The Senate voted Thursday to undo an Obama-era rule that would have made it easier for major cities to launch retirement plans for workers who don’t have access to one through their jobs. The move is part of a broader effort in Congress to block state and local governments from creating such programs.
Senators narrowly approved the resolution 50 to 49. Most Republicans voted in favor of killing the rule, with the exception of Sen. Bob Corker (R-Tenn.), who opposed the measure and Sen. Johnny Isakson (R-Ga.), who was absent. The resolution, which was passed by the House in February, now heads to President Trump’s desk for a signature.
A handful of major cities, including New York City, Philadelphia and Seattle, had considered launching savings plans that would expand access to retirement accounts for some workers. But the efforts have gained more momentum at the state level. At least seven states — California, Oregon, Illinois, Maryland, Connecticut, New Jersey and Washington — are in the process of creating state-run retirement plans.
The initiatives have faced resistance from some Republicans and business groups who argue that states and cities shouldn’t be creating retirement plans. Some critics say they are worried that the local plans may discourage some employers from offering their own retirement programs. Others say the approach could create confusion for small businesses that have locations in multiple cities.
“These regulations encourage state and municipal governments to impose conflicting and burdensome mandates on private-sector businesses and to bar private workers’ access to their retirement accounts,” Sen. Orrin G. Hatch (R-Utah) said on the Senate floor Wednesday.
At issue is a Labor Department rule finalized last year that would have made the cities and states creating these retirement programs exempt from the Employee Retirement Income Security Act (ERISA), the strict law that governs workplace retirement plans and pensions. Last month, the House passed two resolutions that would eliminate those exemptions for both cities and states. The Senate gave final approval on Thursday to nix the exemption for cities, and will schedule a vote for the resolution affecting states.
Thursday’s vote upset supporters who say the programs can help reduce some of the shortfalls faced by workers who retire with little or no money saved. But Democrats and consumer advocates are focusing their efforts on convincing senators to reject the resolution on state plans — which they say would affect more workers than the proposed city plans.
“This fight is not over,” said Sen. Patty Murray (D-Wash.) in a statement released Thursday. “I urge Republicans to listen to workers, governors, state treasurers and legislators—reverse course on any further efforts to target these retirement programs—and work with Democrats to meaningfully and responsibly address our retirement crisis.”
The state-run retirement plans have garnered some Republican support, raising hopes among supporters that senators may vote differently on the state rule. For instance, Utah’s Republican Treasurer David Damschen wrote a letter earlier this month urging Sen. Hatch to reject the resolution. And Sen. Corker, the Republican who voted against the city rule, framed it as an issue about states’ rights. “I do not think the federal government should stand in the way of states seeking to solve very real problems, especially in the midst of a growing retirement security crisis,” Corker said in a statement issued after the vote.
Supporters of the city and state retirement strategies say they can help tackle 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 through their jobs, according to AARP, which supports the local retirement plans.
In addition to being automatically enrolled into a plan, workers would have the contributions deducted directly from their paychecks. People who don’t want to participate would be able to opt out. “Many Americans who lack a workplace savings plan do not save enough for retirement, and run the risk of relying exclusively on Social Security’s modest benefits when they retire,” said Nancy LeaMond, executive vice president of the AARP in a statement.
When New York unveiled its retirement proposal in October, the city estimated that the initiative would affect about 1.5 million New Yorkers who don’t have access to retirement savings accounts through their jobs — or nearly 60 percent of the city’s private-sector workers.
“Republicans in the Senate just voted to prevent Americans from saving for retirement,” New York City Comptroller Scott M. Stringer said in a statement released Thursday. “This vote was an active, willful attempt to undermine the economic security of Americans.”
The efforts to simplify the savings process may also boost funding in state coffers. If more workers are able to save for retirement, that reduces the chance that they will fall into poverty in old age and need to rely on state-funded programs such as Medicaid.
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 their own programs, said Josh Gotbaum, chairman of Maryland’s state retirement program. “In the states that haven’t done this yet, this slows everything down,” he said.