Last year, with little fanfare, the Obama administration’s Department of Labor issued a rule that threatens the retirement accounts of workers across the country.
In an alleged attempt to increase workers’ access to workplace retirement accounts, the rule exempts state and local governments from all federal rules and regulations intended to safeguard workers’ private retirement savings.
This would undermine the viability of private retirement accounts and could cause workers to be automatically enrolled into government-run accounts that they can neither access nor control.
Two Republicans are now standing up to prevent this from happening. Reps. Tim Walberg, R-Mich., and Francis Rooney, R-Fla., have introduced a pair of joint resolutions that would roll back this “safe harbor” exemption if signed into law.
The House is scheduled to vote on these resolutions later this week.
Ordinarily, repealing or rolling back an already enacted rule requires the same time-consuming procedures as implementing the rule—a process that can take years.
But the Congressional Review Act of 1996 (CRA) provides a speedier, more effective process. Since Congressional Review Acts must be signed into law by the president, they are generally only used at the beginning of a new administration of the opposite party.
As Heritage Foundation scholar Paul Larkin explains, “Under the CRA, a joint resolution of disapproval signed into law by the president invalidates the rule and bars an agency from thereafter adopting any substantially similar rule absent a new act of Congress.”
So why should workers want President Donald Trump to sign these resolutions of disapproval into law?
For starters, the federal government enacted the Employee Retirement and Income Security Act of 1974 to safeguard workers’ retirement savings. That act isn’t perfect, but if the federal government believes private-sector retirement accounts need certain legal protections, it makes no sense to wave all those protections so long as state and local governments are in charge of private workers’ retirement savings.
It’s true that state and local governments have substantial experience running their own public-sector employee retirement plans, but they’ve recklessly mismanaged those plans.
According to some estimates, state and local governments have promised their workers upward of $5 trillion more than they’ve set aside to pay those promises, leaving taxpayers on the hook for the shortfalls.
Allowing states to manage private-sector workers’ retirement funds in the same way would risk workers’ savings and create massive potential taxpayer liabilities. Moreover, allowing state and local governments to access private workers’ savings creates an avenue for states to kick the can down the road on their own public employees’ unfunded pension liabilities by using private workers’ savings to invest in pension bonds.
Since the rule only provides a safe harbor exemption for states that mandate that employers offer either their own or the state-based retirement plan (the mandate typically applies to employers with five or more employees), many employers will be forced to provide the government-run plan.
And states can even require employers to auto-enroll employees in the government-run plan.
Finally, because the exemption creates a huge competitive advantage for government-run plans that don’t have to play by the costly federal rules, many workers who are happy with their existing retirement plans may lose them.
After all, employers don’t want to pay more or incur more liability than they need to.
But workers who are kicked out of their existing workplace retirement accounts and into government-run accounts will lose out on the average $2,640 per year contribution that employers make to workers’ retirement funds.
That’s because the rule forbids employers from contributing to employees’ plans, since doing so would cause employers to incur a fiduciary liability.
While there is nothing wrong with the federal or state governments encouraging workers to save more for retirement, the “government knows best” policy inherent in the Obama administration’s state-based retirement plans rule is dangerous for workers and taxpayers alike.
By signing these joint resolutions into law through the Congressional Review Act, Congress and the president can save private-sector workers and taxpayers from suffering the same consequences that are coming to bear as a result of state and local governments’ mismanagement of public employees’ retirement funds.