When Congress returns to Washington from its week-long recess, the fate of a Labor Department regulation that facilitates state-administered retirement plans for the private sector will hang in the balance.

On February 15, the House of Representatives passed a resolution under the Congressional Review Act, largely along party lines, that would block a new safe harbor allowing states to mandate enrollment in state-administered IRAs for workers that don’t have access to retirement plans through their employers.

Under the safe harbor, states can require enrollment in IRAs, so long as workers are able to opt-out of the plans. Employers are not allowed to contribute to the accounts, and their role is limited to facilitating payroll deductions. The safe harbor does create an option for states to administer multiple employer plans, which would allow employers the option of contributing to savings.

State-designed plans that satisfy the safe harbor will not be regulated by the Employee Retirement Income Security Act. The Labor Department designed the safe harbor to protect participating employers in state programs from liability under ERISA.

Republican critics of the safe harbor characterize it as a “regulatory loophole” that will erode consumer protections by allowing states to operate retirement plans outside of ERISA’s fiduciary requirements.

“States would be allowed to skirt federal law and deny workers important protections designed to safeguard their retirement savings,” said Rep. Tim Walberg, R-MI, during the floor debate before the resolution passed out of the House. Walberg is a sponsor of the resolution to block the safe harbor, and chair of the House subcommittee on Health, Employment, Labor, and Pensions.

But proponents of the safe harbor say the country’s drastic retirement savings shortfall requires states to take immediate and aggressive action. Upwards of 55 million Americans don’t have access to retirement savings plans through the workplace.

California, Illinois, Connecticut, Maryland, and Oregon have already passed legislation creating mandates for businesses that don’t sponsor a plan. Washington and New Jersey have passed legislation that will create new state-operated marketplaces for employers without mandating participation.

More than half of states are considering legislation to address savings shortfalls.

“The movement is focused on the fact that we simply can’t continue in an environment where millions of Americans don’t have anything saved for retirement,” said Diane Oakley, executive director of the National Institute on Retirement Security.

“States are just trying to create a cost-effective option to meet a need the private sector has not been able to fulfill,” she said.

According to Oakley, Americans are overwhelmingly supportive of state-run retirement plans. Recent polling sponsored by NIRS shows three-quarters of the country supports state initiatives, including 72 percent of respondents that self-identified as Republicans.

“There is clear bipartisan support for state plans among the public,” said Oakley. “They want help saving for retirement, and they don’t think politicians in Washington D.C. understand how hard it is to save.”

Appealing to conservatives’ deference to states’ rights

A simple majority vote in the Senate will be needed to bring legislation to President Trump’s desk that would block the safe harbor. Three Republicans would have to vote against the resolution to keep the safe harbor intact, presuming all Democrats oppose the resolution.

The Senate has not scheduled a vote, but it could come as early as next week. Under the CRA, Congress has 60 legislative days from January 30 to roll back the safe harbor.

Democrats represent states that have passed legislation mandating auto-enrollment. But Arizona, Utah, Indiana, Iowa, Ohio, South Carolina, and North Dakota are among the states considering proposals that have Republican representation in the Senate.

“There are Republicans in the chamber that understand how important the issue of retirement savings is,” said Oakley, pointing to Sen. Rob Portman, R-OH, who has sponsored legislation with Sen. Ben Cardin, D-MD, to improve saving shortfalls.

“This is about improving the lives of working-class Americans. If you are in the bottom quartile of earnings, you have a one in five chance of having access to a workplace savings plan,” added Oakley.

Supporters of the safe harbor are hoping Republicans consider the deference the rule gives states to address their own fiscal problems.

“The safe harbor doesn’t require states to do anything, it simply gives greater flexibility to address their problems. That makes this rule different from other regulations Congress is considering under the CRA,” said Oakley.

Retirement shortfalls expected to swell state welfare programs

In the coming years, many states will bear a considerable burden supporting an aging population that doesn’t have adequate retirement savings, according to analysis from The Segal Group.

Segal’s actuaries modeled savings to state Medicaid programs under a hypothetical state-sponsored savings plan.

Using Census data on household income and data on the number of Americans without access to a workplace savings plan by state, Segal estimates states would save $5 billion collectively over 10 years by modestly improving savings rates through state mandates.

California would save $604 million in Medicaid costs by reducing the number of workers that will be eligible for Medicaid upon retirement; Texas would save $330 million; New Jersey $268 million; Illinois $244 million; and Florida $227 million.

“State by state, we found that about half of all full-time workers are saving nothing for retirement—all they will have is Social Security,” said Rocky Joyner, vice president and actuary at The Segal Group.

Relying solely on Social Security will mean people making as much as $56,000 a year, in some cases, will see their retirement income drop below the qualifying amount for Medicaid and other social welfare programs, said Joyner.

Segal’s analysis does not account for specific state programs, and makes very modest assumptions about improving savings rates, says Joyner.

“What we do know is that once you have a program in place, it will grow over the years,” he said. “For people with no savings that are a few years away from retirement, the savings won’t be much. But when you consider improved savings rates for younger workers, you are talking about significantly reducing the cost of social welfare programs in the future.”

If the Senate does vote to roll back the safe harbor, not all initiatives at the state level will be stopped. Oregon has said it will continue its program irrespective of the vote, as will California, which may consider litigating the matter.

“Overturning the safe harbor won’t stop every program, but it would make it considerably harder for states to address this problem,” said Oakley of the NRIS.

As of now, the jury is still out as to whether some Republicans in the Senate will be receptive of the safe harbor.

“I would hope the Senate would live up to its reputation as the world’s greatest deliberative body in considering the issue,” said Oakley.

Instant Insights /

State-retirement plan safe harbor will need some Senate GOP support

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