(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Mark Miller
CHICAGO Feb 16 So much for states’ rights.
The Republican-controlled Congress took aim this week at
states that are creating retirement saving programs for workers
who do not already have 401(k)s through their jobs. Seven states
- including populous California, Illinois and Maryland - are
implementing government-sponsored auto-IRA plans, and another 30
are considering their own, according to AARP, which has been
supporting and tracking the initiatives.
Saving for retirement should not be all that controversial,
but state plan opponents in the business community object to an
expansive government role and the mandatory features of some of
the state plans.
The House of Representatives approved a resolution on
Wednesday that would invalidate an important rule handed down
last year by the U.S. Department of Labor (DoL) in support of
the state plans. The measure now goes to the Senate. The rule
exempts state plans from the Employee Retirement Income Security
Act of 1974 (ERISA) if they meet certain conditions. That
provides important reassurance to employers participating in the
plan, who worry about compliance cost and legal liability under
The House resolution is an especially aggressive reach into
the business of states - and one rich in irony, considering
Republicans' frequent worship at the altar of states’ rights.
But the auto-IRA programs have powerful opponents in the
financial services industry who do not want to see a lower-cost
government-sponsored “public option” to the retirement products
“This is a payoff to the financial services industry,” said
Joshua Gotbaum, a guest scholar at the Brookings Institution who
is serving as chairman of the Maryland auto-IRA program.
“They are afraid of competition that would come from a huge
program like this that forces them to cut their own fees,” said
Gotbaum, who is a former director of the Pension Benefit
Guaranty Corporation, the federally sponsored agency that
insures private sector pensions.
The resolution adds the auto-IRA to an anti-consumer hit
list that already includes the DoL fiduciary rule governing
advice to retirement savers. (reut.rs/2lP6l1v).
Repeal would not stop the states that have already enacted
programs, Gotbaum said. But it will create uncertainty. “It
might mean that states will need to get opinions from lawyers or
the courts on whether the plans are subject to ERISA or not.”
And repeal could well slow down the momentum among states still
considering the idea.
The state initiatives started after the Obama
administration’s proposal for a national auto-IRA program was
shot down by the Republican Congress.
And support for the idea across the country has been strong.
Just last week, a telephone poll of 800 Americans by the
National Institute on Retirement Security found a 75 percent
public approval rating for state plans.
Opponents’ objections - summarized in a letter to lawmakers
this week from a business coalition led by the U.S. Chamber of
Commerce - include opposition to the mandatory participation
feature of some state plans, although the mandate is to simply
require employers to enable payroll deductions (but not
contributions) for uncovered workers. They also worry about the
administrative burden of managing plans with differing standards
in multiple states.
The Chamber letter also argues that states cannot be trusted
to run these programs in light of underfunding of public-worker
pension funds in some states. That argument does not hold water,
since pooled pension plans funded by taxes and worker
contributions bear no resemblance whatever to the auto-IRA
plans, which envision individual accounts held by a third party
So this really is an ideological attack on the idea that
government should take steps to help people save more money.
“Our nation faces difficult retirement challenges, but more
government isn’t the solution,” said U.S. Representative Tim
Walberg, a Michigan Republican who co-sponsored the House
Never mind that the private sector has failed to deliver on
coverage: 401(k)s have existed since the 1980s, yet only half of
U.S. private-sector workers participate in a retirement plan at
any given time, according to the Center for Retirement Research
at Boston College.
Republicans are coalescing around a different approach to
expanded retirement plan coverage. The Retirement Enhancement
and Savings Act (RESA), approved by the Senate Finance Committee
last year, aims to expand saving through enhanced tax credits
for small employers who start workplace plans. The bill also
would make it easier for businesses to create shared retirement
plans - sometimes called Multiple-Employer Plans (MEPs) - as a
way to cut costs and administrative burden.
MEPs have enjoyed bipartisan support, but they would be
voluntary. Few experts think they would have as much impact on
coverage levels as the mandatory state IRA plans. “There is a
lot of skepticism that if these plans don’t have a required
participation feature of some sort, it won’t be enough to shift
the tide,” said Shai Akabas, director of fiscal policy at the
Bipartisan Policy Center. “There needs to be more of a gentle
nudge in that direction.”
AARP, which has been a major lobbying force in favor of
state plans, agrees that these plans may not be the perfect
solution - and it does not object to the Republican MEP
initiative. But it holds that some action is better than none.
“We do have a preference for things like auto-enrollment and
payroll deduction, because behavioral economics tell us that
these things work,” said Cristina Martin Firvida, AARP’s
director of financial security. “But letting the perfect be the
enemy of the good doesn’t expand coverage for anyone. We don’t
want to keep waiting for the perfect solution to come along.”
(Editing by Matthew Lewis)