WASHINGTON, D.C. | February 28, 2017
Congress is making important progress rolling back the regulatory onslaught that has been crushing families and small businesses in recent years, and the Committee on Education and the Workforce continues to help lead the way. Most recently, Reps. Tim Walberg (R-MI) and Francis Rooney (R-FL) championed resolutions that would close a regulatory loophole created during the waning days of the Obama administration and restore protections retirement savers have enjoyed for decades. As the Wall Street Journal notes in a new editorial, “Now the Senate should move on the resolution to protect savers and taxpayers.”
Repealing Labor's Double Standard
By Editorial Board
Republicans in Congress are doing yeoman’s work rolling back the Obama regulatory agenda rule by rule. One act of prudence worth highlighting is a resolution revoking the Labor Department’s fiduciary exemption for government-managed retirement plans.
Last year Labor finalized two rules granting an Employee Retirement Income Security Act (Erisa) “safe harbor” to retirement plans for private workers that are administered by state and local governments. California, Connecticut, Illinois, Maryland, New Jersey, Oregon and Washington have passed laws creating public retirement options, and more than a dozen other states as well as several cities have considered the idea.
Labor’s putative goal was to expand access to retirement-savings accounts. About a quarter of full-time employees who work year-round aren’t enrolled in a private retirement plan, though they do get Social Security. To receive an Erisa waiver, states and cities would have to require employers to auto-enroll their workers in the government plan. Employers would be prohibited from contributing, and employees must be able to opt out.
Yet the rule doesn’t require that the government retirement accounts be portable or that workers be allowed to withdraw their savings at any time. Many states opposed such requirements because they know that locking in worker savings may be necessary to make the plans viable. Otherwise, the plans may not achieve the scale necessary to minimize administrative costs that are capped by state law.
States also wouldn’t be required to act in the best interest of workers or make specified disclosures, though they “must be responsible for the security of payroll deductions and employee savings.” Politicians could funnel worker savings to their politically favored managers or investments. Illinois could buy Chicago’s junk bonds. Look at that 8.5% yield! One disclosure states haven’t made is that the plans carry an implicit government guarantee. Liabilities could swell if politicians guarantee a rate of return.
Taxpayers could also end up funding the plans’ start-up and administrative costs if more workers opt out or choose to contribute less than states project. A Boston College Center for Retirement Research study last year projected that it could take Oregon’s plan 17 years to pay off initial operating losses even if workers contribute 3% of their pay.
Under a 1975 Labor rule, employers who auto-enroll workers in plans are considered fiduciaries. Obama Labor Secretary Tom Perez rewrote the rule for state and local governments while tightening fiduciary standards on brokers advising workers who enroll in IRAs. So the former Labor chief used regulation to undercut private competition to the new government plans.
House Republicans passed a resolution earlier this month to kill the new rule using the Congressional Review Act, which allows a simple majority in both chambers with the President’s signature to rescind regulations issued within the session’s last 60 working days. As a bonus, similar rules cannot be reissued, so the resolution would thwart such favoritism for government retirement schemes in the future. Now the Senate should move on the resolution to protect savers and taxpayers.