Passage of Resolutions Creates Uncertainty for State-Run Plans

The U.S. House of Representatives has passed two resolutions introduced last week by lawmakers that would block regulations issued by the Department of Labor (DOL) regarding the set-up of state- and municipal-run retirement plans for private-sector employees.

John Scott, director of retirement savings at Pew Charitable Trusts, who is based in Washington, D.C., tells PLANSPONSOR the resolutions would still have to be passed by the U.S. Senate and signed by President Donald Trump in order for the DOL regulations to be halted. So, as of right now, it is not affecting states in the process of implementing laws or the program launched this year by the state of Washington.

Scott says there are some complicating factors that do not lend to a straightforward analysis of how this will affect those plans if the resolutions get signed into law. He notes that the basis for the DOL final rule dates back to regulations in the 1970s about payroll deductions for individual retirement accounts (IRAs). Back then, the DOL said if an employer sets up a payroll deduction for a contribution to an employee’s IRA, it is not considered an employer plan under the Employee Retirement Income Security Act (ERISA).

The new rule clarifies this specifically for those plans that would use automatic enrollment into the state- or municipal-run plan. “If they take away this newer guidance, it’s an open question whether these plans can go forward or not,” Scott says. “Some states have already passed laws and some have not. There is a lot of uncertainty now, so it’s unsure what they should do.”

According to Scott, when the DOL issued the rule, it said it was ultimately for the courts to decide. “A judge will have to rule on this at some point. That may be the ultimate answer,” he says.

But, there may be a lot of time before the resolutions go into effect, if they do at all. Scott says it depends on the Senate leadership and how fast they want to move it. He notes that the Senate is on recess next week, so it won’t get to the resolutions until the following week at the earliest; it could be somewhere between the end of February and the end of April. He also notes that the Senate has confirmation hearings to go through and it depends on what bills lawmakers think are important to tackle. “It’s anybody’s guess what the timing would be,” he concludes.