The safe harbors for state- and municipal-sponsored retirement plans finalized last year by the Labor Department are now in the crosshairs of Republican lawmakers.
Today, two resolutions of disapproval were introduced by Rep. Tim Walberg, R-MI, chair of the House subcommittee on Health, Employment, Labor, and Pensions, and Rep. Francis Rooney, R-FL, also a member of the subcommittee.
One resolution would block the safe harbor for state-run plans, which was published in the Federal Register on August 30, 2016, and the other would block the safe harbor for retirement plans sponsored by qualified municipalities, which was published in the register on December 20, 2016.
Under the Congressional Review Act, Congress can block implementation of a final rule by passing a disproval of a regulation with majority votes in both chambers of Congress.
In order to rescind the safe harbors, Congress has a deadline of 60 legislative days to pass the resolutions from the date each was published in the Federal Register.
But a reset provision of the CRA extends that deadline if Congress adjourns before it has expired, which is the case with both safe harbors. The new deadline is 60 legislative days from January 30, 2017.
The safe harbors were designed to facilitate the creation of retirement plans administered by states, and in some limited situations, local governments, and were the result of a directive issued by President Obama in the summer of 2015.
Under the state-run safe harbor, the Employee Retirement Income Security Act was amended to allow states to mandate the automatic enrollment of qualified employees in a state-administered IRA, so long as the workers are able to opt-out after being automatically enrolled.
State plans that qualify for the safe harbor are not considered ERISA plans, meaning individual employers are not subject to liability under the law. Under the safe harbor, employers are prohibited from contributing to the plans, and their role in administering plans must be limited to basic activities, such as facilitating payroll deductions.
The Labor Department estimates that 39 million Americans don’t have access to a workplace-retirement savings plan.
Every budget proposed by the White House during the Obama administration included a provision that would create a federally run retirement savings option for employers that don’t offer a workplace plan.
But that proposal never gained traction on Capitol Hill, a fact that motivated President Obama and the Labor Department to create a safe harbor that would facilitate the creation of plans offered at the state level.
“At the federal level, we do not have a dance partner,” said former Labor Secretary Thomas Perez upon release of the state safe harbor last year. “Republicans want to promote the status quo. The cost of doing nothing is significant, and that’s not good for retirees, and puts additional burdens on tax payers” in the future.
California, Connecticut, Illinois, Maryland, and Oregon have already passed legislation mandating participation in state-sponsored IRA savings plans. Upwards of 20 other states are considering comparable legislation.
Congressmen leery of government overreach
Critics of the safe harbors have expressed concerns they will erode the preemptive powers and the consumer protections of ERISA, which places fiduciary requirements on employer plan sponsors.
The Investment Company Institute, which represents the interests of mutual fund companies and has been an outspoken critic of the safe harbors, has argued that state-run plans could ultimately leave taxpayers on the hook for funding shortfalls.
“ICI research has demonstrated that the programs developed under the DOL’s new rules rely on shaky economic foundations, making the consumer protections mandated by ERISA all the more necessary,” said ICI president and CEO Paul Schott Stevens in a statement supporting the resolutions of disapproval.
Other critics argue that mandates from states will create compliance costs for small employers that don’t offer a plan, and unintended complexities for employers with workers that are ineligible to participate in a retirement plan.
And some argue that mandated participation in IRAs will lead to savings shortfalls, given the lower caps on contributions to individual accounts relative to 401(k) plans. Some fear the proliferation of state-run plans will discourage wider adoption of 401(k) plans among small employers
In introducing the resolutions of disapproval, Rep. Walberg suggested there are more efficient ways to expand access to retirement savings vehicles, referring to proposed legislation that would make it easier for small businesses to sponsor multiple employer plans, which allow employers to pool participants and assets under one 401(k) plan.
“Our nation faces difficult retirement challenges, but more government isn’t the solution,” said Rep. Walberg in a statement. “A better way is to reduce costly red tape and make it easier for small businesses to band together to offer retirement plans for their employees. I urge my colleagues to support these resolutions, which are part of a broader agenda to ensure more Americans can retire with the financial security and peace of mind they need.”
Congressional Review Act could play larger rule under Trump
Enacted in 1996, the Congressional Review Act has had minimal affect in overturning final regulations.
Of the approximately 73,000 final rules that have been submitted Congress since enactment of the CRA, the law has only been used to overturn one final rule, according to the Congressional Review Service.
Its spare impact is attributed to the separation of power. Last year, the Republican-controlled Congress successfully passed a resolution of disapproval on the Labor Department’s fiduciary rule, for instance. President Obama promptly vetoed it.
But with Republicans controlling the White House and both chambers of Congress, the CRA is more likely to be used successfully, according to the CRS. All final rules issued after June 13, 2016 will be subject to renewed review under the CRA.