The law is significant as it allows for the automatic wage deduction regardless of whether the retirement plan is subject to the Employee Retirement Income Security Act, as amended by the Pension Protection Act. CCH reports that the new legislation applies to deferred compensation plans, such as a 401(k) or 403(b); governmental deferred compensation plans, such as a 457 plan, and payroll deduction individual retirement account plans under sections 408 or 408A) of the federal Internal Revenue Code.
According to CCH, Senate Bill 35 also provides that an employer will not be liable for the investment decisions made by the employer on behalf of any participating employee with respect to default investment of contributions made for the employee, if the following conditions apply:
- The plan must allow participating employees to select investments for contributions among the alternatives available on at least a quarterly basis.
- Employees must be given notice of the investment decisions that will be made in the absence of the employee’s direction, along with a description of all investment alternatives available and a brief description of the procedures available for the employee to make changes to the investments.
- Employees must be given at least annual notice of the actual default investment decisions on behalf of participating employees.
The legislation is scheduled to take effect January 1, 2011, unless a petition is filed against it. CCH said that if a petition is filed within 90 days of adjournment of the state legislature (May 12 is the adjournment deadline), then the act would go before voters in the November 2010 General Election.