of the executive director, and set
the compensation of the executive director;

(2) establish secure processes for enrolling employees in the IRAP and for transmitting
employee and employer contributions to custodial accounts or accounts within a trust;

(3) prepare a budget and establish procedures for the payment of costs of administering
and operating the program;

(4) lease or otherwise procure office space and equipment necessary to operate the
program;

(5) procure insurance in connection with the property of the program and the activities
of the board, executive director, and other staff;

(6) accept contributions from employees and from participating employers for the benefit
of their employees in cash or cash equivalents only;

(7) keep annual administrative expenses as low as possible, but in no event may they
exceed one percent of the total trust balance, and allocate administrative expenses to each
employee's account on a pro rata basis, or such other basis as the board determines to be
equitable;

(8) determine the eligibility of an employer, employee, or other individual to participate
in the program, interpret the program's governing documents and this chapter, and make
all other decisions necessary to administer the program;

(9) take all actions required or advisable to ensure that the MERP is treated as a single
plan for purposes of the Internal Revenue Code and ERISA;

(10) prepare employee information that provides notice to employees regarding the
following:

(i) the benefits and risks associated with participating in the MERP or IRAP, as
applicable;

(ii) enrolling in the MERP or IRAP, as applicable;

(iii) how to opt out of the IRAP;

(iv) applying for distribution of retirement benefits;

(v) how to obtain additional information on the MERP or IRAP, as applicable; and

(vi) a statement that employers are not liable for decisions employees make and that
benefits and investment returns are not guaranteed by the state and the state has no liability
for investment performance;

(11) publish an annual audited financial report, prepared according to generally accepted
accounting principles, on the operations of the program, performed by an independent
certified public accountant, which shall include but not be limited to direct and indirect
costs attributable to the use of outside consultants, independent contractors, and other persons
who are not state employees. The report shall be provided to the chairs and ranking minority
members of the legislative committees with jurisdiction over jobs and economic development
and state government finance, the executive director of the State Board of Investment, the
chair of the Legislative Commission on Pensions and Retirement, and the Legislative
Reference Library;

(12) publish an annual report regarding plan outcomes, progress toward savings goals
established by the board, statistics on eligible employees and participating employers, plan
expenses, estimated impact of the program on social safety net programs, and penalties and
violations. The report shall be provided to the chairs and ranking minority members of the
legislative committees with jurisdiction over jobs and economic development and state
government finance, the chair of the State Board of Investment, the chair of the Legislative
Commission on Pensions and Retirement, and the Legislative Reference Library;

(13) adopt rules to implement the program; and

(14) properly file all reports required under the Internal Revenue Code and ERISA for
the MERP and the IRAP.

Subd. 9.

Conflict of interest; economic interest statement.

No member of the board
may participate in deliberations or vote on any matter before the board that will or is likely
to result in direct, measurable economic gain to the member or the member's employee.
Members of the board shall file with the Campaign Finance and Public Disclosure Board
an economic interest statement in a manner as prescribed by section 10A.09, subdivisions
5 and 6.

Subd. 10.

Liability; indemnification.

A member of the board shall be indemnified and
held harmless by the state for the reasonable costs or expenses incurred as a result of any
actual or threatened litigation or administrative proceeding arising out of the performance
of the member's duties, except an action brought by the state or a state agency arising from
the failure of a board member to perform duties as prescribed in section 187.09.

Sec. 9.

[187.09] FIDUCIARY DUTY; STANDARD OF CARE.

Subdivision 1.

Fiduciary duty for MERP.

The members of the board, the State Board
of Investment, and the staff of the program are governed by sections 404 to 408 of ERISA,
to the extent any of them exercise fiduciary duty.

Subd. 2.

Fiduciary duty for IRAP.

The members of the board, the State Board of
Investment, and the staff of the program are governed by chapter 356A, to the extent any
of them exercise fiduciary duty.

Sec. 10.

[187.10] NO STATE LIABILITY.

The state has no liability for the payment of, the amount of, or losses to any benefit to
any participant in the program.

Sec. 11.

[187.11] SEVERABILITY.

If any provision of this chapter is found to be unconstitutional and void, the remaining
provisions of this chapter are valid.

Sec. 12. EFFECTIVE DATE.

Sections 1 to 6 and 8 to 11 are effective the day following final enactment. Section 7 is
effective the day after the secure choice retirement program board of directors opens the
secure choice retirement savings program for enrollment of eligible employees in the IRAP
or August 1, 2023, whichever is earlier.