House Passes Resolutions to Block State-Run Plans for Private Sector
The U.S. House of Representatives on Feb. 15 passed two resolutions of disapproval to block Department of Labor (DOL) regulations regarding state-run retirement plans for private sector workers.
H. J. Res. 66, introduced Feb. 8 by Rep. Tim Walberg (R-MI), rolls back the regulatory “safe harbor” created by the Obama administration that will result in private-sector workers being forced into government-run IRAs managed by states. H.J. Res. 67, introduced by Rep. Francis Rooney (R-FL) blocks a second regulation that extended that safe harbor to include cities and counties.
The votes were almost exclusively along party lines. The final vote on each bill was 234-191, with 233 Republicans supporting the measure and 190 Democrats opposing.
Both measures on Feb. 16 were sent to the Senate and now await its consideration.
Pelosi: a ‘States’ Rights’ Bill
House Minority Leader Nancy Pelosi (D-CA), whose home state has taken steps to create a state-run retirement plan that provides for auto-enrollment of workers into an IRA if they work for a business with five or more employees, noted that, “In doing so, California would give almost seven million workers access to retirement savings, no substitute for a pension or a 401(k), but a vital step toward greater retirement security.” She went on to claim that, “…instead of supporting states’ innovation, this is a states’ rights bill, to the party of states’ rights, Republicans have decided Wall Street’s profits are more important than workers’ retirement savings.”
Rep. Richie Neal (D-MA), who voted against the measures, noted that the effect would be to make it more difficult for states and cities to “help middle class families save for retirement.” Neal, who introduced a federal auto IRA bill a decade ago, noted that after the failure to pass that legislation and address the retirement savings crisis, states and cities had stepped up with their own alternatives. “If these resolutions become law, it would have a chilling effect on state efforts,” he said.
A Sweetheart Deal?
In contrast, Republicans positioned the regulations as providing “a sweetheart deal for states and certain cities to circumvent long-standing protections for retirement savers” by enrolling them in plans (IRAs) that weren’t subject to ERISA’s protections, specifically that:
- Working families may have less information about the management of their plans and fewer consumer protections if their savings are mismanaged.
- Savers would have less control, since withdrawals or rolling over investments to a private-sector account could be restricted or penalized.
- Workers would not receive the same benefits across state lines.
As for employers, proponents cautioned that “employers would struggle to follow complex rules that vary across multiple cities and jurisdictions — even within one state,” and that ultimately small businesses might be discouraged from offering 401(k)s, with some deciding to end their existing programs altogether, shifting their employees into the government-run plans. These points were previously made in a white paper published by the U.S. Chamber of Commerce.
“If Republicans succeed in rolling back DOL regulations, they will destroy the best chance 63 million American workers have of getting access to a retirement plan,” said Teresa Ghilarducci, director of the Retirement Equity Lab (ReLab) at The New School, ahead of the vote. “This would be a painful step backwards for the millions who are shut out from the dwindling number of employer-sponsored plans,” she said.
In 2015, Illinois
became the first state to adopt a state-based retirement savings program for private sector employees who do not have a retirement plan at work. Today similar initiatives
are underway in California
More recently, the DOL has received inquiries from Seattle, Philadelphia and New York City
about the viability of a similar approach for municipalities and “political subdivisions,” and last December issued final regulations expanding the state-run safe harbor to include those programs as well.
Under the Congressional Review Act, Congress may pass a resolution of disapproval to prevent, with the full force of law, a federal agency from implementing a rule or issuing a rule that is substantially the same without congressional authorization.