Congress takes aim at state retirement accounts

Congress takes aim at state retirement accounts
© Greg Nash

One of the first high-stakes battles testing the relationship between states and President Donald TrumpDonald John TrumpAssange meets U.S. congressman, vows to prove Russia did not leak him documents A history lesson on the Confederacy for President Trump GOP senator: Trump hasn't 'changed much' since campaign MORE’s administration will hit the House floor Wednesday, as Republicans seek to roll back an Obama-era rule that would allow states to create retirement savings accounts for low-income workers.

The House will vote on a resolution offered by Health, Employment, Labor and Pensions Subcommittee Chairman Tim Walberg (R-Mich.) that would roll back a rule allowing states to create retirement plans for private-sector workers whose employers do not offer retirement plans on their own.

The Employee Benefits Security Administration implemented the rule in October.

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Seven states have taken steps toward creating such programs, requiring employers who do not offer retirement plans on their own to enroll employees in a state-run option.

Employees can opt out of those retirement plans, and employers are not required to contribute to the accounts.

California created the first such state-run retirement system in 2012 and six other states — Illinois, Connecticut, New Jersey, Maryland, Oregon and Washington — have taken steps of their own. Oregon plans to begin its program later this year.

But the U.S. Chamber of Commerce and several financial firms oppose such state-run retirement plans. The Chamber has said state plans will give employers an excuse to end better 401(k) programs for employees.

“Our nation faces difficult retirement challenges, but more government isn’t the solution,” Walberg said in a statement. Rep. Francis Rooney (R-Fla.), who sponsored another resolution disapproving of the rule, called it a “last-minute regulatory loophole” that “will lead to harmful consequences for both workers and employers.”

Congress has the opportunity to roll back the rule through the Congressional Review Act, which allows the House and Senate to disapprove of any administration rule within a brief window. That window is still open for the Labor Department rule because it was implemented late in the Obama administration.

Supporters of the new rule say state-run programs will help millions of low-income workers begin saving for retirement. 

In a letter to California’s congressional delegation, Gov. Jerry Brown (D) blasted the financial industry for opposing his state’s program, known as Secure Choice.

“They think the dollars that move into Secure Choice should instead flow into their own products. I consider this a feature, not a defect, of Secure Choice,” Brown wrote. 

State Senate President Kevin de León (D), who shepherded Secure Choice into law, called Congress’s move “just another Wall Street trick designed to thwart the effort by California and other states to expand retirement security for millions of American workers.

California’s Secure Choice program would automatically enroll those without retirement benefits in the state-run plan. Employers would deduct about 3 percent of employee paychecks, though employees could opt out.

The fight over state-run retirement plans is pitting high-powered interests in Washington against each other. Financial firms and the U.S. Chamber of Commerce want to see the rule rolled back. The AARP said in a letter to members of Congress last week it supports keeping the rule on the books.

Fifteen state treasurers, including Republicans in Indiana, Idaho, Utah and Louisiana, wrote Congress on Tuesday opposing the effort to roll back the Obama-era rule, which they said “provides important flexibility to states and large municipalities as they seek to address the growing retirement crisis facing this country.”

The National Conference of State Legislatures also urged Congress to keep the rule in place.

If Congress rolls back the rule, it would likely open retirement programs run by states to legal challenges.