Dozens of states are trying to make it easier for workers to save for retirement, but Congress could throw a wrench in their plans.
New state-sponsored IRA plans would aim to help small business employees who don't already have access to a retirement savings plan at work -- like a 401(k). But new legislation could stop them before they even begin.
The House of Representatives voted along party lines last month to roll back an Obama-era rule that paved the way for these plans. On Thursday, the Senate narrowly passed legislation that takes another step toward finalizing the repeal.
Republicans say that under President Obama, the Department of Labor created a "loophole" that allows the plans to bypass a consumer protection law.
"This resolution, once passed and signed, will roll back a last-second Department of Labor regulation that eliminated long-standing federal protections for the retirement savings of private-sector workers," said Republican Senator Orrin Hatch on the Senate floor Wednesday.
Lawmakers in California, Connecticut, Illinois, Maryland and Oregon have already approved plans that would require businesses to enroll their workers in state-sponsored IRAs if they don't have access to an employer-sponsored retirement plan. The IRA would be vetted by the state, but provided by a private firm. Oregon and Illinois plan to be the first to roll out these plans later this year.
The Labor Department rule exempts state-sponsored plans from having to comply with the Employee Retirement Income Security Act (ERISA), which sets minimum standards for retirement plan providers regarding consumer protections. At the time, the Obama Administration said uncertainty about complying with ERISA was a "roadblock" to a broader adoption of state plans.
"Ultimately, I have to wonder why states and municipalities want to do away with these protections in the first place," Hatch said.
Other opponents, like the Chamber of Commerce, say that state-sponsored plans would lead to a patchwork of laws across the country. This could make it difficult for small businesses to keep up, especially for those who might have workers who live in a different state.
But advocates of the existing law say the plans are meant to ease the cost and burden on the business, and that there will be sufficient protection for consumers without having to comply with ERISA.
The IRA plans themselves are offered and run by private firms that are already regulated. And the plans are carefully vetted by a board looking for low-fee investment options. The employer isn't charged anything when their worker enrolls.
Half of workers, estimated to be about 55 million Americans, don't currently have a retirement plan through their employer. AARP, which supports the state plans, says people are 15 times more likely to save if they have access to a plan that deducts money straight from their paycheck.
In Oregon, workers will have three investment options to choose from. Accounts will be treated like a Roth IRA in regards to contribution and withdrawal rules, meaning they'll be funded with after-tax dollars, but withdrawals in retirement will be tax free. Businesses that fit the criteria would have to auto enroll their workers, but they can also opt out.
California's plan -- which could cover 7 million workers -- would be similar, but would start by offering workers super safe Treasury bonds as their only investment option.
Rolling back the regulations won't necessarily stop the plans from moving forward. Ultimately, this could be decided in court.
"We view it as an advantage to have the additional clarity from the 2016 rules. But if this does pass, it's not something that will stop us," Oregon Treasurer Tobias Read told CNNMoney last month when the House approved the rollback.
Lawmakers in dozens of others states and some cities are also considering launching retirement plans for private workers. But not all of them include an auto IRA. Washington, for example, is expected to launch a marketplace that offers different, low-cost savings account options for businesses that want to voluntarily make it available for workers. Those plans aren't allowed to charge employers any fees.
These marketplaces have the support of the Chamber of Commerce, which believes states can help workers save for retirement this way without an exemption from ERISA.
The Washington marketplace would not be directly impacted by the DOL rule rollback, said Carolyn McKinnon, the marketplace director and policy advisor.
But the uncertainty over the DOL rule has already had a "chilling effect" on the conversations Washington is having with companies that would provide the plans, McKinnon said.
Senator Hatch favors a different approach to helping workers save for retirement. He's sponsored legislation that that would allow businesses to voluntarily pool assets and participate in "multiple employer plans."
Republicans are using the Congressional Review Act to repeal the Obama-era rules with a simple majority. They need to approve two resolutions to do so because one concerns cities that want to create IRA plans and the other paves the way for states.
The Senate voted to approve the city-related resolution by a vote of 50 to 49 on Thursday. They have not yet voted on the second resolution. If approved, both will be sent to the desk of President Trump.