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The Senate approved a resolution killing an Obama-era Department of Labor rule that allows states to require some private-sector employers to help their workers save for retirement.President Donald Trump is expected to sign the resolution, approved May 3 by a 50-49 vote, that effectively overturns the agency’s rules that exempt such state retirement plan programs from coverage under the Employee Retirement Income Security Act. The resolution already passed the House and a similar resolution repealing city-run retirement plan programs already carries Trump’s signature.
The GOP’s effort to block states and cities from expanding retirement coverage to the some 55 million Americans who don’t have a retirement plan at work, however, may not be complete. That’s because, despite the repeal calling into question programs being developed, a number of states have said they are likely to move ahead with their programs even without the DOL’s safe harbor.
States that implement their programs will likely face legal challenges with uncertain outcomes. “The financial services industry will continue their efforts to keep” these state programs from getting off the ground by filing lawsuits,” Joshua Gotbaum, chairman of the Maryland Small Business Retirement Savings Board, which oversees the state’s retirement program, told Bloomberg BNA.“It’s unclear that a financial-services business would have standing” to file lawsuits against the programs under ERISA, Peter Gulia, founder of Fiduciary Guidance Counsel in Philadelphia, told Bloomberg BNA. So it’s likely that a few small-business employers would be recruited as the plaintiffs, he said. How successful would such challenges be? Gulia said to “expect conflicting decisions, including circuit conflicts.”
These state programs require small employers that don’t offer retirement plans to act as a conduit for payroll deductions into individual retirement accounts established for the workers. The states facilitate the plans but the investments are managed by private-sector companies. The states say these management fees will be low. Employers don’t contribute to the IRAs. Workers are automatically enrolled but can opt out at any time.
The resolutions were brought under the Congressional Review Act, which gives Congress the authority within the first 60 “legislative days” of a session to repeal new federal regulations. Under the CRA, once a rule is repealed, the agency can’t issue a rule that is substantially the same as the one repealed. Eight states have enacted laws on private-sector retirement programs for small employers and about 30 are looking at such programs, according to the Georgetown University Center for Retirement Initiatives. Three cities—New York, Philadelphia and Seattle—have also been exploring their own options.
Officials in New York, Illinois, Connecticut, Oregon and Maryland told Bloomberg BNA that those states are likely to move forward even without the DOL rule. Gotbaum, who previously served as the director of the Pension Benefit Guaranty Corporation and is now a guest scholar at the Brookings Institution in Washington, said that legal challenges to the programs under ERISA may not succeed. “It’s a stretch” to say that employers complying with state-mandated programs are sponsors of ERISA-covered plans, he said. These employers are required to participate in their state’s or city’s program and their role in the program is merely to “turn on a payroll deduction switch,” he said.
Gulia was less certain. “If a state or local government’s law commands an employer to do something, some judges would find that an employer’s administration of an implied-election provision involves the employer” and will hold that “ERISA preempts state law,” he said. “Other judges might find that checking whether an employee submitted an`opt out’ writing or didn’t is so simply non-discretionary that there’s no need for ERISA’s protections,” he said. The repeal of the DOL’s rule doesn’t mean that it won’t carry weight in a court challenge to a state’s program. In deciding whether ERISA applies, “nothing precludes a judge from considering any publication, including a repealed rule, as a source of possibly persuasive information,” Gulia said.
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The resolution passed by Congress is at http://src.bna.com/muJ.
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