Senate Scraps Rule on State-Sponsored Retirement Plans
Wednesday night the Senate approved a resolution to kill the Department of Labor rule that made it easier for states to provide retirement savings plans for private-sector employees. The rule, created under the Obama administration, made it possible for many small businesses employees, who don’t have access to employer-sponsored retirement plans, to enroll in state-designed plans. Nearly half of all working Americans, some 55 million, don’t have a way to save for retirement at work, according to the AARP.
Seven states already had plans in the works, and while the ruling won’t derail them entirely, it hinders the previous administration’s efforts to encourage states to develop retirement savings solutions for the millions of Americans without access to 401(k) plans. The rule, which made state-run IRA plans exempt from the Employee Retirement Income Security Act (ERISA), helped states avoid obstacles to running their own plans. Without the rule, states could face legal challenges and regulatory hurdles when implementing their own programs.
The resolution, which already passed through the House, was approved by a narrow vote (50-49) in the Senate and is expected to be signed by President Donald Trump. Trump already signed off on a resolution to repeal city-run retirement programs. Officials in New York, Illinois, Connecticut, Oregon and Maryland have said they intend to move forward with their plans to provide retirement programs. Most of the state programs would automatically enroll workers, with a provision to opt out, into a state-sponsored IRA. The investments would be managed by private-sector companies.
According to Cristina Martin Firvida, the AARP’s director of government affairs, workers would be “15 times more likely to save for retirement if they could do that straight out of their paycheck.”
Republicans and business groups, including the U.S. Chamber of Commerce, have criticized the state-sponsored plans.
“The Senate has taken a positive step to ensure that savers in state-run retirement plans have the same strong consumer protections that workers with private-sector employer retirement plans have relied on for more than four decades,” said Investment Company Institute President Paul Schott Stevens.
Proponents say the state plans provide a low-cost option for small businesses that can’t afford to offer retirement plans for workers.
“The Obama administration acted to allow states to pursue these initiatives by exempting them from overreaching federal regulations and then providing necessary consumer protections. That’s what people want,” said Senate Democratic Leader Chuck Schumer.