The United States Senate is on the verge of making a vote that would have a major impact on the chances for young and low-income people to save for a secure retirement.
They'll vote on a H.J. 67, a resolution that recently passed the House of Representatives, which would overturn a Department of Labor rule allowing states to set up and administer payroll reduction retirement accounts for workers who don't get that type of benefit from their employer.
The New Department of Labor rule makes it easier for states to set up simple retirement accounts for workers who aren't offered pension plans by their employers.
This rule allows employers to let workers know they have the option of opting out of the plan and from there the state deducts funds from workers' paycheck every week and drops them into an individual retirement account, commonly known as an Individual Retirement Account (IRA). Because these accounts are overseen by the states, employees wouldn't have to roll them over into a new account when they switch jobs, like they would with a traditional IRA.
Given that nearly half of working Americans aren't offered a retirement plan by their employer, and one-third aren't saving any money for retirement at all, savings advocates see the state-run plans as a part of a solution to a growing problem.
"I will say that the amount that is saved in these plans isn’t enough to rely on for all of retirement, but it’s a great a supplement to social security or a retirement plan, particularly for lower income and younger workers," Joellen Leavelle, Communications and Outreach Director for the Washington D.C.-based Pension Rights Center, told ATTN:.
But just as quickly as the the U.S. Department of Labor cleared the path for these retirement accounts, Congress could be putting up a roadblock.
If H.J. 67 passes, and the Department of Labor rule is overturned, it would cast a cloud of uncertainty over state administered retirement plans.
To understand why the Senate's vote could be so consequential for these plans, it's important to understand the complexities of the Employee Retirement Income Security Act, or ERISA. In addition to establishing "minimum standards for most voluntarily established pension and health plans in private industry," it's language also suggests that the federal government can trump any state or local level plans to oversee employee retirement accounts.
As a result, numerous state-level attempts to set up payroll reduction accounts have stalled for fear the federal government would pull rank.
The Department of Labor's rule change created a "safe harbor" for states, allowing them to establish these plans without fear of being pre-empted by federal law. If H.J. 67 passes, the safe harbor created by the Obama administration would be eliminated, and the future of state run payroll reduction retirement plans would get a whole lot murkier.
This action by Congress comes on the heels of months of lobbying from the Investment Company Institute (ICI), the national trade association for private investment companies, which would stand to lose business to the state run funds. In addition to contributing $10,000 each to the campaigns of H.J. 67's original co-sponsors — Reps. Tim Walberg (R-Mich.) and Virginia Foxx (R-N.C.) — ICI submitted a letter to House Speaker Paul Ryan (R-Wisc.) arguing that the Obama administration's rule change "cannot be justified by any clear and demonstrated benefit."
ICI's letter directly contradicts a 2015 Government Accountability Office report, which, given the lack of participation in retirement savings programs by low-income workers, urged rule changes "to expand private sector coverage."
The American Association of Retired Persons, AARP, also contends that payroll reduction retirement accounts would serve a "clear and demonstrable purpose," stating that "a state-sponsored retirement savings plan could help millions of private-sector workers who are not covered by an employer plan build financial security."
Leavelle also disagreed with ICI's assertion that the Department of Labor rule change "[does away with the protections of federal law for workers," by contending that existing state-run payroll deduction retirement plans are "based on automatic IRAs and other investment tools that have existed for a long time."
If the Republican controlled Senate revokes the Department of Labor's rule change, it would come as a significant blow to California's "Secure Choice" payroll reduction retirement plan, which was created with the new rules of the road in mind.
"Wall Street interests have been gunning for (the program) for quite some time and they found a golden opportunity to do so now with the Trump administration," Senator Kevin De Leon (D-Cali.), who drafted the Secure Choice legislation, told the San Jose Mercury News.
"In drafting the provisions [our bill], we designed our state-administered IRA program to fit within the parameters of this existing safe harbor," Dan Reeves, De Leon's chief of staff, told ATTN:. "Taking away the [Department of Labor rule] will increase the likelihood of litigation to [determine if] the safe harbor for payroll deduction IRAs applies."
Though Reeves said California is willing to take the fight over its new retirement fund all the way to the Supreme Court, he's worried that the movement to create these funds in other states across the country might stall before it even gets started.
"It will create a chilling effect," he said.