Management & Labor

Congress Threatens State-Run Retirement Plans for Private Workers

by | February 9, 2017

By Evan Halper

An ambitious California law intended to help create retirement security for low-income workers is in the crosshairs of the Trump-era Congress, which is moving to block the state and others from launching programs to automatically enroll millions of people in IRA-type savings plans.

The push is one of the most direct confrontations yet with California and other liberal states by a GOP-led Congress emboldened by President Donald Trump's election.

And it is intensifying the debate about whether conservatives who control Washington will honor their pledge to respect states' rights, even when states pursue policies out of step with the Republican agenda.

By targeting the novel "auto IRA"-style programs, congressional Republicans are also provoking one of California's most visible leaders, state Senate President Pro Tem Kevin de Leon, the Democrat who championed the policy in California and nationwide and is leading a movement in the Legislature to resist Trump.

The 2016 law being targeted requires employers to enroll 6.8 million California workers who have no access to a retirement savings account at work in a state-sponsored plan. Millions more in seven other states that have passed laws similar to California's would also be enrolled in those states. More states are weighing whether to join a movement that has been years in the making.

California first took steps toward creating its program in 2012. Other states, including Illinois, have been slowly implementing their own laws, which have been complicated by Labor Department rules governing such investment pools.

In its final months, the Obama administration gave states the green light.

The state laws generally require employers with no retirement plans to automatically invest a small percentage of each worker's pay in a state-sponsored retirement account. Employers are not required to contribute anything and workers can opt out of the program.

The first such program was expected to launch this year in Oregon. California and other states were hoping to begin next year.

Now at the urging of the U.S. Chamber of Commerce and a coalition of Wall Street investment firms long opposed to government-sponsored retirement programs that could compete with their own offerings, key Republicans are moving to revoke the federal approval.

"Our nation faces difficult retirement challenges, but more government isn't the solution," said a statement from Rep. Tim Walberg, R-Mich., chairman of a House subcommittee on retirement issues.

Walberg and his colleagues are invoking an obscure parliamentary tool that gives Congress a small window to repeal new regulations. It has rarely been used in recent years because any repeal effort would have faced certain veto by President Barack Obama. But under Trump, it is now a potent tool for Republicans to unwind Obama-era regulations.

"The results of the November election give us an opportunity to go back and correct this," Aliya Wong, executive director of retirement policy at the U.S. Chamber of Commerce, said of its effort to block California and other states from moving ahead.

No hearings are required before the full House votes on the repeal of federal approval, which could happen as soon as next week.

"They are trying to do this for Wall Street in the middle of the night, behind closed doors, without a hearing," de Leon said. "If this is really about helping workers, they should hold hearings, study it and permit public testimony."

He vowed that California would press ahead regardless of how Congress proceeds. California can redesign its program to avoid federal approval, but doing so would make it more vulnerable to legal challenge.

De Leon predicted the fight could ultimately end up in court either way, along with other big battles between Washington and California, such as the threat from the White House to strip federal grants from so-called sanctuary cities.

The effort to undermine the state programs has set in motion a lobbying frenzy on Capitol Hill, with the nearly 38 million-member AARP rushing to pressure lawmakers against it.

"Congress should support these important state savings programs, not take steps to end them," said a letter that AARP lobbyist Nancy LeaMond sent to lawmakers Wednesday. It warned that a repeal would "have a significant chilling effect on states, sending the political message that state flexibility is not a priority."

De Leon appealed directly to House Majority Leader Kevin McCarthy in a letter the California Senate leader co-signed with GOP state Sen. Anthony Cannella, who also supports the program.

McCarthy, R-Calif., though, is poised to align with his colleagues seeking to block the program in his home state and others. "The solution for more access to retirement savings is not by more government involvement that skirts nationally recognized safeguards," his office wrote in an email.

Officials at the Chamber of Commerce and the Wall Street trade groups aligning with it say their goal is not to inhibit the states from launching their own programs, but to require them to follow the same federal rules as the private sector.

"We don't see this as a states' rights issue," Wong said. "States are free to create their own programs. We just want them to be subject to the same rules as the private sector."

Supporters of the programs call that argument misleading. They say the states need flexibility from some of those federal rules in order to lessen the burden on employers subject to the new law, whose only obligation under the current design is to set up the payroll deductions like those already required for unemployment insurance or workers compensation.

"Groups that represent large financial institutions and insurance companies have a long history of fighting this," said Yvonne Walker, who chairs the retirement security committee for SEIU International. "They don't want to be in what they think will be competition with the state. But the truth is the financial services industry has for decades ignored working people who can't afford to purchase retirement plans on their own."

California and other states were moved to address the large share of the workforce not enrolled in any retirement plan after efforts to create a federal automatic IRA program stalled years ago. Reports by some bipartisan think tanks and policy analysts suggest the programs could save states billions of dollars by creating a measure of financial security for elderly Americans who otherwise end up on the rolls of Medicaid, food stamps and other safety-net programs.

(c)2017 Tribune Co.

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