We’ve heard a lot lately about congressional Republicans using the Congressional Review Act to repeal Obama-era regulations, but did you know that they recently used it to increase the regulatory burden on certain retirement accounts? Specifically, they used it to undo two of the Department of Labor's recent rules which granted states and large cities an exemption from ERISA. This helped establish retirement savings accounts for workers who lack access to retirement savings plans through their employers. Congressional Republicans have put forward many justifications for this move, including the argument that covered workers were harmed by not receiving ERISA’s protections. But the truth is that this repeal is yet another example of Republicans prioritizing the financial services industry over the safety and soundness of workers and their families.
Here’s what happened: a handful of states (California, Connecticut, Illinois, Maryland, and Oregon) had attempted to create retirement savings plans for private-sector workers who do not have access to employer-sponsored plans. These workers could pursue retirement savings options in the private sector, but not all employees have the wherewithal to pursue that option themselves. By contrast, many workers whose employers offer retirement savings plans are automatically enrolled in those plans. Automatic enrollment is one of the key ways to encourage workers to save. Otherwise, life gets in the way and many of them never get around to securing their future. These innovative state plans thwarted this inertia by requiring employers who do not offer retirement savings plans to enroll their workers automatically in a state-sponsored retirement plan. Another benefit of the state-sponsored plans is that they (hopefully) would have the scale and incentive to secure low-cost investments and avoid many of the pitfalls that so often hurt the returns of small, unsophisticated investors.
The number of potentially impacted workers is huge: The Bureau of Labor Statistics estimates that 39 million private-sector workers lack access to such plans. In issuing this rule, DOL found that “inadequate retirement savings places greater stress on state and federal social welfare programs as guaranteed sources of income and economic security for older Americans. Accordingly, states have a substantial governmental interest to encourage retirement savings in order to protect the economic security of their residents.”
The Obama Administration’s DOL rule specified that city- and state-sponsored retirement plans that met certain conditions would fall under a safe harbor making them exempt from ERISA. Typically, ERISA does not cover IRAs, but it can if an employer “establish[es] or maintain[s]” IRA plans for its employees. Since the state laws required employers to automatically enroll workers in an IRA plan, albeit one offered by the state, there was uncertainty about whether these state laws would trigger ERISA’s coverage. This uncertainty was compounded by ERISA’s notoriously broad preemption provision which covers any state laws that “relate to” private-sector retirement savings. ERISA is basically the measles of compliance—it infects anything it touches unless that thing is inoculated against it.
DOL took the position that although there was “express intent” to avoid subjecting automatic enrollment, payroll deduction plans like those offered by California, Connecticut, Illinois, Maryland, and Oregon to ERISA, but nonetheless found it beneficial to promulgate a rule explicitly clarifying that ERISA did not cover such state plans. At the same time, DOL also promulgated a rule allowing cities at least as populous as Wyoming to create their own plans for private-sector workers.
So far, so good. This looks like federalism in action: State have room to experiment.
Indeed, in response to comments on the proposed rule, DOL included language making clear that states could offer annuities and other long-term savings options that necessitated restricting workers’ ability to make withdrawals under certain conditions. Employees can opt out of these plans, so there’s no “mandate” boogeyman here. Better still, DOL went out of its way to keep compliance costs for employers low.
Note that the focus is on employers who do not offer retirement plans, not on whether any particular employee has access to employer-sponsored plan. While this detail inevitably leave some workers without access to retirement savings accounts, it does spare employers the expense of monitoring the status of individual employees. Instead, employers must merely ask themselves whether they offer any retirement savings plans as part of their benefits package. States can even reimburse employers for their compliance costs, but—to protect non-state sponsored plans—cannot offer any additional financial incentives for employers to enroll their employees in the public plans.
And yet, the Heritage Foundation and others were quick to denounce these rules as “the equivalent of Obamacare for retirement savings,” saying that it would hurt workers’ ability to keep their 401(k) plans all while impermissibly imposing big government on the private employers and creating unfair government competition with the financial services industry. Congressional Republicans for their part emphasized that the rule “doesn’t hold state-run programs to the same rules that are applied to the private sector,” that employers might discontinue their own offerings, and that states are historically bad stewards of retirement funds (unfortunately, this has historically been true of pension funds, but the risks are arguably smaller with defined contribution funds since there is no mandatory payout amount each year).
To be clear, revoking DOL’s rules only obliquely addresses their concerns. States can proceed as their did before DOL promulgated the rule, but their offerings to private-sector employees may be subject to ERISA if courts were to find that states’ automatic enrollment requirements caused employers to “establish” or “maintain” these accounts.
Given their opposition to the fiduciary rule, I’m struggling to believe that congressional Republicans are worried that workers will not be sufficiently protected by federal law unless they repeal DOL’s rules. They’re right that these rules had something in common with Obamacare. Like Obamacare, these rules helped give workers freedom to leave their jobs without losing access to benefits that they rely on. Here, states could establish retirement savings plans that would give entrepreneurs and employees of small businesses access to the retirement savings options traditionally offered only by larger companies. This kind of public option is a key first step towards decoupling—that is, undoing our country’s odd system of financing and running the social safety net through employers (an approach that Forbes compellingly describes as “socialism for white people” here).
There are lots of reasons to like decoupling: it lets employers spend more energy focusing on their line of business and less time managing complex benefits offerings; it facilitates entrepreneurship; and it makes compensation packages more transparent. All of these things are strongly aligned with a free-market-loving capitalist economy. Sure, it may negatively impact the financial services industry as states take over some of the functions that they previously provided, but that cost seems almost certainly outweighed by benefits to all other industries and thus the economy as a whole.
So what are congressional Republicans trying to do? As with Paul Ryan’s AHCA, coverage isn’t their goal. They don’t actually care about access to retirement savings accounts or whether those accounts are a good deal for workers. They don’t even care if those accounts would be a boon to the broader economy. They don’t care that small businesses would be relieved to not have deal with 401(k) plans to attract workers. And they certainly don’t care about states’ rights.
Rather, congressional Republicans care about one thing far more than their professed values and far more than the American people they claim to represent: protecting the financial services industry. So much for protecting workers from the industry that has, in Trump’s words, “robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities.”