So much for states' rights.
The Republican-controlled Congress took aim this week at states that are creating retirement saving programs for workers who do not already have 401(k)s through their jobs. Seven states--including populous California, Illinois and Maryland--are implementing government-sponsored auto-IRA plans, and another 30 are considering their own, according to AARP, which has been supporting and tracking the initiatives.
Saving for retirement should not be all that controversial, but state plan opponents in the business community object to an expansive government role and the mandatory features of some of the state plans.
The House of Representatives approved a resolution on Wednesday that would invalidate an important rule handed down last year by the U.S. Department of Labor (DoL) in support of the state plans. The measure now goes to the Senate. The rule exempts state plans from the Employee Retirement Income Security Act of 1974 (ERISA) if they meet certain conditions. That provides important reassurance to employers participating in the plan, who worry about compliance cost and legal liability under ERISA.
The House resolution is an especially aggressive reach into the business of states--and one rich in irony, considering Republicans' frequent worship at the altar of states' rights. But the auto-IRA programs have powerful opponents in the financial services industry who do not want to see a lower-cost government-sponsored "public option" to the retirement products they sell.
"This is a payoff to the financial services industry," said Joshua Gotbaum, a guest scholar at the Brookings Institution who is serving as chairman of the Maryland auto-IRA program.
"They are afraid of competition that would come from a huge program like this that forces them to cut their own fees," said Gotbaum, who is a former director of the Pension Benefit Guaranty Corporation, the federally sponsored agency that insures private sector pensions.
The resolution adds the auto-IRA to an anti-consumer hit list that already includes the DoL fiduciary rule governing advice to retirement savers.
Repeal would not stop the states that have already enacted programs, Gotbaum said. But it will create uncertainty. "It might mean that states will need to get opinions from lawyers or the courts on whether the plans are subject to ERISA or not." And repeal could well slow down the momentum among states still considering the idea.
The state initiatives started after the Obama administration's proposal for a national auto-IRA program was shot down by the Republican Congress.