Why Is Congress Undermining Retirement Security for Millions of Americans?

Weekly Article
Flickr Creative Commons/401(K) 2012
Feb. 16, 2017

When you think about all of the contentious issues that have defined the past few years—especially the last presidential campaign—what comes to mind? Our guess: issues like immigration, tax reform, and climate change. But helping Americans save for retirement? That probably doesn’t strike you as being very divisive—but that’s exactly what House Republicans have made it.

Yesterday the House passed two bills that would undo key regulations that the Department of Labor put in place last year. These regulations clarify the right of states, and certain municipalities, to offer automatic enrollment retirement savings plans (often called Secure Choice plans) to workers who are not offered a 401(k) or similar type of plan by their employer—some 40 million working-age households.

The House used a rare and sweeping law called the Congressional Review Act (CRA) to do this. The CRA allows Congress to overturn regulations issued by government agencies. Only successfully used by Congress once before this year—in  2001—the act is now back in play as Republicans rush to overturn Obama-era regulations. The new Congress is attempting to rollback regulations concerning everything from consumer financial protection to environmental issues, as well as firearm sales to some individuals with diagnosed mental disorders. Unlike more common mechanisms of policy change, CRA disapproval does long-term damage to the ability of the government to put effective policy in place, since it prohibits “substantially similar” rules from being issued without additional Congressional action.

America is facing a major retirement shortfall. Roughly half of Americans don’t even have a retirement account and the median near-retirement household with an account has just $14,500, according to the National Institute on Retirement Security. The numbers are even worse for people of color and women. As one example of the severity of the situation facing non-white Americans, 74 percent of African Americans have less than $10,000 set aside for retirement.

Back in 2009, President Barack Obama tried to address this impending crisis by introducing a national automatic individual retirement account (auto-IRA) proposal along with improved tax subsidies to help low- and moderate-income workers save for retirement. Despite the inclusion of the auto-IRA proposal in his annual budgets, the Republican majorities that took hold of Congress in 2011 refused to pass any meaningful retirement savings legislation. Some states have responded by taking action into their own hands. Backed by extensive market and policy research, five states—California, Illinois, Connecticut, Oregon, and Maryland—have started their own auto-IRA programs to help cover the millions of their citizens who lack access to a retirement account through their employer. Other states are studying and developing plans of their own, and 11 states have introduced legislation to create a plan or study in 2017, according to the Georgetown Center for Retirement Initiatives.

But now Congress is putting all of that in jeopardy.

These rollbacks won’t directly kill existing Secure Choice plans, but they’ll open the door to legal challenges that will drag on for years, preventing additional states from acting—and harming the retirement prospects of millions of workers.   

House Republicans and the US Chamber of Commerce have offered a wide array of arguments against the regulations. Sponsors of the resolutions argued that a “patchwork of rules” would harm businesses, a surprising argument given the usual party support for federalism over centralized control. For example, state-facilitated individual savings accounts for college, commonly called 529 plans, were brought into being thanks in part to the leadership of Senate Majority Leader Mitch McConnell (R-KY). 529 plans have operated successfully for decades and are the model on which Secure Choice plans are being built. Both 529s and Secure Choice are operated out of state treasurer’s offices, in some cases by the same staff, and using the same private sector partners to manage investments. In recent years, 529s have enjoyed vociferous Republican support.

Floor debate in the House also engaged the question of whether or not Secure Choice plans provide adequate consumer protection, with Republicans arguing that Secure Choice plans are inferior and unacceptable because they do not comply with the federal Employee Retirement Income Security Act of 1974 (ERISA). The DoL rules do create a “safe harbor” from ERISA for employers. This is a critical function of the rules, as ERISA compliance is a major reason small businesses choose not to offer retirement plans. The DoL rules shift the fiduciary responsibility contained in ERISA from the employer to the Secure Choice plans, and as 529s (and the closely related Achieving a Better Life Experience (ABLE) accounts) have shown, the states are capable of providing safe, popular, and low-cost individual savings accounts outside of the ERISA framework.

Economic populism was one of the major themes that President Donald Trump campaigned on, as he promised to represent “the forgotten man.” Surrogates for then-candidate Trump addressed this issue directly, saying, “Trump believes any 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.”

Recent polling shows these Secure Choice plans aren’t just popular with political candidates—they’re also popular among ordinary Americans, including small business owners. The National Institute on Retirement Security found that 75 percent of Americans, including 72 percent of Republicans, support state-facilitated retirement savings plans. The Pew Charitable Trusts conducted a survey of small business owners and found that 86 percent favored the concept of a retirement savings IRA with automatic enrollment and payroll deductions.

According to Small Business Majority, a national small business advocacy organization: “[P]rograms like these help level the playing field between small businesses that want to offer retirement benefits but can’t, and their larger counterparts that can. This helps small businesses compete for the best employees, and gives employers peace of mind that they are doing what’s best for their workers.”

In short, Congressional Republicans are contradicting the President, public opinion, and small business owners, and they’re using extraordinary measures to do it. Undermining the right of states to connect tens of millions of Americans to low-cost, retirement savings accounts—without a single hearing or any testimony—is not a path to economic or political success.

The Senate, where cooler heads are supposed to prevail, will most likely vote on this issue soon. They should abandon the rushed CRA process and really examine the impact of undoing these important rules. Hearings should be held to determine the best policy path forward. The state treasurers implementing Secure Choice programs should be heard from, as should the voices of the small business owners and workers who will be impacted. The President and his Labor Secretary nominee (whoever that may be) should be granted the opportunity to affirm where they stand on this and why.

Facing a clear and massive public policy problem, the states produced a response that addresses a clear need in a way that uses no tax dollars, requires no employer contributions, and is popular with the public. Rather than racing to cut off the rules that endorse this extraordinary innovation, Congress should find ways to replicate this success—or at least not go out of its way to do unnecessary harm to Americans already struggling because of an issue where there is no good reason for controversy.