Roughly half of private sector workers do not have access to a retirement plan through their employer. For most of these workers, that means they will have little to retire on, except for Social Security. A half-dozen states have taken the initiative to provide retirement security for these workers through programs that are often called “Secure Choice” programs.
The basic model of Secure Choice programs is based upon an automatic IRA (auto-IRA, for short). If employers do not already sponsor a workplace retirement plan, then they must either establish a plan or automatically enroll their employees in a state-sponsored IRA. The details regarding default contribution rates, automatic escalation of contribution rates, etc. vary from state to state, but the basic idea is automatic enrollment into an IRA. There’s plenty of social science research to indicate that people are more likely to do something if they are automatically enrolled in it and must choose to opt out. Inertia is a powerful force.
The complication is that employer-sponsored retirement plans are subject to the provisions of ERISA, the federal law that governs private sector pension and retirement plans. The question regarding Secure Choice programs is this: are these programs subject to the provisions of ERISA? If they are, then that means a more complex regulatory system applies to these programs. During the Obama administration, the Department of Labor issued a rule that employers automatically enrolling their employees in these state-sponsored auto-IRAs does not trigger ERISA regulations. This removed a major regulatory roadblock to establishing these plans.
A federal law called the Congressional Review Act allows Congress to repeal regulations issued by the executive branch within a certain period of time (60 legislative days). This law has only been used once, when Congress in 2001 repealed a Clinton-era labor regulation regarding ergonomic safety in the workplace. The law can really only be used when the presidency changes from one party to the other and the party in control of Congress is different from the outgoing administration. Had the Republican-controlled Congress attempted to repeal these regulations when President Obama was still in office, Obama would have vetoed the repeal. However, with President Trump now in office, the Congress can expect that he will sign the repeal into law.
In mid-February, the House of Representatives voted mostly along party lines to repeal the Obama-era rules that said Secure Choice plans did not trigger ERISA regulations. The Senate could vote as soon as today or tomorrow on whether to repeal. The Congressional Review Act is not subject to filibuster, so at least three Republican senators would need to vote against repeal to stop it. If the Senate passes the repeal, it is expected that President Trump will sign it.
What would it mean if Congress repeals these rules? Its main effect may be to slow the momentum of states adopting these Secure Choice programs. As many as two dozen states are considering similar measures; these states may slow their movement toward Secure Choice if the programs are going to be subject to ERISA regulations.
There are still ways in which Secure Choice programs could be determined not to be subject to ERISA. For one, Congress could pass a law saying that Secure Choice programs are exempt, though with the current Congress that seems unlikely.
The other way would be through the courts. There will almost certainly be lawsuits filed after these programs come into effect. Oregon is the closest, as it is expected to begin operating its program this summer. The courts may determine that ERISA’s provisions do not apply to Secure Choice programs and that would allow them to proceed, even if Congress has repealed the regulations.
As a new NIRS survey shows, the overwhelming majority of Americans– both Republicans and Democrats- are worried about saving enough for retirement. Many private sector workers lack access to a retirement savings plan through their employer, making it difficult for them to save for retirement. Secure Choice programs offer the potential to help alleviate the retirement security crisis, but Congressional action may stall this progress.