The other DOL retirement regulation Trump and the GOP may scuttle

The Department of Labor's rule exempting state-based auto IRA plans from ERISA could be in jeopardy under the new Republican administration

Nov 16, 2016 @ 12:38 pm

By Greg Iacurci

The potential repeal of Dodd-Frank and the Labor Department's fiduciary rule has dominated discussion among financial circles following Donald Trump's presidential-election win last week, but one regulation has largely gone unmentioned: that governing state-based retirement programs.

This is perhaps not much of a surprise, given the scope of both the fiduciary rule and Dodd-Frank financial reform law, and the ire they've drawn from the Republican Party and the Trump team.

While industry-watchers expect the Department of Labor's rule governing state retirement programs to survive a Trump presidency, financial groups have been lobbying against it and congressional Republicans have a legislative tool at their disposal that would allow them to kill it with a simple majority vote in the Senate.

The DOL regulation in question, which was finalized in August, encourages states to develop automatic-enrollment, payroll-deduction IRA programs, known as “auto-IRAs,” by exempting them from the Employee Retirement Income Security Act of 1974 if certain conditions are met, thereby limiting liability.

Five states — Illinois, Oregon, Connecticut, Maryland and, most recently, California — have passed legislation within the past two years to set up such programs, which mandate that private-sector employers offer an auto-IRA to employees if they don't already offer a workplace retirement plan.

Around 30 states have considered proposals to study or establish state-sponsored plans since 2012, according to the Center for Retirement Initiatives at Georgetown University. These plans are meant primarily as a boon for employees of small businesses, although some states exempt employers with just a handful of workers.

Prior to the election, the DOL said it would release a similar regulation governing city retirement plans by the end of the year. A DOL spokesman didn't return a request for comment on if it still expects to issue that rule.


A repeal of the regulation could ultimately push legislators to amend or abandon existing plans. Some of the legislation contains language providing the program can't move forward if it's subject to ERISA. That's the case in California, which passed its law in September, and Arizona, where an auto-IRA bill is currently moving through the legislature.

“If the DOL safe harbor is overturned, states that move forward without further clarification from DOL put themselves in a precarious position,” Michael Hadley, a partner at Davis & Harman, said. “The DOL essentially confirmed through issuance of the regulation that, absent the safe harbor, a plan that automatically enrolls employees in a payroll deduction could be subject to ERISA.”

Mr. Hadley and others expect the DOL regulation to survive Mr. Trump's regulatory ax, though.

“I would anticipate that the Trump administration would, based on early indications, remain supportive of state innovation to address retirement security issues and the lack of access to savings options for private-sector workers,” Angela Antonelli, executive director at the Center for Retirement Initiatives, said.

Although Mr. Trump hasn't articulated a position on the matter, and industry-watchers say it's difficult to discern his views, one of his advisers, Diana Furchtgott-Roth, said he supported state plans.

“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,” Ms. Furchtgott-Roth, a senior fellow at the Manhattan Institute, a conservative think tank, said at a Politico/AARP panel in October.


Of course, Mr. Trump could change his mind, and it's likely trade groups such as the Investment Company Institute, which represents mutual-fund firms, and the Financial Services Institute Inc., which represents independent broker-dealers, will lobby the administration to do so.

Both have expressed their discontent with states' auto-IRA approach. ICI, for example, believes an exemption from ERISA would create a state-by-state patchwork of plans and lead to less investor protection.

Instead, the group advocates for open multiple employer plans, or “open MEPS,” which provide for a shared 401(k) plan among small employers and are voluntary. Legislation that could be passed by year-end is aimed at making them more attractive to set up.

An ICI spokeswoman declined to comment directly on state retirement programs, but pointed to a statement made following Mr. Trump's election. In it, ICI president and CEO Paul Schott Stevens said the group will “work with policymakers to promote a strong, employer-based retirement saving system, including … improving voluntary access to employer-based retirement plans.”

FSI has also advocated for a voluntary approach, such as one taken by New Jersey and Washington, which are setting up retirement-plan marketplaces for small businesses. A spokeswoman, Allison Kuehner, declined to comment for this article.

As has been shown with the DOL's fiduciary rule, regulation repeal wouldn't necessarily be easy. The administration would have to go through a fresh round of rulemaking, which would take at least a year, or pursue legislation, which could be filibustered by Democrats.

And it's unclear how Republican members of Congress view the DOL regulation, according to Mr. Hadley.

President Obama has supported an auto-IRA program at the federal level, and Senate and House Democrats have proposed legislation to create such a program in 2011, 2012 and 2015. None have gained traction in the Republican-controlled chambers.

If Republicans were so inclined, they could seek to scuttle the state rule through the Congressional Review Act, which gives lawmakers 60 legislative days to vote to halt regulations. It isn't subject to a filibuster, and Republicans wouldn't face the same veto threat they do under a Democratic president.

The auto-IRA regulation will extend into next legislative calendar, Mr. Hadley said.

Republicans attempted to kill the fiduciary rule this way earlier in the year, but it was vetoed by the president.

Of course, in the eventuality Republicans scuttle the regulation, some believe states would continue on the path to closing the coverage gap.

“Momentum behind these state plans is very strong, and I don't think the election is going to inhibit that momentum,” said Fred Barstein, founder and CEO of The Retirement Advisor University. “I don't see the state movement stopping anytime soon.”


What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Nov 13


Best Practices Workshop

For the sixth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video


InvestmentNews celebrates diversity & inclusion in the financial advice business

Highlights of the Excellence in D&I Awards, showcasing the achievements of 26 individuals and firms that are moving the needle when it comes to diversity and inclusion.

Latest news & opinion

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.

Invesco to buy OppenheimerFunds

Deal brings Invesco another $246 billion in assets, as well as high-fee actively managed funds.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print