In a narrow vote, 50 (yes) to 49 (no), the Senate by resolution killed an Obama-era rule that greenlighted state-sponsored auto-IRA retirement programs for small business workers. A majority vote was needed to repeal the rule. The AARP cried foul and urged a “no” (don’t repeal the rule) vote because: “Too many small business employees don’t have a way to save for retirement out of their regular paycheck.” That’s 55 million workers.
“This is an industry effort to try to preserve that customer base for itself even though they’ve had no interest in that customer base for years. Putting sand in the wheels of these state efforts is a destructive thing to do,” says Alicia Munnell, director of the Center for Retirement Research at Boston College. The message: you’re on your own for retirement if you don’t have a workplace retirement plan.
Basically the Department of Labor rule, issued last August, “blessed” these state-sponsored plans. It gave the states a rule that they could rely on to automatically enroll individuals into an Individual Retirement Account and not be subject to federal ERISA rules.
President Donald Trump is expected to sign off on the resolution (Resolution 66), adding to his deregulatory agenda. He already signed off on an earlier vote (Resolution 67) in March that killed Obama-era proposed rules issued in December that would have opened the way for cities and localities to offer similar retirement programs. New York City Comptroller Scott Stringer, for example, had proposed a “New York City Nest Egg” retirement plan which would have been geared towards the 1.5 million private-sector city workers who don’t have access to plans at work. It had auto-IRAs but also included a municipally-backed retirement plan option. Now that plan has been shelved.
Seven states already have approved these private sector workplace programs – Illinois, Oregon, California, Maryland, Connecticut, Washington, and New Jersey (Illinois, Oregon and Washington have 2017 start dates). And over half of the states are considering programs. With names like “Secure Choice” and “Work and Save” they take different approaches–from a marketplace where financial services companies will offer low-cost plans to small businesses on a voluntary basis, to plans that are mandatory for employers, with automatic enrollment for employees into pooled accounts or Roth IRA-like savings accounts (employees can always opt out). The Pension Rights Center keeps a list here.
It’s those latter plans–the most common approach–that will be affected. The states that are taking the marketplace approach–Washington and New Jersey so far–would not be affected by the resolution as their plans are ERISA-compliant and don’t need the DOL rule as a backstop. In those states, financial services firms will offer low-cost plans to small businesses, and the plans will be voluntary for both businesses and employees.
Oregon is the only state so far to have put out guidance on how its plan would work. The ERISA Industry Committee (ERIC), a group that lobbies on behalf of large employers, says that Oregon’s every-three-year reporting requirements imposed on large employers are in violation of ERISA-preemption principles. “States shouldn’t be able to impose reporting requirements on ERISA-qualified retirement plans that follow federal rules,” says Will Hansen, senior vice president of retirement and compensation policy with ERIC. “We’re all for increasing retirement plan access. Just don’t infringe on employers already providing plans,” he added.
ERIC already sent a letter to Secretary of Labor Alexander Acosta, urging his support of their position.
And the AARP has sent a letter warning senators that it intends to let its 38 million members know how they voted.