Yesterday, Republicans in the US Senate voted to try to cut off innovative policies developed by the states to increase retirement savings. Using the Congressional Review Act (CRA), Republicans repealed a Department of Labor (DoL) regulation that clarified a gray area in the law governing employer-sponsored retirement savings plans (called ERISA) and clearly affirmed the ability of states to facilitate automatic retirement savings for workers not offered a plan by their employer.
This exciting innovation—something that New America, among many other organizations, has contributed to over the past 10 years—responds to an urgent need to fill massive gaps in the retirement savings system. More than 50 million workers lack access to an employer-sponsored health plan, and states have embraced the opportunity to act.
Five states (Illinois, California, Oregon, Maryland, and Connecticut) are implementing these "Secure Choice" plans. The scale of these plans makes them impressive and their potential incredible. California’s plan will automatically connect approximately seven million workers to a payroll deduction Individual Retirement Account (IRA), coverage that they currently lack. Two more states (New Jersey and Washington) have "marketplace" plans in the works, and another 20 states have pending legislation or a formal study group examining the issue. The states have clearly been excited by the prospect of these automatic savings platforms.
The "debate" over whether or not to disapprove the regulation was marred by bad evidence and bad arguments, so much so that Brookings' Josh Gotbaum publicly labeled the arguments in favor of repealing the DoL reg "bullshit."
Yet here we are.
Instead of promoting retirement savings, Congress has acted to prevent retirement savings accounts from being extended to workers at small businesses. The problem they inherited—more than 50 million workers uncovered by any retirement plan at all—isn't going away. What happens now that the reg is gone?
Keep On Pushing. State Treasurers with Secure Choice plans have been very clear that they don't think they need the federal regulation, and will move ahead with their plans to implement their retirement savings initiatives. "We're going to press ahead," said Marc Lifsher, a spokesman for California Treasurer John Chiang. "It's not something that will stop us," said Oregon Treasurer Tobias Read.
Lawyers, Guns, and Money. Well, lawyers. Lots of lawyers. As Treasurers Read and Chiang point out, the passage of H.J. Res. 66 doesn't doesn't kill or outlaw the plans. What will happen is that the regulation will be killed, and gone with it is the clear legal path to implementing Secure Choice plans. The states believe they still have legal protection, smart analysts agree they do, but removing the regulation opens the door wide for the financial services industry to sue the states to stop implementation. Keep an eye out for an employer to be the front for the suit, claiming that the plans violate ERISA and impose illegal requirements upon businesses. These suits could drag on for years.
Chill, Baby. While states in the middle of implementation are planning to move ahead, that's not likely to be the case for states considering a program. What policymaker is going to sign up for years of lawsuits with no guarantee on the outcome? So while the five Secure Choice states plow ahead, look for the rest of the states to put on the brakes.
The Haves and Have Nots. The biggest losers here are working Americans without a retirement savings account offered through work. Secure Choice plans would help those folks build both long-term financial security (the express purpose of the program) and short-term financial security (less often talked about, but the Roth structure favored by most plans makes emergency withdrawals of contributions easy and penalty free). Instead, we continue to live in a country that connects different people to widely different tiers of policy interventions: Most Americans get Social Security as a baseline; some workers get pensions; some workers get 401(k)-type plans—which deliver bigger benefits to higher-income workers; and the rest of the workforce (disproportionately women, people of color, part-timers, contract workers) get told it's their fault they don’t have savings for retirement.
Chalk It Up. During the campaign, a surrogate for then-candidate Trump was asked about the state Secure Choice plans, and said, "states who want to set up their own Auto-IRAs have every right to do so and he doesn’t want to interfere with their initiatives.” This won't top anyone's list, but should he sign this legislation (which he surely will) chalk up another broken promise from President Trump. All the talk about standing up for the “forgotten man” seems to have been forgotten.
Salting the Earth? Not long ago, retirement security policy was pretty quiet and very bipartisan. The last major piece of retirement savings legislation was the Pension Protection Act of 2006, which passed the Senate by a vote of 95-3. In the campaign for the presidency in 2008, both Senator McCain and Senator Obama endorsed a national Auto-IRA, the concept upon which Secure Choice plans are built. In 2008, there was bipartisan legislation to create a national Auto-IRA program. Since then, Republicans have largely abandoned or become hostile to an Auto-IRA, supporting only modest, industry-supported legislation like Open MEPs. Ironically, it is the abandonment of the national Auto-IRA that lead the states to develop and create Secure Choice. Now that Republicans have declared war on that concept, what happens from here? Do policymakers wait out the court battles? Do state-based plans lose? If the safety valve of modest, federalism-friendly Secure Choice plans is gone, do more universal and progressive options, like expanding Social Security or ditching 401(k)s for Guaranteed Retirement Accounts seem like better options for promoting retirement security on the left and center? Do Open MEPs remain a bipartisan interest?
Did I Mention Lawyers? Prior to this year's orgy of CRA action, just one rule had been overturned by the CRA process. This means there's literally no case law fleshing out where the limits of the CRA sit. This means critical questions remain unanswered. For example, following CRA disapproval, the department in question can not produce a "substantially similar" regulation without express Congressional approval. Is that an unconstitutional restraint upon the authority of the Executive Branch? The spasm of CRA disapprovals in 2017 makes it much more likely that someday we find out.
Senator McConnell and other supporters of H.J. Res. 66 just beat the clock with this vote. The opportunity to disapprove of regulations using the CRA is time limited, and the clock on Obama-era regulations stops ticking next week. However, for tens of millions of Americans without retirement savings coverage, the clock keeps ticking, moving toward the day when they’ll retire with little to no savings to draw upon or pass down to the next generation. And that clock is ticking louder.