Republicans in the Senate are struggling to secure the votesneeded to roll back a Labor Department regulation that would makeit easier for states to mandate enrollment in state-administered retirement plans, accordingto several sources.

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The House of Representatives passed a resolutionunder the Congressional Review Act that blocks the safe harbor frombeing implemented, largely along party lines.

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But the measure has stalled in the upper chamber.Last month, the Senate passed a separate resolution that blocked asimilar safe harbor extended to some municipalities bya 50 to 49 margin. Sen. Bob Corker, R-TN, broke from Republicansand voted with Democrats to uphold the safe harbor. “I do not thinkthe federal government should stand in the way of states seeking tosolve very real problems, especially in the midst of a growingretirement security crisis,” Corker said in a statement.

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Corker’s position underscores a critical dynamic of the debateon state-run retirement plans. Under the safe harbor, states canrequire participation for employers that don’t sponsor a savingsplan. Employers would not be allowed to contribute to the savingsplans and would have limited administrative responsibilities beyondfacilitating enrollment. The plans would not be regulated under theEmployee Retirement Income Security Act, a provision designed torelieve employers of potential fiduciary liability. Workers wouldbe able to opt out of the savings plans after being automaticallyenrolled.

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Republican opponents of the safe harbor characterize it asregulatory loophole, and argue state-run plans will deprive saversof fiduciary protections because they won’t have to comply withERISA.

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But the federalist principal of returning power to states is afundamental tenet of the Republican party. The safe harbor waswritten at the behest of President Obama after failed efforts tocreate a federally administered universal savings requirement. EachObama budget included money for a federal option. But the ideareceived little, if any, attention on Capitol Hill.

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“At the federal level, we do not have a dance partner,” saidformer Labor Secretary Thomas Perez when thesafe harbor was released last August. “Republicans want to promotethe status quo. The cost of doing nothing is significant, andthat’s not good for retirees, and puts additional burdens on taxpayers.”

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Under the Congressional Review Act, Republicans will only need asimple majority to roll back the safe harbor. But they are alsolimited by the law’s time restriction, which requires a vote by May9.

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Several Republican Senators are reportedly leery of voting downa rule that would give states greater authority to addressretirement savings shortfalls.

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“There are no definites, but we are hearing that a number ofRepublicans have said they don’t want to have to go to the floorand vote against a state initiative,” said Cathie Eitelberg, thepublic sector market director for The Segal Group.

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One real possibility is that Republicans on the fence will askparty leaders to not bring the resolution to the Senate floor for avote, said Eitelberg.

States will have to foot the bill for poor retirees

Proponents of the safe harbor say the country’s drasticretirement savings shortfall requires states to take immediate andaggressive action. Upwards of 55 million Americans don’t haveaccess to retirement savings plans through the workplace.

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A study recently produced by The Segal Group shows that state bystate, about half of fulltime workers are saving nothing forretirement, meaning they will have to rely solely on SocialSecurity after leaving the workforce.

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In one hypothetical case, a person earning $56,000 a year willsee their retirement income drop below the qualifying amount forMedicaid and other state-funded social welfare programs. Segal’sstudy estimates that states would collectively save $5 billion over10 years by modestly improving savings rates through stateplans.

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“When you consider improved savings rates for younger workers,you are talking about significantly reducing the cost of socialwelfare programs in the future,” said Rocky Joyner, vice presidentand actuary at The Segal Group.

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Republican state treasurers influencing debate

The implication of retirement savings shortfalls on statebudgets has motivated state treasurers to enter the debate. In arecent letter to lawmakers, 15 treasures, including seven fromstates that voted Republican in the last Presidential election,urged Republican leaders to vote no on the resolution.

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“We insist that states be allowed to maintain theirconstitutional rights to implement such legislation,” thetreasurers said in the letter.

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David Damschen, Utah’s Republican State Treasurer, is aself-described conservative. He’s led the movement of statetreasurers calling for Republicans to support the safe harbor.

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“As a conservative, it’s fair to ask the question ‘what on earthis the government doing here?’ But the scale of this problem is solarge that it requires an all-hands-on-deck solution,” Damschentold BenefitsPRO.

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Damschen worked in banking for 20 years, where he consulted onprivate sector pension and defined contribution options. “There area lot of great retirement products and solutions in themarketplace. But people aren’t using them. We know that when peoplehave access to a plan through the workplace they are 15 times morelikely to save for retirement.”

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The issue ultimately boils down to a 10th Amendmentconstitutional argument, which protects states' rights, thinksDamschen. In Utah, 500,000 private sector workers don’t have accessto a savings plan through their employers. Damschen doesn’t expecthis state will pass a law mandating participation, but is morelikely to implement a marketplace clearinghouse employers can useto choose retirement plans. Utah does sponsor a 529 college savingsplan, which Damschen says is proof that a private-publicpartnership can be functional.

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Sen. Orin Hatch, R-UT, is the sponsor of theresolution to roll back the safe harbor — it is safe to say hewon’t vote against his own piece of legislation.

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But other Senate Republicans clearly are concerned with theconstitutional issues at play, and have more than likely beeninfluenced by Damschen and other conservative state treasurers’role in the debate.

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“What’s more conservative than empowering individuals to takecare of themselves and not be dependent on government when theyretire?” asks Damschen, who downplayed the influence he haspersonally had on the debate. He’s reluctant to handicap an outcomeon the vote or if the resolution will ultimately be brought tofloor.

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“We’re hoping for the best,” said Damschen.

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Related:

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Gov. Brown signs Secure Choice Retirement SavingsAct into law

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Connecticut passes retirement plan

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Voya says DOL contradicts itself with state-runsafe harbor

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.