President Donald Trump signed H.J. Res 66 into law Thursday, invalidating the Department of Labor’s “safe harbor” regulations on savings arrangements established by states for non-governmental employees.
Rep. Tim Walberg, R-Mich., chairman of the Subcommittee on Health, Employment, Labor and Pensions, who authored the resolution, said after the president’s signing that “this resolution restores important retirement protections that workers have counted on for decades. Retirement security is a difficult challenge facing many Americans.”
The resolution, he continued, closes a regulatory loophole created by the Obama administration that would allow states to automatically enroll private-sector workers into retirement accounts without the consumer protections provided by the Employee Retirement Income Security Act.
Sen. Orrin Hatch, R-Utah, introduced companion legislation S.J. Res. 32. A similar resolution signed into law by President Donald Trump in April stopped city-run plans.
The group shared its thoughts after the Senate followed the House and passed a resolution to undo rules helping municipalities and states set up payroll deduction retirement plans that automatically enroll private-sector workers lacking access to such savings programs.
“There is a retirement crisis brewing in America, because workers do not have enough access to retirement savings programs and because there is no retirement system for low income earners. The rule being repealed was helping the states address that problem,” said Bob Stammers, head of investor education for the CFA Institute, in a statement.
The CFA Institute says that the rollback of the rule that lets states create retirement savings accounts for low-income workers “increases the potential for creating generation of retirees living under the poverty line.” It estimates these plans stood to benefit some 63 million American workers who lack access to retirement plans.
“California and Illinois had already made progress in developing state-sponsored retirement accounts,” Stammers said, “… [and] may continue to offer them regardless of the changes in the Department of Labor rule.
The importance of auto-enrollment in retirement savings has been highlighted in the academic work of Harvard economist Brigitte Madrian, who also serves on Finra’s Board, and Dennis Shea of Penn State. Madrian, Shea and other researchers have found that individuals will accept the employer’s default savings rate and the default investment; plus, the data they collected from recordkeepers shows these changes have transformed how workers invest and how much they save.
Like a similar resolution in the House, the Senate’s proposal seeks to roll back a Labor Department rule exempting city- and state-run retirement savings programs for private-sector employees from the strong saver protections of the Employee Retirement Income Security Act, according to the Investment Company Institute.
The CFA Institute points out that state plans, for instance, have been exempt from ERISA only if they meet certain conditions.
“That provides important reassurance to employers participating in the plan, who worry about compliance cost and legal liability under ERISA,” the group said, adding that it is unclear what specific ethical or fiduciary standards would protect investors in state-sponsored plans.
These plans need to be run for the advantage of beneficiaries, the CFA group says, and firms providing advice “should have to operate as fiduciaries.”