President Trump made it official on Thursday by repealing Obama-era legislation meant to auto-enroll private sector workers in city-run 401(k)s and IRAs for those who lack retirement plan access.
Democrats hailed city-sponsored plans as a way to slow what they see as a coming retirement savings crisis, while Republicans objected to their exemption from ERISA, adding that nothing would prevent cities and municipalities from overloading investment menus with their own government bonds.
In late March, Senate Republicans narrowly passed a bill by a vote of 50 to 49 that would roll back earlier legislation to establish plans for cities. A similar repeal of a state version of the legislation is expected soon.
“These retirement savings-regulations are a classic case of the whole being worse than the sum of its parts,” Majority leader Mitch McConnell, R-Kentucky, said at the time. “The Obama Administration encouraged states and municipalities to set up government-sector retirement plans. Sounds great, some might say, but that’s until you see the fine print.”
States always had the power to set up these plans, he added, but they “chafed at federal laws protecting the workers who would be automatically enrolled in them,” referring to ERISA provisions.
“They didn’t like that the basic retirement protections that apply to those who manage private sector retirement plans would apply to the government too.”
Claiming that this is what the regulations “are actually about,” they allow states and cities to create an employer mandate that forces private-sector workers into these government-run plans. He added they “liberate the states and big city mayors from federal consumer protections for these hard earned dollars. And they create a competitive advantage for these new government-run plans. The end result will be more government at the expense of the private sector.”
“Fortunately, we can now begin to roll back these regulations,” McConnell concluded. “We’ll take a vote today to protect workers should big city governments try to force their private sector employers to auto-enroll in government-run savings plans. Later, we will advance another CRA to protect workers from similar efforts at the state level.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.