House votes to block 401-k-type plans

Wall Street wants retirement programs to flow to its products

SACRAMENTO — Despite a plea from California Gov. Jerry Brown, the state’s GOP representatives voted unanimously Wednesday on a resolution to block California and other states from setting up 401-K-type plans for private-sector workers who lack retirement benefits — a measure that sailed through the U.S. House of Representatives on a partyline vote.

The resolution, which now moves to the U.S. Senate, could jeopardize a program that Brown signed into law last fall to set up retirement savings accounts with automatic payroll deductions for as many as 7 million low- and middle-income workers whose employers don’t offer 401-k plans or other benefits. Illinois, Connecticut, Maryland and Oregon have passed similar initiatives.

Opponents of “autoIRAs” — including the U.S. Chamber of Commerce and the bill’s sponsor, Rep. Tim Walberg, a Republican from Michigan — argued that state-led programs would be inferior to other private-sector options and offer workers fewer protections. They say the solution to the nation’s retirementsavings crisis is to get more employers to offer retirement plans through the private market, not to create more government programs.

But Democrats say that with private-sector pensions becoming a thing of the past — and tens of millions of American households having nothing saved for retirement — states and cities are stepping up to fill the void. California’s plan would be managed by a third-party financial services company and overseen by a board led by the state treasurer. Employers would simply need to give employees the proper paperwork. A legislative analysis of the program last fall anticipated that its costs would eventually be covered by user fees.

“I understand that Wall Street institutions strongly object to California and other states setting up such systems,” Brown wrote in a letter to the heavily Democratic delegation in support of California’s program, 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.”

Surveys suggest that most small businesses that don’t offer their employees a retirement savings plan — typically because of the expense and financial risk — would support such programs. A report released last month by the Pew Charitable Trusts found that 86 percent of small and mid-size businesses that don’t offer retirement benefits were either “strongly” or “somewhat” in favor of the idea. Seven percent were strongly opposed.

Senate leader Kevin de León, who sponsored the Secure Choice legislation, has said the state will challenge the rule in court if necessary. Newly confirmed Attorney General Xavier Becerra declined to comment.

“House Republicans today chose to protect the profits of Wall Street investment firms over the retirement security of millions of Americans,” De León said in a statement. “I will continue to fight for the millions of Americans who deserve a measure of financial security when they are too old to work – including the 6.8 million Californians without a workplace retirement savings plan.”

In response to Wednesday’s vote, two House Democrats — Jared Huffman, of San Rafael, and Suzanne Bonamici, of Oregon — introduced a proposal for a national savings program with tax advantages, modeled after a program for federal workers.

“America is in the midst of a retirement-savings crisis,” Huffman said in a news release, “and we can either help workers save now or the federal government will foot the bill later.”