US Senate Votes Against Rules Promoting State ‘Auto-IRAs’

US Senate Votes Against Rules Promoting State ‘Auto-IRAs’

In a close vote, the US Senate on Wednesday passed a resolution scuttling a rule put in place by the Obama administration’s Labor Department to exempt automatic-enrollment, payroll-deducting IRA programs (“auto-IRAs”) created by states from the Employee Retirement Income Security Act (ERISA), Investment News reported:

The bill now heads to the desk of President Donald J. Trump, who is expected to sign it into law. The Senate voted 50-49 in favor of H.J. Res. 66, the joint resolution overturning the Obama-era Department of Labor regulation. The vote was along party lines, with Republicans voting to overturn it. The bill wasn’t subject to a Democratic filibuster. …

If Mr. Trump signs the pending resolution, it would likely slow or halt development of auto-IRA programs by other states, at least a half dozen of which introduced auto-IRA legislation 2016 alone.

In March, the Senate passed another resolution by an identical margin, withdrawing the ERISA “safe harbor” rule for auto-IRA plans created by cities and counties. Auto-IRAs were widely expected to be prime targets of the Trump Administration’s deregulatory agenda. Ashlea Ebeling at Forbes explains how Wednesday’s resolution will affect the states:

Seven states already have approved these private sector workplace programs – Illinois, Oregon, California, Maryland, Connecticut, Washington, and New Jersey (Illinois, Oregon and Washington have 2017 start dates). And over half of the states are considering programs. With names like “Secure Choice” and “Work and Save” they take different approaches–from a marketplace where financial services companies will offer low-cost plans to small businesses on a voluntary basis, to plans that are mandatory for employers, with automatic enrollment for employees into pooled accounts or Roth IRA-like savings accounts (employees can always opt out). …

Oregon is the only state so far to have put out guidance on how its plan would work. The ERISA Industry Committee (ERIC), a group that lobbies on behalf of large employers, says that Oregon’s every-three-year reporting requirements imposed on large employers are in violation of ERISA-preemption principles.

For its part, Illinois intends to proceed with its auto-IRA program despite the federal government’s attempts to rein them in, Gail MarksJarvis reports at the Chicago Tribune:

[State Treasurer Michael] Frerichs’ office is in the process of finding an investment manager for the program. The state will phase in the Secure Choice program, with the first group of employers offering retirement savings plans to their employees in 2018, he said. …

The measure passed by the Senate on Wednesday, which is on its way to be signed by the president, opens up the possibility that disgruntled employees could sue businesses that make the new Secure Choice saving plans available at work. But Frerichs said Secure Choice is designed to make the state the fiduciary for the program. Businesses merely have the responsibility of enrolling their employees and sending money to a state program to be invested.