Commentary: This GOP bill could hurt your retirement

Apparently, President Donald Trump’s delay of new federal rules that would ensure financial advisers put their clients’ best interests first regarding retirement investments wasn’t enough.  

On Feb. 15, the Republican-led House of Representatives followed a similar path and passed a bill that could harm millions of American workers’ ability to build up meaningful retirement savings. The House approved legislation to overturn Department of Labor (DOL) regulations that support state-level efforts to provide retirement savings accounts to private-sector workers who aren’t eligible to participate in a retirement plan at work. 

These state plans aim to address a significant problem with the U.S. retirement system: Roughly half of all American workers aren’t currently offered a workplace retirement savings program. The plans are designed specifically to provide retirement savings accounts to private sector workers whose employers, typically small businesses, lack the resources to implement their own plans. 

AARP reports that more than 25 states are considering retirement savings plans for small-business employees, and seven states are already implementing them.  

AARP Executive Vice President Nancy A. LeaMond said in a press release that “Many Americans who lack the opportunity to save at work are often women and minorities with limited access to other sources of income beyond Social Security in retirement.” 

She added, “Right now, 55 million Americans do not have a way of saving for retirement out of their regular paycheck, and if they are unable to save enough, they run the risk of a financially insecure retirement or ultimate reliance on government safety net programs that cost the taxpayers in the end.”

Under these state plans, private sector employers would automatically deduct a percentage of their workers’ pay and transfer the money to state-sponsored individual retirement accounts (IRAs). The accounts would be individually owned and professionally administered by independent boards headed by state-appointed trustees. Employees would have the right to change their contribution rates or opt out of making contributions altogether. 

In a press release, Teresa Ghilarducci, director of the Retirement Equity Lab (ReLab) of the New School for Social Research, said:

“If Republicans succeed in rolling back DOL regulations, they will destroy the best chance 63 million American workers have of getting access to a retirement plan. These states took the responsible first step to save their residents from a retirement crisis defined by low coverage and inadequate savings and protect their taxpayers from the fiscal crisis resulting from millions of indigent elderly. This would be a painful step backwards for the millions who are shut out from the dwindling number of employer-sponsored plans.”

However, the Investment Company Institute applauded the House legislation, saying in a press release, “These are critical and timely measures to protect American workers by restoring consumer protections under the Employee Retirement Income Security Act (ERISA) and maintaining uniform rules for retirement plans.”

That position seems misplaced because the state-based plans would provide savings opportunities to workers who aren’t served by the retirement system and currently don’t have any protections under ERISA. 

In addition, DOL regulations make it clear that state-based plans would need to provide protections to workers that are similar to ERISA, and ensure that states meet this standard. AARP has prepared a thoughtful summary of facts and fallacies about state-facilitated retirement savings plans.

Republican resistance to state-based plans is particularly curious given the party’s historic advocacy of states’ rights to decide what’s best for their citizens. You would think the GOP would rush to support states that take the initiative to address a serious problem for their residents.

The House bill will now go to the Senate for approval. Americans are watching and listening to see if the Republicans in that chamber will part with the House and decide to help rather than hinder millions of ordinary workers’ ability to prepare for retirement.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.