The U.S. Senate has reportedly delayed a vote that would block an Obama Administration safe harbor making it easier for states to establish retirement savings programs for businesses that don’t offer a 401(k) plan.
According to sources, the Senate was prepared to bring a vote to the floor last Friday, but it was delayed. A vote was not formally scheduled.
In February, resolutions passed the House of Representatives that would block safe harbors allowing states, and some municipalities, the option of mandating enrollment in state-administered IRA plans. In order to comply with the safe harbor, states would have to allow workers to opt out of the savings plans.
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. As many as 20 other states are considering or have proposed legislation.
The resolutions to roll back the safe harbors were brought under the Congressional Review Act, which will require a simple majority vote in the Senate.
One explanation for the delay in the Senate vote is that some lawmakers are requesting more information on the regulations, says Angela Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University.
“There is a lot of disinformation about the safe harbor in Congress,” said Antonelli. “The rule is unfortunately caught up in a broad sweep and being defined as a midnight regulation that will be a burden to states, when the reality couldn’t be further from the truth.”
Under the safe harbor, state administered auto IRA plans would operate outside of the Employee Retirement Security Income Act, which regulates pension and defined contribution plans offered in the private sector and requires employer-sponsors of retirement plans to serve as fiduciaries.
In not being subject to ERISA, small employers whose workers participate in state-administered plans would not be fiduciaries, and would have limited administrative duties under the safe harbor.
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.
Those characterizations, along with the assumption that all regulation is bad regulation, have helped perpetuate a misunderstanding of the safe harbor, says Antonelli.
“The genesis of the safe harbor came from the states, which were already moving ahead with regulation when they requested guidance from the DOL,” she said. “Nothing the DOL did was outside of normal rulemaking. The rule doesn’t force states to do anything.”
Antonelli served in the White House’s Office of Management and Budget under the George W. Bush administration and served as director of the conservative Heritage Foundation’s institute for economic policy studies.
She says Senate Republicans, commonly champions for states’ rights, will have to think “long and hard” about revoking a rule that gives states more flexibility in addressing retirement savings shortfalls.
As the Senate threatens to kill a rule that abdicates rights to states on retirement policy, Republicans in the House are prepping to introduce a repeal of the Affordable Care Act that reportedly is premised on an expansion of states’ rights.
Sources have said the Senate could debate the resolutions to roll back the safe harbors any day. Three Republicans would have to break from the party for the safe harbors to survive, presuming all Democrats vote against the resolutions to block them.
Outreach with Republican Senators is ongoing, said Antonelli, including from at least 15 state treasurers who recently wrote Sen. Mitch McConnell, R-KY, the Senate majority leader, urging a “no” vote on the resolutions to roll back the safe harbors.
The safe harbors provide “important flexibility” to states and large municipalities as they face a mounting retirement crisis, according to the letter, which was signed by treasures from Pennsylvania, Kentucky, Idaho, Indiana, Utah, Mississippi, and Louisiana, all states that voted Republican in November’s presidential election.
“We insist that states be allowed to maintain their constitutional rights to implement such legislation,” the treasurers said in the letter.