Compliance February 9, 2017

Lawmakers Move to Block Final Rule on State-Run Retirement Plans

Their concerns are that small businesses will be discouraged from offering retirement plans to employees, and that employees put into state-run plans will not have the protections of ERISA and will have limited control over their retirement savings.

Reported by

Rebecca Moore

Representative Tim Walberg (R-Michigan), chairman of the U.S. House Subcommittee on Health, Employment, Labor, and Pensions, and Representative Francis Rooney (R-Florida) have introduced two resolutions of disapproval to block regulations issued by the Department of Labor (DOL) regarding the set-up of state-run retirement plans for private-sector employees.

Their concerns are that small businesses will be discouraged from offering retirement plans to employees, and that employees put into state-run plans will not have the protections of the Employee Retirement Income Security Act (ERISA) and will have limited control over their retirement savings.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news. 

The resolution introduced by Chairman Walberg (H. J. Res 66) would roll 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. Rep. Rooney’s resolution (H. J. Res 67) would block a second regulation that extended the “safe harbor” to include cities and counties.

“This last-minute regulatory loophole created by the previous administration will lead to harmful consequences for both workers and employers,” Rooney says. “Hardworking Americans could be forced into government-run plans with fewer protections and less control over their hard-earned savings. Employers will face a confusing patchwork of rules, and many small businesses may forgo offering retirement plans altogether. Congress must act to protect workers and small businesses from these misguided regulations.”

NEXT: Some for, some against

Dr. Robert C. Merton, School of Management Distinguished Professor of Finance at the MIT Sloan School of Management, and Dr. Arun Muralidhar, adjunct professor of finance at George Washington University, have proposed a model for state-run plans that would address some of these concerns.

The DOL issued its final rule in August 2016. According to the DOL, the rule “provides guidance for states in designing programs by providing a safe harbor from ERISA coverage to reduce the risk of ERISA preemption of the relevant state laws.”

A number of states have enacted laws for state-run programs, and Washington State opened its plan January 1 of this year.

The AARP wrote a letter to members of Congress, urging them not to support the resolutions. In the letter, AARP Executive Vice President Nancy A. LeaMond said upending the DOL rule would have a “significant chilling effect” on states adopting workplace plans. LeaMond wrote, “Congress should support these important state savings programs, not take steps to end them. Today, 55 million working Americans do not have a way to save for retirement out of their regular paycheck…Those who do not save enough for retirement risk become dependent on social safety net programs, costing taxpayers down the line.”

On the other hand, the ERISA Industry Committee (ERIC) wrote a letter to Congress in support of the resolutions. Will Hansen, senior vice president, Retirement Policy, at ERIC, says some state proposals “would force plan sponsors of tax-qualified retirement plans to alter aspects of their retirement plans to be exempt from the state or local mandate. For example, the Oregon State Retirement Savings Plan, scheduled to be implemented later this year, provides in a proposed rule that a conditional exemption from the program for employers that provide a retirement plan to all employees will be provided, but only if the employer enrolls all employees within 90 days of hire.” Hansen also expressed concern about states’ ability to provide a consistent retirement plan across state lines.