Education Key Before Next Vote on State, Local Plans for Private Workers

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WASHINGTON – Members of Congress need to be educated about state and local retirement plans for non-government workers before the Senate votes on two joint resolutions next month that could essentially kill them, say retirement experts.

House members voted along party lines Wednesday night to approve H.J. Res. 66 and H.J. Res 67, which would overturn Labor Department rules adopted last August and December to facilitate these plans by assuring states and localities, respectively, would not be covered by ERISA rules for private plans.

These government plans for private workers, which are under consideration or in implementation in 30 states and local governments, would allow individuals who work for businesses that have no pension or retirement plans to save for retirement.

The National Conference of State Legislatures estimates that 55 million Americans work for employers that do not offer any form of retirement savings plans. NCSL estimates three-quarters of private sector workers feel anxious about having enough money to live comfortably in retirement.

Once these workers retire and find themselves without the savings they need in retirement, they become burdens to state and local governments and their social and health care programs. This is a growing financial issue for states and localities, according to experts.

Since 2012, 30 states and localities have begun either considering these plans, weighing legislation to authorize them, or have enacted laws and are in the process of implementing them.

Five of the states -- California, Connecticut, Oregon, Illinois and Maryland – have enacted legislation that would allow them to automatically enroll private workers into individual retirement accounts (IRAs). Workers, however, could opt out of the plans or change the level of their contributions.

California was the first to study the idea, Illinois was the first to enact a program, and Oregon may be the first to enroll workers in a program later this year, according to John Scott, director of retirement savings at Pew Charitable Trusts.

Lawmakers, almost all of them Republican, are opposing these plans in part because of the misconception that these would be government-run retirement programs for private workers, taking retirement programs away from the private sector. Also, the Labor Department rules facilitating these plans were adopted by the Obama administration with the president's encouragement.

Opponents claim many state and local governments have done poor jobs with pension and retirement programs for their own employees and should not be permitted to set up plans for private workers.

But the governments typically would only facilitate retirement savings, they wouldn't run the savings programs.

"I think there are some concerns about states getting involved," said Scott. "It is new territory."

"There's going to have to be a lot of education," he added.

The five states with automatic IRAs would enter into public-private partnerships with financial services providers for the IRAs, similar to College Savings Plans, set up under Section 529 of the Internal Revenue Code. The Securities and Exchange Commission ruled that 529 plans involved municipal securities and the Municipal Securities Rulemaking Boards set up special rules for them, even though broker-dealers and investment companies run the savings programs for the states.

Two other states – Washington and New Jersey – want to set up websites that serve as voluntary marketplaces where private workers can comparison shop for retirement plans or IRAs. These two states would merely provide information about retirement options run others.

An eighth state, Massachusetts, has enacted legislation to offer some sort of standardized retirement plan for small nonprofits within its jurisdiction. Its plan would fall under ERISA rules.

As far as localities' involvement, both Philadelphia and New York City have been considering savings plans for private workers.

There are some upfront costs with these plans for state and local governments. They have to set up a website or system and reach out to private workers. Scott said both California and Connecticut conducted feasibility studies and found the upfront costs could be covered by certain levels of contributions.

Rep. Richard Neal, D-Mass., the top Democrat on the House Ways and Means Committee, told colleagues before the vote on the joint resolutions Wednesday night that he worked with Republicans in 2007 on legislation that would set up automatic IRAs for workers.

"Our country is in the midst of a retirement savings crisis," he warned his fellow lawmakers.

Neal said that in July 2007 he and a Republican colleague, Rep. Phil English from Pennsylvania introduced the Automatic IRA Act to ensure workers would have savings when they retired. The legislation had bipartisan support but did not move forward that year. Today, he said, he cannot find a single Republican who wants to work a similar bill.

"The Republicans want to block Labor Dept. guidance that provides clarity and flexibility to the states interested in launching an auto IRA program. This is troubling," he added.

House members voted 231 to 193 to approve H.J. Res. 66, a Congressional Review Act resolution to overturn the Labor Department's final rule on "Savings Arrangements Established by States for Non-Governmental Employees." The resolution was introduced on Feb. 7 by Rep. Tim Walberg, R-Mich.

The members voted 234 to 191 to approve H.J. Res. 67, to overturn the Labor Dept.'s rule for similar arrangements established by local governments. The resolution was introduced on Feb. 7 by Rep. Francis Rooney, R-Fla.

The resolutions must now be approved by the Senate, but members of that chamber have until sometime in March to vote on them, sources said.

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