Congress seeks to kill DOL rules on state, city auto-IRA programs

Republicans are trying to take more Obama-era retirement regulations off the books, their most recent target being Labor Department rules promoting the establishment of auto-IRA programs by cities and states.
Two House Republicans introduced separate resolutions of disapproval Wednesday, one to block a rule governing automatic-enrollment, payroll-deduction programs for states and the other to do so for municipalities.
Rep. Tim Walberg, R-Mich., chairman of the subcommittee on Health, Employment, Labor and Pensions, is sponsoring the state resolution, H.J. Res 66, while Rep. Francis Rooney, R-Fla., is sponsoring the one for cities, H.J. Res 67.
A resolution of disapproval is a legislative tool under the Congressional Review Act allowing Congress to scrap regulations issued within a certain time after the rules are published in the Federal Register. Resolutions can be passed by a simple majority, and aren’t subject to filibuster.
The DOL’s state rule was issued in August, and the city rule in December.
The action comes as the Trump administration has called on the DOL to review the fiduciary rule enacted last year, during president Obama’s tenure, with the prospect of delay, amendment or repeal.
The DOL rules now coming under fire encourage states and cities to set up auto-IRA programs by exempting them from federal retirement law — the Employee Retirement Income Security Act of 1974 — if the programs meet certain conditions, thereby limiting liability.
Five states — California, Connecticut, Illinois, Maryland and Oregon — have passed laws to set up these plans for private-sector workers. Cities such as New York, Philadelphia and Seattle are considering similar measures.
Some have language explicitly stating the program can’t move forward if it’s subject to ERISA.
If ultimately successful in scrapping the DOL rules, Congress likely wouldn’t prevent states from moving forward with laws already on the books, but may stymie those considering such legislation, according to John Scott, director of retirement savings at The Pew Charitable Trusts, a nonpartisan think tank.
“I think it would muddy the waters for the states, but wouldn’t close off the state activity,” Mr. Scott said.
In 2016 alone, auto-IRA legislation was introduced in several states including Arizona, Colorado, Michigan, New York, Pennsylvania, Rhode Island and Utah.
BACKLASH
The state laws mandate that employers of a certain size offer a retirement plan to employees, whether a private-market product such as a 401(k) or the state-run auto-IRA. (Employees may opt out of participating.)
The measures are aimed at closing the coverage gap for workers in an effort to bolster the U.S. retirement savings infrastructure and improve Americans’ financial security, and would primarily help employees of small businesses, which are more likely not to sponsor a plan.
However, the rules have taken heat from several business groups, such as the U.S. Chamber of Commerce, and financial services trade organizations like the Financial Services Institute Inc. and the Investment Company Institute.
Primarily, they believe the rules would create a patchwork of different retirement programs nationwide, which could create operational difficulties for businesses, and will lead to less investor protection.
They also take issue with the employer mandate, preferring a voluntary approach, like with open multiple employer plans or retirement-plan marketplaces, such as New Jersey and Washington State have.
Reps. Walberg and Rooney expressed similar notions in their announcement of the resolutions.
“This last-minute regulatory loophole created by the previous administration will lead to harmful consequences for both workers and employers,” Rep. Rooney said.
However, some believe government action is necessary to boost adoption of retirement programs in the workplace, where workers are much more likely to save, and that state auto-IRA laws may prove beneficial.
“Overall, I certainly think it’s another avenue employers have, especially if they can’t compete with the costs and challenges of a 401(k) plan,” according to Rob Massa, director of retirement at Ascende Inc., an advisory firm with roughly $3.7 billion in defined contribution plan assets.
LIMITED TIME
Congress has a limited timeframe to introduce a resolution of disapproval, based on the number of “legislative days” that have passed since a rule was published in the Federal Register. As of today, regulations issued after Jun. 13, 2016, are open to disapproval through this legislative maneuver.
Congress has until roughly mid-May to mid-June this year to pass a resolution against these auto-IRA DOL rules, according to Amit Narang, a regulatory policy advocate at Public Citizen’s Congress Watch, citing estimates by the Congressional Research Service.
The Congressional Review Act has only been used once in the 20 years of its existence to overturn a rule.
Republicans attempted to dismantle the fiduciary rule through this process, but the measure was vetoed by President Obama.
Mr. Scott believes states that have enacted auto-IRA bills have a legal basis for implementing their programs, even if Republicans scuttle the DOL rules.
Federal guidance promulgated about 40 years ago exempts plans from ERISA if participation is voluntary for workers and there’s limited employer involvement beyond facilitating payroll deduction, according to Mr. Scott. The DOL rules issued last year essentially clarified this guidance for states, he said.
“There’s a basis for arguing it’s not an employer plan subject to ERISA and states are within their rights to do this,” he said.