SF4797

Purpose and Scope

• This bill would modify provisions of Minnesota’s Secure Choice retirement program. It aims to update how the program is run, who participates, how contributions are made, how results are reported, and how penalties and oversight work. It also repeals a specific existing provision (Minnesota Statutes 2025 Supplement section 187.07 subdivision 3).

Key Definitions and Enrollment Concepts

• Covered employee: A person who works for a covered employer and meets criteria set by the board, with several exclusions (e.g., minors under 18, certain federally funded workers, Taft-Hartley pension fund members, government employees, or temporary/seasonal workers likely to be employed fewer than 180 days). Some workers may elect to have contributions deducted if their employer is covered.
• Enrollment window: A defined period (phase-in based) when covered employers must enroll employees and start payroll deductions or opt-outs. Includes a 21-day enrollment window for new hires.
• Waiting period: A 30-day period that begins with the applicable enrollment period before contributions can start.
• Roth IRA and Traditional IRA: The program can open Roth IRA, Traditional IRA, or both for eligible employees; contributions are generally on an after-tax (Roth) basis unless the employee chooses pretax contributions.

Main Provisions and What the Bill Seeks to Accomplish

• Program establishment and funding mechanics:
  • Contributions can be made by employee payroll deduction or, if not employed by a covered employer, by direct payment to individual retirement accounts (IRAs) established under the program.
  • The board can set up Roth IRA, traditional IRA, or both for participants; default is after-tax Roth unless an employee elects pretax.
• Enrollment, contribution rates, and default rules:
  • Enrollments must occur during a specified enrollment window; employers must withhold contributions starting from the first paycheck within a defined timeline unless the employee opts out.
  • Default contribution rates escalate yearly if employees do not choose a rate: 5% in year 1, 6% in year 2, 7% in year 3, 8% in year 4 and thereafter.
  • The board may adjust required employee contribution rates and must notify employers and employees at least six months before changes.
  • Employees have the right to change or opt out of contributions annually or as determined by the board.
• Employer clarification and certification:
  • A process is created for entities to certify they are not covered employers if applicable, with documentation and an appeals process.
• Accounts, investments, and notices:
  • Individual accounts are maintained for each covered employee; investment earnings and fees are managed within the account.
  • The board must establish a default investment fund and monitor fees to keep costs reasonable.
  • Employers and the board must provide clear notices and information about benefits, risks, enrollment, opt-out options, investment choices, distributions, and tax implications.
• Governance and oversight:
  • The board is composed of seven members with specified roles, including two executive directors from pension investment bodies, three qualified professionals, and two gubernatorial appointees (one from private sector retirement experience and one from a small business/nonprofit background).
  • Terms, appointment rules, quorum requirements, and officer roles (including a chair elected from among members) are defined.
  • The board has broad duties, including enrolling employees, overseeing contributions, administering benefits, setting fees, selecting investments, educating workers, and coordinating with other agencies.
• Reporting, transparency, and cooperation:
  • The program must publish annual financial and plan outcome reports, including costs (especially outside contractors), participant statistics, and the program’s impact on social safety nets.
  • The board may enter intergovernmental agreements with state agencies to provide outreach and compliance assistance and must protect privacy of data.
  • Required notices and annual updates to employees about contribution limits and IRA rules (per Internal Revenue Code) are mandated.
• Penalties for noncompliance:
  • Penalties are set for covered employers that fail to enroll employees or distribute required information, escalating over time (per-employee penalties with caps, doubling if multiple sections are violated).
  • Eligibility to enroll and notice requirements for newly hired employees are defined to trigger timely compliance.
• Confidentiality and data privacy:
  • Data about covered employees, accounts, and beneficiaries are private; the program’s staff must protect privacy and disclose only under specific legal or consent-based circumstances.

Significant Changes to Existing Law

• Adds/updates annual reporting requirements on financial performance, program costs, outcomes, and social safety net impact.
• Refines who qualifies as a “covered employee,” including specific exclusions and enrollment timing.
• Establishes a mandatory enrollment framework with a predefined 21-day window and a separate waiting period before contributions begin.
• Introduces a standardized default contribution rate ladder (5% to 8% over the first four years) unless a participant or board acts otherwise.
• Creates a formal certification process for entities claimed to be not covered employers, with an appeals route.
• Expands board governance structure, including new categories of expertise and specific appointment rules.
• Introduces broader oversight tools, including penalties for noncompliance by employers and enhanced notices to employees.
• Requires interagency cooperation and privacy protections for data shared under intergovernmental agreements.
• Repeals a specific provision from the 2025 supplement (187.07 subdivision 3), removing that particular rule from current law.

Impact on Stakeholders (Overview)

• Employers: New enrollment duties, potential penalties for noncompliance, and requirements to provide information and withhold contributions according to a set schedule.
• Employees: Defined eligibility, enrollment timelines, default contribution rates with opt-out and rate-change rights, and required notices about IRA limits.
• State and Agencies: Expanded roles for the program board, cooperation with other agencies, and potential intergovernmental agreements to support administration and outreach.

Governance and Compliance Timeline (Key Points)

• The board would establish and adjust contribution rates with broad oversight and annual reporting.
• Enrollment windows and waiting periods determine when payroll deductions start for new hires.
• Penalties escalate over time if employers fail to comply with enrollment and information-disclosure requirements.

Notable Compliance Tools and Protections

• Clear notices to employees about enrollment, contributions, investment choices, distributions, and tax implications.
• Data privacy protections for participant information.
• Reasonable-fee structures for administrative costs and a transparent annual financial report.

Relevant Agencies and Roles Mentioned

• Minnesota State Retirement System
• State Board of Investment
• Legislative Commission on Pensions and Retirement
• Department of Administration (for space planning)
• Minnesota Department of Revenue, Department of Labor and Industry, Department of Employment and Economic Development (as potential partners under intergovernmental agreements)

Relevant Terms - Minnesota Secure Choice retirement program - Covered employer - Covered employee - Enrollment window - Waiting period - Roth IRA - Traditional IRA - Aftertax contributions - Pretax contributions - Enrollment and payroll deduction - Default contribution rate - Escalation schedule - Certification (non-covered employer) - Appeals process - Individual accounts - Trustee/Custodian - Default investment fund - Fees and administrative costs - Penalties for noncompliance - Notices to employees - Annual financial report - Plan outcomes and savings goals - Intergovernmental agreements - Confidentiality of data - Internal Revenue Code 408 and 408A (IRA contribution limits) - Board of directors (governance) - Executive director (program) - Social safety net impact - Outside consultants/independent contractors

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