Nancy Harvey has a goal. “I’d like to retire before dying,” she said.
Harvey, 55, has almost nothing saved for retirement. She’s a child-care provider in Oakland, Calif., and there isn’t much left over at the end of the month. “It’s not a lucrative field,” she said.
She was looking forward to a new way to save, courtesy of her home state’s government. The California Secure Choice Retirement Savings Program would create state-sponsored individual retirement accounts. Employers would be required to offer their own retirement plans or sign workers up for the voluntary IRAs. Four other states—Illinois, Maryland, Oregon, and Connecticut—are launching similar programs, also designed to make it easier to save on the job through payroll deductions.
Now, lawmakers in Washington are threatening to end the states’ auto-IRA programs before they start, setting up another likely confrontation between the Trump administration and Democrat-run state governments such as California’s. They've already taken a step in that direction—on Thursday morning the Senate voted to strike down a regulation that endorses city-run auto-IRA programs.
Republican lawmakers and financial industry lobbyists argue that the state auto-IRA programs put an extra burden on employers, could end up charging high fees, and improperly skirt strict regulations governing retirement plans.
The states and their defenders, which include AARP, the retiree group, say local governments are stepping into an area in which the private sector and federal government have clearly failed. Two in three American workers are not contributing to a 401(k) or other workplace retirement account. In addition to the five states getting ready to unveil auto-IRA programs, legislators in more than a dozen other states have been pushing similar plans.
Harvey hopes California’s plan will be “a lot easier” than other options, with less-confusing paperwork to fill out, money automatically taken out of her paycheck, and investment options vetted by the state.
“I’m not trying to get a mansion on a hill, but at least to be able to maintain myself, to live comfortably [and] retire in dignity,” she said.
Before Harvey can start saving in a California Secure Choice account, the program has to survive political opposition and legal challenges.
In the final days of President Barack Obama’s administration, the Department of Labor issued rules making it clear that states, and even large cities, had the authority to create such programs. Last month the Republican-led House of Representatives voted, almost entirely along party lines, to rescind those rules. Senate Majority Leader Mitch McConnell of Kentucky said he is planning a vote on state-based auto-IRAs. If a majority of Senators also block the rule, and Trump agrees, the fledgling retirement plans in California and other states will be put in legal limbo.