HF 2632 (LSB 5611YH (6) 90)

HOUSE FILE 2632

BY  BAETH, JAMES, NIELSEN, CAHILL, BROWN-POWERS, AMOS JR., STAED, SCHEETZ, OLSON, MATSON, WILSON, CROKEN, ZABNER, STECKMAN, BAGNIEWSKI, FORBES, BUCK, JACOBY, KRESSIG, GAINES, EHLERT, KURTH, WESSEL-KROESCHELL, COOLING, SCHOLTEN, WILBURN, KONFRST, GJERDE, and LEVIN

A BILL FOR

An Act establishing a retirement savings plan trust, providing penalties, and including implementation provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  12L.1  Purpose and definitions.
   1.  The general assembly finds that the general welfare and well-being of the state are directly related to the ability of the citizens of the state to save for their retirement years, and that a vital and valid public purpose is served by the creation and implementation of programs which encourage and make possible the attainment of financial security by the greatest number of citizens of the state. In order to make available to the citizens of the state an opportunity to fund future retirement savings needs, it is necessary that a public trust be established in which moneys may be invested for retirement.
   2.  As used in this chapter, unless the context otherwise requires:
   a.  “Administrative fund” means the administrative fund established under section 12L.10.
   b.  “Employee” means an individual who is eighteen years of age or older, who is employed by an employer for at least one hundred twenty days, and who is employed for compensation in this state.
   c.  “Employer” means a person or entity engaged in a business, industry, profession, trade, or other enterprise in Iowa for at least two years that employed five or more employees at any time during the previous calendar year.
   d.  “Internal Revenue Code” means the same as defined in section 422.3.
   e.  “Iowa retirement savings plan trust” or “trust” means the trust created under section 12L.2.
   f.  “Participant” means an individual that has entered into a participation agreement under this chapter to contribute to an Iowa retirement savings plan.
   g.  “Participation agreement” means an agreement between a participant and the trust entered into under this chapter.
   h.  “Program fund” means the program fund established under section 12L.10.
    Sec. 2.  NEW SECTION.  12L.2  Creation of the Iowa retirement savings plan trust.
   An Iowa retirement savings plan trust for persons employed for compensation in this state, as allowed by the Internal Revenue Code, is created for the purpose of helping Iowans save for retirement. The treasurer of state is the trustee of the trust, and has all powers necessary to carry out and effectuate the purposes, objectives, and provisions of this chapter pertaining to the trust, including the power to do all of the following:
   1.  Make and enter into contracts necessary for the administration of the trust.
   2.  Enter into agreements with any financial institution, the state, or any federal or other state agency, or other entity as required to implement this chapter.
   3.  Carry out the duties and obligations of the trust pursuant to this chapter.
   4.  Accept any grants, gifts, legislative appropriations, and other moneys from the state, any unit of federal, state, or local government, or any other person, firm, partnership, or corporation which the treasurer of state shall deposit into the administrative fund or the program fund.
   5.  Carry out studies and projections so the treasurer of state may advise participants regarding present and estimated future retirement needs and levels of financial participation in the trust required in order to enable participants to achieve their retirement funding objectives.
   6.  Participate in any federal, state, or local governmental program for the benefit of the trust.
   7.  Procure insurance against any loss in connection with the property, assets, or activities of the trust.
   8.  Enter into agreements with participants and employers.
   9.  Make distributions and refunds to participants pursuant to participation agreements as prescribed by the Internal Revenue Code.
   10.  Invest moneys from the program fund in any investments which are determined by the treasurer of state to be appropriate.
   11.  Engage investment advisors, if necessary, to assist in the investment of trust assets.
   12.  Contract for goods and services and engage personnel as necessary, including consultants, actuaries, managers, legal counsel, and auditors, for the purpose of rendering professional, managerial, and technical assistance and advice to the treasurer of state regarding trust administration and operation.
   13.  Establish, impose, and collect administrative fees and charges in connection with transactions of the trust, and provide for reasonable service charges, including penalties for cancellations and late payments with respect to participation agreements.
   14.  Administer the funds of the trust.
   15.  Design and establish the process for enrollment, including the process by which an employee can opt out of the trust, select a contribution level, and select an investment option.
   16.  Set minimum, maximum, and default contribution rates in accordance with limits established by the Internal Revenue Code.
   17.  Facilitate education and outreach to employers and employees.
   18.  Determine any nominal and reasonable assistance that businesses may receive from moneys in the fund to offset the initial costs of enrolling employees in the trust and complying with implementation of the trust.
   19.  Adopt rules pursuant to chapter 17A for the administration of the trust.
    Sec. 3.  NEW SECTION.  12L.3  Enrollment and contributions.
   1.  An employer shall establish a payroll deposit retirement savings arrangement to allow employees to participate in the trust, automatically enroll in the trust each employee who has not opted out of participation in the trust, and deposit on behalf of a participating employee the money deducted into the trust. An employer may at any time establish an employer-sponsored retirement plan instead of participating in the trust.
   2.  An employer shall automatically enroll a participant with a default contribution rate set by the treasurer of state so long as such contributions will not cause the participant’s total contributions to individual retirement accounts for the year to exceed the deductible amount for the participant’s taxable year under section 219(b)(1)(A) of the Internal Revenue Code. A participant may at any time opt out of the trust or select an alternate level of contribution or an alternate investment option from section 12L.4.
   3.  Following implementation of the trust, at least once each year, a participating employer shall designate an open enrollment period during which an employee who previously opted out of the trust may enroll in the trust.
    Sec. 4.  NEW SECTION.  12L.4  Investment options.
   1.  The treasurer of state may establish a low-risk investment portfolio and a target date fund as investment options.
   2.  The target date fund is the default investment option for a participant who fails to elect an investment option unless the treasurer of state designates by rule a new investment option as the default. In making the determination, the treasurer of state shall consider the cost, risk profile, benefit level, and ease of enrollment in the alternate investment option.
    Sec. 5.  NEW SECTION.  12L.5  Employer and employee information packets.
   1.  The treasurer of state shall design and disseminate to employers an employer information packet and an employee information packet, which must include background information on the trust and appropriate disclosures for employees. The employee information packet must explain all of the following:
   a.  The benefits and risks associated with making contributions to the trust.
   b.  The mechanics of how to make contributions to the trust.
   c.  How to opt out of the trust.
   d.  The process to withdraw retirement savings.
   e.  How to obtain additional information about the trust.
   f.  That an employee seeking financial advice should contact a financial advisor, that a participating employer is not in a position to provide financial advice, and that a participating employer is not liable for decisions of an employee regarding participation in the trust.
   g.  That the trust is not an employer-sponsored retirement trust.
   h.  That investments are not guaranteed by the state.
   i.  Financial education information concerning the importance of saving and planning for retirement.
   j.  Any other information deemed necessary by the treasurer of state.
   2.  The employee information packet must include a form for an employee to opt out of participation in the trust or elect to participate with a contribution rate other than the default contribution rate.
   3.  A participating employer shall supply the employee information packet to an employee who is eligible for participation in the trust.
    Sec. 6.  NEW SECTION.  12L.6  Fiduciary duty.
   1.  The treasurer of state, an agent of the treasurer of state, and persons serving as staff for the trust shall discharge their duties with respect to the trust solely in the interest of the trust’s participants and beneficiaries for the exclusive purposes of providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the trust and by investing with the care, skill, prudence, and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with relevant matters would use in the conduct of an enterprise of a like character and with like aims.
   2.  A participating employer is not a fiduciary of the trust and is not liable with regard to investment returns, benefits paid to a participant, an employee’s decision to participate in the trust, or the investment decisions of the treasurer of state or a participant.
    Sec. 7.  NEW SECTION.  12L.7  Participant reports.
   1.  The treasurer of state shall provide reports on the status of trust accounts to participants at least annually.
   2.  The treasurer of state shall provide annual reports to participating employers, including the name of each participating employee of the employer and the contribution amounts made by the employer.
    Sec. 8.  NEW SECTION.  12L.8  Confidentiality of account information.
   Except to the extent necessary to administer the trust, a participant’s account information for accounts in the trust, including but not limited to names, addresses, telephone numbers, personal identification information, amounts contributed, and earnings on amounts contributed, is confidential. The treasurer of state shall maintain the information as confidential unless the person who provides the information or is the subject of the information expressly agrees in writing that the information may be disclosed.
    Sec. 9.  NEW SECTION.  12L.9  Limitation of liability.
   The trust, the treasurer of state, and the state of Iowa may not guarantee any rate of return or any interest rate on any contribution to the trust. The trust, treasurer of state, and the state of Iowa are not liable for any loss incurred by any person as a result of participating in the trust.
    Sec. 10.  NEW SECTION.  12L.10  Program and administrative funds —— investment and payments.
   1.  The treasurer of state shall segregate moneys received by the trust into two funds: the program fund and the administrative fund.
   2.  All moneys paid by participants in connection with participation agreements shall be deposited as received into separate accounts within the program fund.
   3.  Contributions to the trust made by participants shall only be made in the form of cash.
    Sec. 11.  NEW SECTION.  12L.11  Cancellation of agreements.
   A participant may cancel a participation agreement at will. Upon cancellation of a participation agreement, a participant shall be entitled to the return of the participant’s account balance subject to penalties prescribed by the Internal Revenue Code.
    Sec. 12.  NEW SECTION.  12L.12  Annual audited financial report.
   1.  The treasurer of state shall submit an annual audited financial report, prepared in accordance with generally accepted accounting principles, on the operations of the trust by January 1 to the governor and the general assembly.
   2.  The annual audit shall be made either by the auditor of state or by an independent certified public accountant designated by the auditor of state and must include direct and indirect costs attributable to the use of outside consultants, independent contractors, and any other persons who are not state employees.
   3.  The annual audit must be supplemented by all of the following information prepared by the treasurer of state:
   a.  Any related studies or evaluations prepared in the preceding year.
   b.  A summary of the benefits provided by the trust, including the number of participants in the trust.
   c.  Any other information which is relevant in order to make a full, fair, and effective disclosure of the operations of the trust.
    Sec. 13.  NEW SECTION.  12L.13  Tax considerations.
   For federal tax purposes, the Iowa retirement savings plan trust shall conform to the requirements established by the Internal Revenue Code to be able to operate as a retirement plan. The plan may conform to the requirements under section 401(a), section 408, or another section of the Internal Revenue Code which allows Iowans the best retirement option under the trust as determined by the treasurer of state.
    Sec. 14.  NEW SECTION.  12L.14  Property rights to assets in trust.
   1.  The assets of the trust shall at all times be preserved, invested, and expended solely and only for the purposes of the trust and shall be held in trust for the participants.
   2.  No property rights in the trust shall exist in favor of the state.
   3.  The assets of the trust shall not be transferred or used by the state for any purposes other than the purposes of the trust.
    Sec. 15.  NEW SECTION.  12L.15  Interstate agreements.
   The treasurer of state may enter into agreements with other states for the cooperative or joint administration of the trust if the treasurer of state finds that doing so will facilitate the purposes of the trust.
    Sec. 16.  NEW SECTION.  12L.16  Penalties.
   1.  An employer who fails, without reasonable cause, to enroll an employee in the trust shall receive a warning for the initial offense. For subsequent violations, an employer is subject to a civil penalty in an amount not to exceed two hundred fifty dollars for each employee for each calendar year or portion of a calendar year during which the employee was neither enrolled in the trust nor had opted out of participating in the trust. In determining the amount of the penalty, the treasurer of state shall consider the number and nature of the violations. Penalties collected under this section shall be deposited in the general fund of the state.
   2.  The treasurer of state shall develop a process for an employee to report employer noncompliance with the provisions of this chapter. An employer shall not take disciplinary action or otherwise retaliate against an employee who makes a report under this section.
    Sec. 17.  NEW SECTION.  12L.17  Construction.
   This chapter shall be construed liberally in order to effectuate its purpose.
    Sec. 18.  IMPLEMENTATION PROVISION.
   1.  The treasurer of state shall provide that when the requirements of chapter 12L are enacted, individuals may begin making contributions to the Iowa retirement savings plan trust, as created by section 12L.2, as enacted in this Act, no earlier than July 1, 2025.
   2.  For the first year of the trust’s operation, this Act applies to an employer with one hundred or more employees at any time during the previous calendar year. For the second year of the trust’s operation, this Act applies to an employer with fifty or more employees at any time during the previous calendar year. For the third year of the trust’s operation and for each year thereafter, this Act applies to an employer with five or more employees at any time during the previous calendar year as provided in chapter 12L.
   3.  a.  An employer that employs one hundred or more employees at any time during the calendar year preceding the year in which the trust is operating shall establish a payroll deposit retirement savings arrangement within nine months after the implementation date of the trust.
   b.  An employer that employs fifty or more employees at any time during the calendar year preceding the second year in which the trust is operating shall establish a payroll deposit retirement savings arrangement within one year and nine months after the implementation date of the trust.
   c.  An employer that employs five or more employees at any time during the calendar year preceding the third year in which the trust is operating shall establish a payroll deposit retirement savings arrangement within two years and nine months after the implementation date of the trust.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill creates the Iowa retirement savings plan trust under the office of treasurer of state for the purpose of helping Iowans save for retirement. The bill provides that the trust be operated so that, for federal tax purposes, it meets the requirements of a retirement plan as provided by the Internal Revenue Code.
   The state treasurer is the trustee of the trust and has numerous powers, as specified in the bill, for the purpose of carrying out the purpose of the trust. Powers granted the treasurer of state to effectuate the purpose of the trust include entering into agreements with trust participants and employers, investing moneys in the trust, and entering into any agreements or contracts necessary to carry out the purposes of the trust.
   The bill provides that individuals who are employed for compensation in this state must be automatically enrolled in the trust by the individual’s employer with a default contribution rate set by the treasurer of state. A participant may opt out of the trust at any time and may at any time choose a different contribution rate or investment option. The bill requires employers to designate an open enrollment period for the trust at least once per year. 
   The bill permits the treasurer of state to establish a low-risk investment portfolio and a target date portfolio, which is the default investment option. The treasurer of state must distribute informational packets to employers and employees about the trust and provide participating employers and participants with reports on the trust fund at least once per year. The bill also requires that all participant account information be maintained as confidential, except as necessary to administer the trust or as agreed to in writing by the person who provides the information or is the subject of the information.
   The bill allows the treasurer of state to enter into agreements with other states for the administration of the trust. 
   The bill creates civil penalties for employers who fail to enroll an employee in the trust without reasonable cause, enforced by the treasurer of state. A penalty shall not exceed $250 for each employee that an employer fails to enroll each year. Civil penalties collected under the bill are deposited in the general fund of the state.
   The bill provides that the state, the treasurer of state, and the trust may not guarantee any rate of return on any contributions to the trust and are not liable for any loss incurred by any person as a result of participating in the trust. The bill requires the treasurer to submit an annual audited financial report on the operations of the trust.
   The bill provides that when the requirements of the bill are enacted, the treasurer shall not allow individuals to make contributions to the trust earlier than July 1, 2025. During the first year of the trust’s operation, the bill applies to employers that employed 100 or more employees at any time during the prior year. In the second year, the bill applies to employers that employed 50 or more employees at any time during the prior year. After the second year, the bill applies to all employers with five or more employees during the prior calendar year.