Regular Session 2017-2018 House Bill 0465 P.N. 0486

PRINTER'S NO. 486

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

465

Session of

2017

INTRODUCED BY HANNA, DRISCOLL, MARKOSEK, LONGIETTI, CALTAGIRONE,

GOODMAN, YOUNGBLOOD, STURLA, McNEILL, SCHLOSSBERG, DERMODY,

DAVIS, McCARTER, WARREN, KORTZ, FRANKEL, SOLOMON, GALLOWAY,

FREEMAN, COMITTA, KAVULICH, SCHWEYER, READSHAW AND DEAN,

FEBRUARY 13, 2017

REFERRED TO COMMITTEE ON FINANCE, FEBRUARY 13, 2017

AN ACT

Establishing the Keystone Retirement Savings Program, the

Keystone Retirement Savings Program Fund and the Keystone

Retirement Savings Program Administrative Fund; providing for

powers and duties of the Treasury Department and the

Department of Revenue; and imposing civil penalties.

TABLE OF CONTENTS

Chapter 1. Preliminary Provisions

Section 101. Short title.

Section 102. Definitions.

Chapter 3. Keystone Retirement Savings Program

Section 301. Establishment of program.

Section 302. Keystone Retirement Savings Program Fund.

Section 303. Keystone Retirement Savings Program Administrative

Fund.

Section 304. Program administration.

Section 305. Fiduciary duty.

Section 306. Powers and duties of department.

Section 307. Risk management.

Section 308. Investment managers.

Section 309. Investment options.

Section 310. Benefits.

Section 311. Program enrollment and participation.

Section 312. Payments.

Section 313. Duty and liability of Commonwealth.

Section 314. Duty and liability of participating employers.

Section 315. Audit and reports.

Chapter 5. Enforcement

Section 501. Civil penalties.

Section 502. Disposition of fines collected.

Chapter 21. Miscellaneous Provisions

Section 2101. Regulations.

Section 2102. Federal considerations.

Section 2103. Notice of program implementation.

Section 2104. Effective date.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

CHAPTER 1

PRELIMINARY PROVISIONS

Section 101. Short title.

This act shall be known and may be cited as the Keystone

Retirement Savings Program Act.

Section 102. Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Administrative fund." The Keystone Retirement Savings

Program Administrative Fund established under section 303.

"Department." The Treasury Department of the Commonwealth.

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"Eligible employee." A person who is 18 years of age or

older and employed by an eligible employer. The term includes an

employee of a small employer that opts to provide payroll

deposit retirement savings arrangements for its employees.

"Eligible employer." An entity engaged in a business,

industry, profession, trade or other enterprise in this

Commonwealth, whether for profit or not for profit, that

satisfies the following conditions:

(1) Employs at least five employees.

(2) Has been in business at least one full calendar

year.

(3) Has not offered a qualified retirement plan,

including, without limitation, a plan qualified under any of

the following provisions of the Internal Revenue Code of 1986

(Public Law 99-514, 26 U.S.C. § 1 et seq.) in the preceding

calendar year:

(i) Section 401(a) or (k) (26 U.S.C. § 401(a) or

(k)).

(ii) Section 403(a) or (b) (26 U.S.C. § 403(a) or

(b)).

(iii) Section 408(k) or (p) (26 U.S.C. § 408(k) or

(p)).

(iv) Section 457(b) (26 U.S.C. § 457(b)).

"Enrollee." An eligible employee who is enrolled in the

program.

"Fund." The Keystone Retirement Savings Program Fund

established in section 302.

"IRA." A Roth individual retirement account under section

408A of the Internal Revenue Code of 1986 (26 U.S.C. § 408A).

"Participating employer." An eligible employer or small

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employer that provides a payroll deposit retirement savings

arrangement for its employees who are enrollees in the program.

"Payroll deposit retirement savings arrangement." An

arrangement by which a participating employer allows enrollees

to remit payroll deduction contributions to the program.

"Program." The Keystone Retirement Savings Program

established in section 301.

"Small employer." An entity engaged in a business, industry,

profession, trade or other enterprise in this Commonwealth,

whether for profit or not for profit, that:

(1) employs less than five employees; or

(2) has been in business less than one full calendar

year and notifies the department of the employer's interest

in being a participating employer.

CHAPTER 3

KEYSTONE RETIREMENT SAVINGS PROGRAM

Section 301. Establishment of program.

A retirement savings program in the form of an automatic

enrollment payroll deduction IRA, known as the Keystone

Retirement Savings Program, is established. The program shall be

administered by the department for the purpose of promoting

greater retirement savings for eligible employees in a

convenient, low-cost and portable manner.

Section 302. Keystone Retirement Savings Program Fund.

(a) Establishment.--The Keystone Retirement Savings Program

Fund is established as a special fund in the State Treasury. The

fund is declared to be a spendthrift trust, and construction of

an enrollee's program account as self-settled shall not cause

the program account to be treated as other than a spendthrift

trust. The fund shall include the individual retirement accounts

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of enrollees, which shall be accounted for as individual

accounts. Money in the fund shall consist of money received from

enrollees through participating employers.

(b) Amounts on deposit.--The amounts deposited in the fund

shall not constitute property of the Commonwealth, and the fund

shall not be construed to be an agency or instrumentality of the

Commonwealth. Amounts on deposit in the fund shall not be

commingled with Commonwealth funds, and the Commonwealth shall

have no claim to or against, or interest in, the funds.

Section 303. Keystone Retirement Savings Program Administrative

Fund.

The Keystone Retirement Savings Program Administrative Fund

is established as a separate trust fund in State Treasury. The

department shall use money in the administrative fund to pay for

start-up and ongoing administrative expenses incurred in

performing the duties of the department or the Department of

Revenue under this act. The administrative fund may receive

money designated for administrative purposes from the

Commonwealth or a unit of Federal or local government or any

other person, firm, partnership or corporation. Interest

earnings that are attributable to money in the administrative

fund shall be deposited into the administrative fund.

Section 304. Program administration.

(a) Duty of department.--Subject to the provisions of this

act, the department shall implement and administer the program

in a manner as the department determines, provided that the fund

is operated such that the accounts of enrollees meet the

requirements for an IRA under the Internal Revenue Code of 1986

(Public Law 99-514, 26 U.S.C. § 1 et seq.).

(b) Operating and administrative costs.--The department

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shall, through the Governor, annually submit to the General

Assembly a budget covering the operating and administrative

expenses of the program. Upon approval by the General Assembly

in an appropriation bill, expenses as incurred by the program,

commencing one year after the department begins accepting

enrollees into the program, shall be paid from the fees, charges

and investment earnings of the fund or from other available

funds.

shall repay to the General Fund money appropriated for the

initial planning, organization and administration of the fund.

The repayment shall be made from the fees, charges and

investment earnings of the fund within 10 years of the effective

date of this section.

Section 305. Fiduciary duty.

The department, employees of the department and agents of and

investment managers retained by the department shall stand in a

fiduciary relationship to and shall discharge their duties with

respect to the program solely in the interest of the program's

enrollees and beneficiaries:

(1) for the exclusive purposes of providing benefits to

enrollees and beneficiaries and defraying reasonable expenses

of administering the program; and

(2) by exercising that degree of judgment, skill and

care under the circumstances then prevailing, which persons

of prudence, discretion and intelligence, who are familiar

with the matters, exercise in the management of their own

affairs not in regard to speculation, but in regard to the

permanent disposition of the funds, considering the probable

safety of their capital.

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Section 306. Powers and duties of department.

The department shall have the power and duty:

(1) To cause the program to be designed, established and

operated in a manner that:

(i) Complies with all applicable sections of the

Internal Revenue Code of 1986 (Public Law 99-514, 26

U.S.C. § 1 et seq.).

(ii) Accords with best practices for retirement

savings vehicles.

(iii) Maximizes participation, savings and sound

investment practices.

(iv) Maximizes ease of administration for

participating employers and enrollees.

(v) Provides an efficient product to enrollees by

pooling investment funds.

(vi) Ensures the portability of benefits.

(vii) Distributes enrollee assets to maximize

financial security in retirement.

(2) To make and enter into contracts necessary for the

administration of the program and fund, including, but not

limited to, retaining and contracting with investment

managers, private financial institutions, other financial and

service providers, consultants, actuaries, counsel, auditors,

third-party administrators and other professionals as

necessary.

(3) To conduct a performance review of each investment

manager no less than once every three years, which shall

include without limitation a review of returns, fees and

customer service. A copy of each performance review shall be

posted on the department's publicly accessible Internet

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website.

(4) To design and establish the process for enrollment,

including the process by which an eligible employee can opt

not to participate in the program, select a contribution

level, select an investment option and terminate

participation in the program.

(5) To allocate administrative costs to individual

retirement accounts in the fund on a pro rata basis. Annual

administrative costs of the department shall not exceed 0.1%

of the total fund balance.

(6) To facilitate education and outreach to employers

and employees.

(7) To facilitate compliance by the program with all

applicable requirements for the program under the Internal

Revenue Code of 1986, including tax qualification

requirements or other applicable law and accounting

requirements.

(8) To carry out the duties and obligations of the

program in an effective, efficient and low-cost manner.

(9) To exercise any other powers reasonably necessary

for the effectuation of the purposes, objectives and

provisions of this act pertaining to the program.

Section 307. Risk management.

The department shall annually prepare and adopt a written

statement of investment policy that includes a risk management

and oversight program. The risk management and oversight program

shall be designed to ensure that an effective risk management

system is in place to monitor the risk levels of the program and

fund portfolio, to ensure that the risks taken are prudent and

properly managed, to provide an integrated process for overall

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risk management and to assess investment returns as well as risk

to determine if the risks taken are adequately compensated

compared to applicable performance benchmarks and standards.

Section 308. Investment managers.

(a) Engagement.--The department shall have sole and

exclusive discretion to engage investment managers.

(b) Fees and charges.--An investment manager's fees and

charges shall not exceed 0.5% of fund assets under management.

with applicable Federal and State laws and regulations, as well

as rules, policies and guidelines promulgated by the department

with respect to the program and the investment of the fund,

including, but not limited to, the investment policy.

(d) Oversight.--An investment manager shall provide reports

to and appear before department personnel as the department

deems necessary or desirable for the department to oversee each

investment manager's performance and the performance of the

fund.

Section 309. Investment options.

(a) General rule.--The department shall establish the

following investment options:

(1) A life-cycle fund with a target date based upon the

age of the enrollee.

(2) An equity index fund.

(3) A bond index fund.

(4) Other investment options as the department deems

necessary or desirable.

(b) Default investment option.--The department shall select,

and may change from time to time at the department's discretion,

the default investment option for enrollees who do not elect an

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investment option.

Section 310. Benefits.

Interest, investment earnings and investment losses shall be

allocated to individual program accounts for each enrollee as

established by the department. An enrollee's retirement savings

benefit under the program shall be an amount equal to the

balance in the enrollee's program account on the date the

retirement savings benefit becomes payable. The Commonwealth

shall have no liability for the payment of a benefit to an

enrollee or beneficiary in the program.

Section 311. Program enrollment and participation.

Except as otherwise provided in this act, the program shall

be implemented and enrollment of eligible employees shall begin

no later than 24 months after the effective date of this

section. The following apply after the department opens the

program for enrollment:

(1) Each eligible employer shall establish a payroll

deposit retirement savings arrangement to allow each eligible

employee to participate in the program no later than nine

months after the department opens the program for enrollment.

(2) Within 15 days following completion of the

requirement in paragraph (1), an eligible employer shall

automatically enroll in the program each eligible employee

who has not opted out of participation in the program and

shall provide payroll deposit retirement savings arrangements

for those employees and deposit, on behalf of those

employees, funds into the program. A small employer may, but

is not required to, provide payroll deposit retirement

savings arrangements for each eligible employee who elects to

participate in the program.

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(3) An enrollee has the ability to select or change the

enrollee's contribution level, subject to rules of the

department. If an enrollee fails to select a contribution

level, then the default contribution level shall be 3%, or

another percentage as the department may determine, of the

employee's wages up to the annual limits permitted by the

Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §

1 et seq.).

(4) An enrollee may select an investment option from the

investment options offered by the department. An enrollee may

change the investment option at any time, subject to rules of

the department. In the event that an enrollee fails to select

an investment option, the enrollee shall be placed in the

default investment option selected by the department.

(5) Following initial implementation of the program

under this section, at least once every year, participating

employers shall designate an open enrollment period of not

less than 15 days during which eligible employees who

previously opted out of the program may enroll in the program

or, if permitted by the participating employer, may enroll

prior to the open enrollment period.

(6) An employer shall retain the option at all times to

set an employer-sponsored retirement plan, such as a defined

benefit plan, 401(k) plan, Simplified Employee Pension (SEP)

plan or Savings Incentive Match Plan for Employees (SIMPLE)

plan, or to offer an automatic enrollment payroll deduction

IRA, instead of having a payroll deposit retirement savings

arrangement to allow employee participation in the program.

An employer-sponsored retirement plan must permit rollover of

an employee's program account into the plan.

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(7) An employee may terminate participation in the

program at any time in a manner prescribed by the department.

Section 312. Payments.

Employee contributions deducted by a participating employer

through payroll deduction shall be paid by the participating

employer to the fund using one or more payroll deposit

retirement savings arrangements established by the department,

in cooperation and coordination with the Department of Revenue,

either:

(1) on or before the last day of the month following the

month in which the compensation otherwise would have been

payable to the employee in cash; or

(2) before a later deadline prescribed by the department

for making payments, but not later than the due date for the

deposit of tax required to be deducted and withheld relating

to collection of income tax at source on wages or for the

deposit of tax required to be paid under the unemployment

insurance system for the payroll period to which the payments

relate.

Section 313. Duty and liability of Commonwealth.

(a) Payments.--The Commonwealth shall have no duty or

liability to a party for the payment of retirement savings

benefits accrued by an individual under the program. Financial

liability for the payment of retirement savings benefits in

excess of funds available under the program shall be borne

solely by the entities that the department contracts with to

provide insurance to protect the value of the program.

(b) Liability.--No Commonwealth board, commission or agency,

or an officer, employee or member thereof, is liable for loss or

deficiency resulting from particular investments selected under

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this act, except for a liability that arises out of a breach of

fiduciary duty under this act.

Section 314. Duty and liability of participating employers.

(a) Liability.--Participating employers shall not be liable

for an employee's decision to participate in or opt out of the

program, or for the investment decisions of the department or of

an enrollee.

(b) Fiduciary and other responsibility.--A participating

employer shall not:

(1) Be a fiduciary, or considered to be a fiduciary,

with respect to the program.

(2) Bear responsibility for the administration,

investment or investment performance of the program.

(3) Be liable with regard to investment returns, program

design and benefits paid to enrollees.

Section 315. Audit and reports.

(a) Reports to Governor and General Assembly.--The

department shall annually submit the following to the Governor

and the General Assembly:

(1) An audited financial report, prepared by the Auditor

General in accordance with generally accepted accounting

principles, of the program for each calendar year by July 1

of the next following year.

(2) A report prepared by the department, which shall

include, but is not limited to, the following:

(i) A summary of the benefits provided by the

program, including the number of enrollees in the

program.

(ii) The percentage and amounts of investment

options and rates of return, net of fees.

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(iii) Other information that is relevant to make a

full, fair and effective disclosure of the operations of

the program and the fund.

(b) Reports to employers and enrollees.--In addition to

other statements or reports required by law, the department

shall provide periodic reports at least annually as follows:

(1) To participating employers, a report of the names of

each enrollee employed by the participating employer and the

amounts of contributions made by the participating employer

on behalf of each employee during the reporting period.

(2) To enrollees, a report of contributions and

investment income allocated, to withdrawals from and balances

in the enrollees' accounts for the reporting period.

report under subsection (b) any other information regarding the

program as the department may determine.

CHAPTER 5

ENFORCEMENT

Section 501. Civil penalties.

(a) Fines for failure to enroll.--An eligible employer who

fails without reasonable cause to timely enroll an eligible

employee in the program shall be subject to the following fines:

(1) Seventy-five dollars for each employee for the first

calendar year or portion of the first calendar year during

which the employee neither was enrolled in the program nor

had elected out of participation in the program.

(2) Two hundred dollars for each employee for the second

calendar year or portion of the second calendar year during

which the employee continues to be not enrolled without

electing out of participation in the program.

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(3) Three hundred fifty dollars for each employee for

the third calendar year and each subsequent calendar year, or

portion of the third or subsequent calendar year, during

which the employee continues to be not enrolled without

electing out of participation in the program.

(b) Fines for failure to remit.--An eligible employer shall

be subject to a fine of $25 for each failure to timely remit a

payroll deduction contribution to the program of an enrollee.

Nothing within this subsection shall be construed or interpreted

as altering any rights or remedies at law or in equity of an

enrollee against the enrollee's employer for failing to timely

remit the enrollee's contributions to the program.

(1) After determining that an employer is subject to

penalty under this section for a calendar year, the

Department of Revenue shall issue a notice of proposed

assessment to the employer. Upon the expiration of 90 days

after the date on which a notice of proposed assessment is

issued, the penalties specified in the notice shall be deemed

assessed, unless the employer files a protest with the

department.

(2) If, within 90 days after the date on which it was

issued, a protest of a notice of proposed assessment is filed

under subsection (d), the penalties specified in the notice

shall be deemed assessed upon the date when the decision of

the Department of Revenue with respect to the protest becomes

final.

(d) Protest and hearing.--A written protest against the

proposed assessment shall be filed with the Department of

Revenue in the form prescribed by the Department of Revenue,

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setting forth the grounds on which the protest is based. If the

protest is filed within 90 days after the date the notice of

proposed assessment is issued, the Department of Revenue shall

reconsider the proposed assessment and shall grant the employer

a hearing. As soon as practicable after the reconsideration and

hearing, the Department of Revenue shall issue a notice of

decision to the employer, setting forth the Department of

Revenue's findings of fact and the basis of decision, which

decision shall be final.

(e) Notice to demand payment.--As soon as practicable after

the penalties specified in a notice of proposed assessment are

deemed assessed, the Department of Revenue shall give notice to

the employer liable for an unpaid portion of the assessment,

stating the amount due and demanding payment. If an employer

neglects or refuses to pay the entire liability shown on the

notice and demand within 10 days after the notice and demand is

issued, the unpaid amount of the liability shall be a lien in

favor of the Commonwealth upon all property and rights to

property, whether real or personal, belonging to the employer,

and the provisions of the act of April 9, 1929 (P.L.343,

No.176), known as The Fiscal Code, regarding liens, levies and

collection actions with regard to assessed and unpaid

liabilities under The Fiscal Code, including the periods for

taking an action, shall apply.

(f) Mailing of notice.--Whenever notice is required under

this section, the notice may be issued by mailing it by first

class mail addressed to the person concerned at the last known

address of the person.

(g) Right of inspection.--All books and records and other

papers and documents relevant to the determination of a penalty

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due under this section shall, during business hours, be subject

to inspection by the Department of Revenue or the Department of

Revenue's duly authorized agents and employees.

(h) Tax forms.--The Department of Revenue may require

employers to report information relevant to compliance with this

act on returns otherwise due from the employers under the act of

March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of

1971. Failure to provide the requested information on a return

shall cause the return to be deemed not accepted.

(i) Tax liability.--For purposes of a provision of law

allowing the Department of Revenue or another agency of this

Commonwealth to offset an amount owed to a taxpayer against a

tax liability of that taxpayer or allowing the Department of

Revenue to offset an overpayment of tax against a liability owed

to the Commonwealth, a penalty assessed under this section shall

be deemed to be a tax liability of the employer and a refund due

to an employer shall be deemed to be an overpayment of tax of

the employer.

(j) Confidential information.--Except as provided under this

subsection, all information received by the Department of

Revenue from returns filed by an employer or from an

investigation conducted under the provisions of this act shall

be confidential, except for official purposes within the

Department of Revenue or pursuant to official procedures for

collection of penalties assessed under this act. Nothing

contained under this subsection shall prevent the Department of

Revenue from publishing or making available to the public

reasonable statistics concerning the operation of this act

wherein the contents of returns are grouped into aggregates in

such a way that the specific information of an employer shall

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not be disclosed. Nothing contained under this subsection shall

prevent the Department of Revenue or the department from

divulging information to an authorized representative of the

employer or to a person pursuant to a request or authorization

made by the employer or by an authorized representative of the

employer.

Section 502. Disposition of fines collected.

Civil penalties collected under this act shall be deposited

into the administrative fund and used by the department to cover

or defray expenses of the department or the Department of

Revenue incurs in the performance of its duties under this act.

CHAPTER 21

MISCELLANEOUS PROVISIONS

Section 2101. Regulations.

The department and the Department of Revenue shall promulgate

regulations and adopt policies or guidelines that may be

necessary or desirable to implement this act. The Department of

Revenue shall coordinate and cooperate with the department as

necessary to implement this act.

Section 2102. Federal considerations.

The department shall request in writing an opinion or ruling

from the appropriate entity with jurisdiction over the Employee

Retirement Income Security Act of 1974 (ERISA) (Public Law 93-

406, 88 Stat. 829) regarding the applicability of ERISA to the

program. The department may not implement the program if the IRA

arrangements offered under the program fail to qualify for the

favorable Federal income tax treatment ordinarily accorded to

IRAs under the Internal Revenue Code of 1986 (Public Law 99-514,

26 U.S.C. § 1 et seq.) or if it is determined that the program

is an employee benefit plan and State or employer liability is

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established under ERISA.

Section 2103. Notice of program implementation.

(a) Publication in Pennsylvania Bulletin.--Upon the

implementation of the program in accordance with section 311,

the department shall publish notice in the Pennsylvania Bulletin

advising of the date of implementation of the program.

(b) Internet posting.--The department shall post notice of

the date of implementation of the program on the department's

publicly accessible Internet website. The notice shall include a

statement that in lieu of enrolling employees in the program

employers may sponsor an alternative arrangement, including, but

not limited to, a defined benefit plan, 401(k) plan, SEP plan,

SIMPLE plan or automatic payroll deduction IRA offered through a

private provider.

Section 2104. Effective date.

This act shall take effect as follows:

(1) Section 501 shall take effect nine months after the

department publishes the notice required under section 2103.

(2) The remainder of this act shall take effect

immediately.

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