AN ACT relating to retirement income savings plans for private sector employees.

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AN ACT relating to retirement income savings plans for private sector employees. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
SECTION 1. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 3
READ AS FOLLOWS: 4
There is hereby established in the office of the State Treasurer a retirement savings 5
plan in the form of a voluntary payroll -deduction Roth IRA, known as the 6
Commonwealth Retirement Savings Plan. The plan shall be administered by the 7
Commonwealth Retirement Savings Plan board of trustees established in Section 4 of 8
this Act, for the purpose of promoting greater retirement savings for private sector 9
employees of small businesses in a convenient, voluntary, low cost, and portable 10
manner. 11
SECTION 2. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 12
READ AS FOLLOWS: 13
As used in Sections 1 to 11 of this Act: 14
(1) "Board" means the Co mmonwealth Retirement Savings Plan board of trustees 15
established in Section 4 of this Act; 16
(2) "Employee": 17
(a) Means an individual who is employed by a participating employer and is 18
eighteen (18) years of age or older before the beginning of a calendar year; 19
and 20
(b) Does not include any individual: 21
1. Covered under the federal Railway Labor Act, or any individual 22
engaged in interstate commerce so as not to be subject to the 23
legislative powers of this state, except to the extent application of 24
Sections 1 to 11 of this Act is authorized under federal law; 25
2. Covered by a valid collective bargaining agreement that expr essly 26
provides for a multiemployer Taft-Hartley pension plan; or 27
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3. Contributing to a state -administered retirement system as defined in 1
KRS 7A.210, a local government retirement system subject to KRS 2
65.156(1), or the Kentucky Public Employees Deferred Co mpensation 3
System under KRS 18A.230 to 18A.275; 4
(3) "Employer": 5
(a) Means an individual or entity who has fewer than fifty (50) employees and 6
is engaged in a business, industry, profession, trade, or other enterprise in 7
this state, whether for profit or nonprofit; 8
(b) Does not include: 9
1. The federal government or any department, agency, or instrumentality 10
thereof; 11
2. Any state government or any department, agency, or instrumentality 12
thereof; 13
3. Any local government including but not limited to any city, county, 14
urban-county government, charter county government, consolidated 15
local government, special district, or quasi -governmental body 16
authorized by the Kentucky Revised Statutes or a local ordinance; 17
4. Any agency participating in a state -administered retirement system as 18
defined in KRS 7A.210, a local government retirement system subject 19
to KRS 65.156(1), or the Kentucky Public Employees Deferred 20
Compensation System under KRS 18A.230 to 18A.275; or 21
5. Any other governmental agency of the Commonwealth of Kentucky; 22
(4) "Enrollee" means any employee who has affirmatively elected to participate in 23
the plan as provided in Section 8 of this Act; 24
(5) "ERISA" means the Employee Retirement Income Security Act of 1974; 25
(6) "Fund" means the Commonwealth Retirement S avings Plan fund established in 26
Section 3 of this Act; 27
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(7) "Internal Revenue Code" means the Internal Revenue Code of 1986, as 1
amended; 2
(8) "IRA" has the same meaning as "Roth IRA" as defined in Section 408A of the 3
Internal Revenue Code; 4
(9) "Participating employer" means an employer that has voluntarily elected to 5
provide a payroll -deduction retirement savings arrangement for enrollees under 6
Sections 1 to 11 of this Act; 7
(10) "Payroll-deduction retirement savings arrangement" means an arrangement by 8
which an employer allows enrollees, at their election, to remit payroll deduction 9
contributions to the plan; 10
(11) "Plan" means the Commonwealth Retirement Savings Plan established in 11
Sections 1 to 11 of this Act; 12
(12) "Vendor": 13
(a) Means a registered investment company, life insurance company, bank, 14
trust company, or qualified third -party administrator authorized to do 15
business in Kentucky that provides or administers retirement investment 16
products, including payroll services or recordkeeping services; and 17
(b) Does not include individual registered representatives, brokers, financial 18
planners, or agents; and 19
(13) "Wages" means any compensation, as defined in Section 219(f)(1) of the 20
Internal Revenue Code, that is received by an enrollee from a participating 21
employer during the calendar year. 22
SECTION 3. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 23
READ AS FOLLOWS: 24
(1) The Commonwealth Retirement Savings Plan fund is hereby established as a 25
trust fund outside the State Treasury, to be administered by the board established 26
in Section 4 of this Act as its trustee. 27
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(2) The fund shall consist of individual Roth IRAs of enrol lees, each consisting of 1
private moneys in the fund received from enrollees and participating employers 2
on behalf of enrollees pursuant to a payroll -deduction retirement savings 3
arrangement made at the election of the enrollee under Sections 1 to 11 of thi s 4
Act. The fund shall be administered in a manner determined by the board, 5
provided that the accounts meet the requirements of Section 408A of the Internal 6
Revenue Code. 7
(3) The Commonwealth shall not have a claim to or against, or interest in any 8
amount deposited into the fund, and amounts on deposit in the fund shall not be 9
commingled with any public funds. 10
SECTION 4. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 11
READ AS FOLLOWS: 12
(1) (a) The Commonwealth Retirement Savi ngs Plan shall be administered by a 13
board of trustees consisting of the following seven (7) members: 14
1. The State Treasurer, ex officio, who shall serve as chair; 15
2. The secretary of the Education and Labor Cabinet, ex officio; 16
3. The secretary of the Finance and Administration Cabinet, ex officio; 17
4. Two (2) at -large members appointed by the Governor, subject to 18
Senate confirmation in accordance with KRS 11.160, who have 19
expertise in the field of retirement savings plan administration or 20
investment; 21
5. One (1) at -large member appointed by the State Treasurer who is a 22
member of the general public; and 23
6. One (1) at -large member appointed by the State Treasurer who is a 24
small business owner. 25
(b) As used in paragraph (a) of this subsection, a member with "expertise in the 26
field of retirement savings plan administration or investment" means an 27
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individual who has at least ten (10) years of experience in one (1) of the 1
following areas of expertise: 2
1. A portfolio manager acting in a fiduciary capacity; 3
2. A professional securities analyst or investment consultant; 4
3. A current or retired employee or principal of a trust institution, 5
investment, or finance organization, or endowment fund acting in an 6
investment-related capacity; 7
4. A current or retired university professor whose primary area of 8
emphasis is teaching investment-related studies; or 9
5. A chartered financial analyst in good standing as determined by the 10
CFA Institute. 11
(c) Each ex officio member may designate a proxy by written notice to the 12
board prior to the call of order of each meeting, and the proxy shall be 13
entitled to participate as a full voting member. 14
(2) The board is hereby granted the powers and privileges of a corporation, including 15
but not limited to the following powers: 16
(a) To sue and be sued in its corporate name; 17
(b) To make bylaws not inconsistent with the law; 18
(c) To conduct the business and promote the purposes for which it was formed; 19
(d) To make and execute contracts and other instruments necessary or 20
convenient to the exercise of its powers; 21
(e) To employ personnel and contract for professional, administrative, and 22
technical services; 23
(f) To purchase fiduciary liability insurance; and 24
(g) To act independently in the performance of its fiduciary and administrative 25
duties, subject to Sections 1 to 11 of this Act. 26
(3) A trustee, officer, employee, vendor, or other fiduciary shall discharge duties with 27
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respect to the plan: 1
(a) Solely in the interest of the enrollees and beneficiaries; 2
(b) For the exclusive purpose of providing benefits to enrollees and 3
beneficiaries and paying reasonable expenses of administering the plan; 4
(c) With the care, skill, and caution under the circumstances then prevai ling 5
that a prudent person acting in a like capacity and familiar with those 6
matters would use in the conduct of an activity of like character and 7
purpose; 8
(d) Impartially, taking into account any differing interests of enrollees and 9
beneficiaries; 10
(e) Incurring any costs that are appropriate and reasonable; and 11
(f) In accordance with a good -faith interpretation of the federal, state, and 12
common law governing the plan and fiduciaries. 13
(4) (a) At-large members of the board appointed by the Governor or State 14
Treasurer shall serve a term of four (4) years. 15
(b) Any vacancy that may occur for an at -large member of the board shall be 16
filled within thirty (30) days of the occurrence of the vacancy, in the same 17
manner as the original appointment and for the balance of the unexpired 18
term. If the vacancy is not filled by the appointing authority within thirty 19
(30) days of the occurrence, the board may fill the vacancy by majority vote 20
of the board. 21
(5) Board members shall serve without compensation but may be reimburse d for 22
actual and necessary expenses incurred in connection with their board duties 23
from funds provided pursuant to Section 5 of this Act. 24
(6) Membership on the board shall not be incompatible with any other office unless a 25
constitutional incompatibility exists. No member shall be subject to removal from 26
office except upon conviction of a felony or for a finding of a violation of KRS 27
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11A.020 or 11A.040 by a court of competent jurisdiction. 1
(7) (a) The board shall meet at least once each quarter, and may hold additional 2
meetings upon the call of the chair. 3
(b) A majority of the entire membership of the board shall constitute a quorum 4
for the transaction of business, and all actions of the board shall be by 5
affirmative vote of a majority of the members present. 6
SECTION 5. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 7
READ AS FOLLOWS: 8
(1) The Commonwealth Retirement Savings Plan board of trustees shall, for 9
administrative purposes only, be attached to the office of the State Treasurer. 10
(2) Attachment for administrative purposes shall not be construed to confer policy 11
control, investment authority, or fiduciary responsibility upon the Commonwealth 12
or the State Treasurer, except as it relates to the State Treasurer's role as a 13
trustee of the plan. 14
(3) Except as provided in subsection (4) of this section, all routine administrative 15
expenses incurred on behalf of the plan shall be paid by the fund established in 16
Section 3 of this Act. 17
(4) In order to ensure implementation and succe ss of the plan, initial costs to 18
implement the plan and initial and ongoing routine administrative expenses may 19
be funded wholly or in part from: 20
(a) Funding appropriated for the plan by the General Assembly; 21
(b) A loan for initial costs to implement the p lan from the Kentucky Economic 22
Development Finance Authority under Section 12 of this Act; or 23
(c) Funding from efforts of the State Treasurer as provided in subsection (5) of 24
this section. 25
(5) The State Treasurer may pursue and accept contributions, grants , and other 26
donations, which shall be used to set up the plan and for the administrative costs 27
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of the board, and he or she shall have full authority to create a nonprofit entity to 1
accept these contributions in accordance with federal and state law. 2
(6) Notwithstanding any other statute to the contrary, requests and authorization for 3
all expenditures from the fund relating to the administrative operations of the 4
plan shall be contained in the State Treasurer's biennial budget request and the 5
executive branch budget bill enacted by the General Assembly in accordance with 6
KRS Chapter 48. 7
SECTION 6. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 8
READ AS FOLLOWS: 9
The board shall: 10
(1) Cause the plan to be designed, established, and operated in a manner that: 11
(a) Accords with best practices for retirement savings vehicles; 12
(b) Maximizes participation, savings, and sound investment practices; 13
(c) Maximizes simplicity, including ease of co mpliance and use for 14
participating employers and enrollees; 15
(d) Provides an efficient and cost-effective product to enrollees; 16
(e) Ensures the portability of benefits; and 17
(f) Provides for the deaccumulation of enrollee assets in a manner that 18
maximizes financial security in retirement; 19
(2) Comply with all applicable federal law and regulations of the United States 20
Department of the Treasury; 21
(3) Make and enter into contracts necessary for the administration of the plan, 22
including selecting a plan vendor as provided by Section 7 of this Act; 23
(4) Evaluate and establish the process by which an enrollee is able to contribute a 24
portion of his or her wages to the plan for automatic deposit of those 25
contributions and the process by which the participating employer provides a 26
payroll-deduction retirement savings arrangement to forward those contributions 27
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and related information to the plan; 1
(5) Design and establish the process for enrollment under Section 8 of this Act; 2
(6) Keep annual administrative expenses as low as possible; 3
(7) Facilitate education and outreach to employers, enrollees, and employees; 4
(8) Carry out the duties and obligations of the plan in an effective, efficient, and low 5
cost manner. This includes the authority to explore, with other state entit ies, the 6
potential efficiencies that might be achieved by combining vendor contracting 7
opportunities; 8
(9) Exercise any other powers reasonably necessary for the effectuation of the 9
purposes, objectives, and provisions of Sections 1 to 11 of this Act pertai ning to 10
the plan; 11
(10) Conduct or cause to be conducted an audit of plan -related activities of any 12
vendor; 13
(11) Enter into information sharing agreements with any other state governmental 14
entity possessing data necessary for plan administration; 15
(12) Promulgate administrative regulations in accordance with KRS Chapter 13A as 16
necessary to implement Sections 1 to 11 of this Act; 17
(13) Annually adopt a written statement of investment policy that includes a risk 18
management and oversight program, which shall be designed to: 19
(a) Ensure that an effective risk management system is in place to monitor the 20
risk levels of the plan and fund portfolio; 21
(b) Ensure that the risks taken are prudent and properly managed to provide an 22
integrated process for overall risk management; and 23
(c) Assess investment returns as well as risk to determine if the risks taken are 24
adequately compensated compared to applicable performance benchmarks 25
and standards; and 26
(14) Recommend to the General Assembly for legislative action nonpunitive in centives 27
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to encourage employer and employee participation, including but not limited to 1
tax credits. 2
SECTION 7. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 3
READ AS FOLLOWS: 4
(1) The board shall engage, through a procure ment process in accordance with KRS 5
Chapter 45A, a vendor to administer the plan. 6
(2) Each vendor shall comply with all applicable federal and state laws, rules, and 7
regulations, as well as all administrative regulations promulgated by the board 8
with respect to the plan and the investment of the fund including but not limited 9
to the investment policy. 10
(3) Each vendor shall provide the reports that the board deems necessary for the 11
board to oversee the vendor's performance and the performance of the fund. 12
(4) The board shall require each vendor to maintain fiduciary liability insurance, 13
errors and omissions insurance, and cybersecurity insurance in amounts 14
determined appropriate by the board. 15
(5) Each vendor shall indemnify and hold harmless the plan, the b oard, and the 16
Commonwealth from claims arising from vendor negligence, breach of contract, 17
data breach, or violation of law. 18
(6) The board may require performance bonding or other financial assurance as a 19
condition of vendor engagement. 20
SECTION 8. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 21
READ AS FOLLOWS: 22
(1) The Commonwealth Retirement Savings Plan shall be implemented and 23
enrollment of employees shall begin on July 1, 2028, except that the board may 24
delay the implementation of the plan if the board does not obtain adequate funds 25
for implementation prior to July 1, 2028. 26
(2) The plan shall be made available to employers on a voluntary basis, and 27
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employers: 1
(a) May elect to become a participating employer and may withd raw 2
participation at any time; 3
(b) Shall not be required to establish a payroll -deduction retirement savings 4
arrangement after becoming a participating employer; 5
(c) Shall retain the option at all times to set up any type of employer -sponsored 6
retirement p lan in lieu of participation in the Commonwealth Retirement 7
Savings Plan; and 8
(d) Shall provide employees with a copy of the employee information packet 9
described in subsection (6) of this section upon the implementation of the 10
plan or at the time of hiring. 11
(3) An employee of a participating employer: 12
(a) Shall enroll in the plan by affirmative election only; and 13
(b) May terminate his or her participation in the plan at any time in a manner 14
prescribed by the board. 15
(4) Enrollees in the plan shall select: 16
(a) A contribution level and may change their contribution level at any time, 17
subject to administrative regulations promulgated by the board. This level 18
may be set up to the deductible amount for the enrollee's taxable year under 19
Section 219(b)(1)(A) of the Internal Revenue Code; and 20
(b) An investment option or a mix of investment options contained within the 21
plan and may change their investment option at any time, subject to 22
administrative regulations promulgated by the board. 23
(5) The board shall: 24
(a) Prior to the opening of the plan for enrollment, develop, design, and 25
disseminate to all employers an employer information packet and an 26
employee information packet, which shall include background information 27
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on the plan, appropriate disclosures for employees , information regarding 1
any plan-related website, and information required in subsection (6) of this 2
section; 3
(b) Ensure that an appropriate and diversified menu of investment options is 4
available to enrollees; 5
(c) Ensure that each enrollee affirmatively s elects an investment option at the 6
time of enrollment; and 7
(d) Designate one (1) or more qualified target date funds that satisfy applicable 8
United States Department of Labor safe harbor standards as the 9
recommended default investment option for enrollees who request guidance. 10
(6) The employee information packet shall include but not be limited to the 11
following: 12
(a) The benefits and risks associated with making contributions to the plan; 13
(b) The mechanics of how to make contributions to the plan; 14
(c) How to participate in the plan; 15
(d) The process for withdrawal of retirement savings; 16
(e) How to obtain additional information about the plan; 17
(f) A statement advising employees seeking financial advice to contact a 18
financial advisor, and also stating that parti cipating employers are not in a 19
position to provide financial advice and are not liable for the decisions 20
employees make under Sections 1 to 11 of this Act; 21
(g) A statement that the plan is not an employer-sponsored retirement plan; 22
(h) A statement that the plan fund is not guaranteed by the state; 23
(i) A statement that employees may enroll only by affirmative election; and 24
(j) A form for the employee to select hi s or her contribution level and 25
investment options. 26
(7) Individual participant account information, including contribution levels, 27
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account balances, investment selections, and personally identifiable information 1
held by the plan or any vendor shall not con stitute a public record under KRS 2
61.870 to 61.884. Aggregate or de -identified information may be disclosed for 3
reporting, auditing, or legislative oversight purposes. 4
SECTION 9. A NEW SECTION OF KRS CHAPTER 41 IS CREAT ED TO 5
READ AS FOLLOWS: 6
(1) The debts, contracts, and obligations of the plan or the board are not the debts, 7
contracts, and obligations of the Commonwealth, and neither the faith and credit 8
nor the taxing power of the Commonwealth is pledged directly or in directly to the 9
payment of any debts, contracts, and obligations of the plan or the board. 10
(2) No state board, commission, or agency, or any officer, employee, or member 11
thereof shall be liable for any loss or deficiency resulting from particular 12
investments selected under Sections 1 to 11 of this Act, except for any liability 13
that arises out of a breach of fiduciary duty under subsection (3) of Section 4 of 14
this Act. 15
(3) Sections 1 to 11 of this Act shall not be construed to guarantee any interest rate 16
or other rate of return on, or investment performance of, any contribution or 17
account balance. 18
SECTION 10. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 19
READ AS FOLLOWS: 20
(1) A participating employer shall not be a fiduciary, or considered to be a fiduciary, 21
over the plan, and the participating employer shall not be liable for or bear 22
responsibility for: 23
(a) An employee's decision to participate, or not participate, in the plan; 24
(b) The investment decisions of the board or of any enrollee; 25
(c) The administration, investment, investment returns, or investment 26
performance of the plan, including without limitati on any interest rate or 27
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other rate of return on any contribution or account balance; 1
(d) The plan design or benefits paid to plan employees or enrollees; or 2
(e) Any loss, deficiency, failure to realize any gain, or any other adverse 3
consequences, including without limitation any adverse tax consequences or 4
loss of favorable tax treatment, public assistance, or other benefits, incurred 5
by any person as a result of participating in the plan. 6
(2) Participation by multiple employers under Section 1 to 11 of thi s Act shall not be 7
construed as aggregation, sponsorship, endorsement, or maintenance of a 8
retirement plan under federal law, including any theory of aggregation advanced 9
by the United States Department of Labor. 10
(3) An employer's facilitation of payroll deductions under Sections 1 to 11 of this Act 11
shall not confer fiduciary status or constitute endorsement of the plan or any 12
investment option. 13
SECTION 11. A NEW SECTION OF KRS CHAPTER 41 IS CREATED TO 14
READ AS FOLLOWS: 15
(1) Sections 1 to 11 of this Act shall not be construed to: 16
(a) Create or constitute an employee benefit plan under ERISA, or to confer 17
fiduciary status under ERISA upon the Commonwealth, the board, or any 18
participating employer; or 19
(b) Establish, maintain, endorse, or sponsor an employee benefit plan under 20
ERISA. 21
(2) The General Assembly reserves the right to amend, suspend, or reduce any 22
provision of Sections 1 to 11 of this Act if, in its judgment, the welfare of the 23
Commonwealth so demands. 24
Section 12. KRS 154.12-330 is amended to read as follows: 25
(1) (a) The Kentucky Economic Development Finance Authority is hereby 26
authorized to develop and fund a small business loan program to assist new or 27
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existing small businesses operating in the Commonwealth. 1
(b) The authority may lend: 2
1. Up to one hundred thousand dollars ($100,000) to any eligible small 3
business for acquisition, construction, expansion, working capital, or 4
any other business expense the authority deems reasonable to approve ; 5
and 6
2. Funds to help implement the Commonwealth Retirement Savings Plan 7
established to provide retirement savings options to small businesses 8
under Sections 1 to 11 of this Act. 9
(2) The authority shall determine the terms, conditions, and requirements for loans 10
issued under this section, including coll ateral requirements when deemed 11
reasonable and appropriate. Recognizing that small businesses, while essential for 12
the economic vitality of the Commonwealth, may have difficulty obtaining 13
conventional loans, the authority may provide terms that are more lenient, high-risk, 14
less secure, or otherwise less stringent than industry standards. 15
(3) To be eligible for a loan under this section, a small business shall be engaged in 16
manufacturing, agribusiness, or service or technology, shall not be engaged 17
primarily in retail, and shall commit to creating and maintaining at least one (1) 18
new full-time job above the number existing on the date of application. 19
Section 13. On or before July 1, 2027, the State Treasurer shall provide a 20
written update on the implementation of the Commonwealth Retirement Savings Plan to 21
the Legislative Research Commission, for referral to the appropriate committees of 22
jurisdiction. The update shall identify any administrative, financial, or legal issues i n 23
implementing Sections 1 to 11 of this Act. 24