AB 1179

WisEARNS retirement savings program

This bill creates a program called “WisEARNS” to provide a defined contribution retirement savings plan for employees of private employers in this state that do not offer an employer-sponsored retirement plan or that do not offer such a plan to all employees. A defined contribution retirement savings plan is one that pays retirement benefits based on an individual’s account balance, rather than a prescribed formula.

The bill creates a WisEARNS Board that is attached to the Office of the State Treasurer. Under the bill, the board consists of the following nine members: the state treasurer or his or her designee; the secretary of financial institutions or his or her designee; two members appointed by the governor; two members appointed, respectively, by the speaker of the assembly and president of the senate; one member appointed by the state treasurer; one member appointed by the State of Wisconsin Investment Board; and one member appointed by the other members. The bill requires certain members to possess specified attributes or experience. All members serve four-year terms.

Under the bill, the state treasurer recommends a candidate for executive director of the plan to the board, with the board approving the executive director. The executive director serves outside the classified service and appoints staff outside the classified service. The executive director serves at the pleasure of the board.

Under the bill, the board is required to establish the savings plan under which employees may contribute to retirement savings accounts through payroll deductions. Before establishing the plan, the board must conduct a legal analysis of the applicability of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 to the proposed plan, and must issue a request for information from prospective vendors of a variety of defined-contribution retirement accounts authorized under the Internal Revenue Code.

Under the bill, the default account type is a Roth IRA. The bill requires the board to design the plan and contract with third-party investment administrators to operate the plan. Among other requirements, the plan must do at least all of the following: 1) require automatic participation by private employers in this state; 2) require automatic enrollment for employees, but allow employees to opt out before any payroll deduction is made; 3) prohibit employer contributions to employee retirement accounts; and 4) allow an employee to roll over the amounts in an account to a different IRS-qualified retirement account.

Also under the bill, unless the employee directs otherwise, during the employee’s first year of enrollment in the plan, the employer must make a payroll deduction each pay period at a rate of 5 percent of the employee’s gross wages, with this rate increasing by 1 percent per year until the rate is the maximum rate allowed under the Internal Revenue Code. Under the plan, the eligible employee must have certain investment options within each account type, including a stable value or capital preservation fund and a target date index fund or age-based fund. An eligible employee’s first $400 of contributions must be deposited in a savings account that is not a retirement savings account, and thereafter, unless the employee selects a different investment option, the employee’s contributions must be deposited in a target date index fund or age-based fund. An employee must be allowed to opt out of this provision before the first $400 is deposited. The bill requires the board to establish a policy for emergency withdrawals from a WisEARNS savings account that is not a retirement savings account.

Under current law, the Department of Administration is authorized to purchase contractual services for most bodies of state government. Under the bill, the board is exempted from some of the requirements of contracting through DOA and instead must do all of the following before awarding the contract: 1) conduct a cost-benefit analysis of contracting with different vendors; 2) review and ensure the independence of the vendor and the vendor’s employees; and 3) require proof of background checks of the vendor and the vendor’s employees. The bill also requires the board to maintain a list of any vendor or party to the contract that violates the contract or requirements of the law, and to provide that list to DOA for inclusion on the ineligible list for state contracts.

Tax credits for retirement plan startup costs and automatic enrollment

The bill creates two income and franchise tax credits that may be claimed by small businesses that have 100 or fewer employees who received at least $5,000 in compensation during the preceding year. Both credits are based on similar federal tax credits. The first credit may be claimed by small businesses for the costs of setting up and administering a retirement plan and educating employees about the plan. The credit is 50 percent of the costs, limited to the greater of $500 or the lesser of $5,000 or $250 multiplied by the number of non-highly compensated employees who are eligible to participate in the plan. The credit may be claimed for three consecutive years and may be not be claimed for any costs that were deducted under federal law. The second credit may be claimed by small businesses that provide for automatic enrollment in their retirement plans. The credit is $500 and may be claimed for three consecutive years, beginning with the year in which the small business first provides for automatic enrollment.