Contributing Author: Dianne L. Schechter, Paralegal
The Senate recently voted to roll back an Obama-era rule that would make it easier for major cities to launch city-sponsored retirement plans.
A measure approved 50 to 49 would scale back a Labor Department rule finalized last year that clears hurdles for large cities seeking to launch retirement plans for people who don't have access to such plans through their jobs.
The resolution needed President Trump's signature to take effect, which was provided by the President on April 13, 2017, when he signed H.J. Res. 67 into law.
The Senate will vote on a similar measure that could make it more difficult for states to create retirement plans. (While the rules affecting states and cities are similar, Congress needs to vote on each separately.)
The Labor Department rules were designed to make it easier for states and cities by exempting them from the Employee Retirement Income Security Act (ERISA), which governs most workplace retirement plans and pensions.
But the efforts from state and local governments are facing resistance from Republicans and business groups, which argue the government shouldn't be creating retirement plans. Some critics say they local plans may discourage some employers from offering their own retirement programs. Importantly in that respect, the proposed city- and state-sponsored plans would be treated similarly to IRAs which allow for significantly lower annual contribution than employer-sponsored plans such as 401(k) plans.
Supporters of the approach say local efforts may help eliminate one of the biggest obstacles workers face when it comes to saving for retirement: access to a savings plan. About 55 million Americans don't have retirement accounts or pensions at work, according to AARP, which supports the measure.
The programs would aim to take the hassle out of saving for retirement by automatically enrolling people in individual retirement accounts. Workers would also have the contributions deducted directly from their paychecks. People who don't want to participate would be able to opt out.
Some of the cities considering launching retirement programs, such as New York, Philadelphia, and Seattle, may halt their efforts without the Labor Department rule.
When New York unveiled its proposal in October, the city estimated it would affect 1.5 million New Yorkers — or nearly 60 percent of the city's private-sector workers.
Over the next several weeks, the Senate could take up the resolution that would undo the rule affecting state plans. At least seven states — California, Oregon, Illinois, Maryland, Connecticut, New Jersey, and Washington — are in the process of creating state-run retirement plans. More than 20 other states have expressed interest, according to AARP.
Officials from some states, including Oregon and Maryland, say they may be able to proceed with their retirement programs even without the Labor Department rule. But the lack of clarity could cause some states to think twice before launching programs.
Continue following our blog page for updates in this interesting legal development of pension laws affecting millions of American workers.