U.S. Senate kills rule helping save for retirement
Officials say move won’t stop rollout of state’s retirement program, Secure Choice
SACRAMENTO — In the shadow of the towering debate over the nation’s health care law, a little-noticed bill that could affect the retirements of tens of millions of Americans quietly passed out of Congress this week.
The bill, which the U.S. Senate approved by a one-vote margin late Wednesday, sets the stage for a high-stakes court battle by rolling back an Obama-era rule that made it easier legally for states like California to set up 401(k)-type plans for privatesector workers whose jobs don’t offer such benefits.
Democrats slammed the vote as an example of congressional Republicans caving to Wall Street interests at the expense of ordinary people who desperately need to save for retirement.
“At the behest of the financial services industry, Republicans just overturned a rule that helps people save for retirement,” tweeted California Sen. Kamala Harris.
But angry California officials say the move won’t stop — or even slow — the rollout of Secure Choice, a payroll deduction program for retirement savings set to start by early 2019. In fact, supporters of the project say they knew such a program might get sued, so they designed it to stand up in court — even before Congress overturned President Barack Obama’s rule.
“We are on solid footing even without the rule,” said Katie Selenski, Secure Choice’s executive director — hired just last month.
Anticipating a court challenge from the financial services sector, Democratic lawmakers are weighing whether to strike first — with a suit against President Donald Trump, Senate President Pro Tem Kevin de León, D-Los Angeles, said Thursday. He said a legal team led by former U.S. Attorney General Eric Holder — whom the Legislature hired in January as advisers on matters related to the brewing California-Washington conflict — is currently evaluating “if we actually take the president to court.”
“We’re going to move forward with Secure Choice, and if need be we will meet them in the court of law and we will sue the president,” who has said he will sign the GOP bill, de León said.
California is one of at least five states — including Oregon, Maryland, Illinois and Connecticut — that have established payroll deduction programs for workers without retirement benefits— an estimated 7 million people in California alone.
Secure Choice, which California lawmakers approved last year, would automatically enroll workers in a low-fee plan at no cost to the employer. The funds would be managed by a financial services firm and overseen by a board led by the state treasurer. Workers would be automatically enrolled, but could opt out if they didn’t want to participate.
At issue is a decades-old consumer protection law, the Employee Retirement Income Security Act of 1974 — or ERISA, in industry jargon — that sets minimum standards for private-sector pension plans. Before Obama left office, the Department of Labor wrote regulations to make it easier for local governments and states to establish “auto IRAs” such as employers wouldn’t take effect until one to three years later and would be phased in gradually, based on company size, according to state Treasurer John Chiang, who heads Secure Choice’s board of directors.
How would it work?
Workers in California without access to retirement benefits would be enrolled in a program to make direct payroll contributions to an individual retirement account, starting at 3 percent of their income. Employers would be required to give their employees the appropriate paperwork and to establish a payroll deduction. A third-party, private-sector vendor overseen by the state board would handle communications and manage the investments. Workers could opt out or change their contribution amount. Secure Choice without running afoul of the law, waiving some of the requirements deemed too burdensome for small businesses.
Those Department of Labor rules are what Congress killed this week.
Republicans in Congress have argued that the regu- lations give state-run programs an unfair advantage that could hurt workers and cause some employers to drop their private-sector benefits in favor of the cheaper state option. They say expanding private-sector plans, not state-run plans, is the solution.
“I agree that we need to enhance this system to give more workers access and incentives to participate,” Sen. Orrin Hatch, R-Utah, said Wednesday, according to a transcript. “But there’s absolutely no justification for any effort to reinvent the retirement savings system in order to give primacy to government-run plans.”
But proponents of state plans note that millions of workers who would more easily save for retirement through payroll deductions have long been ignored by the private sector. Roughly 40 million American households have no money in retirement-savings accounts, and nearly half of the workforce doesn’t have a retirement plan at work.
“This is about self-reliance, self-responsibility, not having to be poor and get to the poverty level when you retire,” said Blanca Castro of AARP California.
Mark Herbert, California director of Small Business Majority, a national advocacy group for small businesses, said only 14 percent of small businesses offer retirement plans.
“Striking down this rule will have a chilling effect on states like California that are establishing their own retirement savings programs,” Herbert said, “which in turn will harm California’s small businesses and employees.”
The House of Representatives passed the rule rescission in February.
Camden Avery, 31, who works at Booksmith in San Francisco’s Haight-Ashbury neighborhood, said he was glad to hear that California was continuing with a program that would make it much easier for him and many of his friends to save for retirement.
Still, he said, he doubted many of his friends were aware of what was happening in Congress because of all of the other “pressing political garbage fires to be paying attention to.”
“It’s this moment of turmoil,” he said, “and they’re doing this thing that’s going to kick everyone in the teeth 20, 30 and 40 years down the road.”