State and City-Run IRA Plans Are Not Going Away

On April 13, President Trump signed into law legislation that blocked Obama-era Department of Labor (DOL) regulations encouraging the establishment of IRA plans run by cities and municipalities. On May 17, he signed similar legislation applying to state-run IRAs. While these new developments may make the road ahead for both city and state run IRA plans more difficult, these plans are not going away.

A Safe Harbor from ERISA

The DOL regulations, which were released last year, had provided a safe harbor from ERISA for state or city run programs that require private sector employers to establish payroll-deduction IRAs for workers without access to a retirement plan. This was a welcome development for states who, with no action on the federal level, had taken on the task of establishing their own retirement savings arrangements. Some cities, such as New York City and Seattle also began to take steps to create plans. Worries about ERISA had been a major roadblock in trying to get these plans established and the DOL regulation had removed this hurdle.

Debate in Congress and Beyond

While the expansion of retirement savings opportunities generally has strong public support, state and city run IRA programs have encountered some contentious debate in Congress and beyond. Supporters of the expansion of the programs point to low retirement savings rates and lack of initiative at the federal level. The MyRA program, which was established by President Obama, is aimed at lower income workers who are just starting to save, but it is completely voluntary.

Opponents have questioned whether state and local governments can be trusted with workers’ retirement savings. They also express concerns that the plans would overburden employers with a heavy load of regulations and deprive workers of valuable ERISA protection.

States and Cities Determined to Continue their Plans

While the outlook for state and city run IRAs is now less certain, due to possible ERISA concerns being back on the table, don’t count these plans out just yet. The new legislation reversing the Obama-era DOL regulations does not mean that state and city run IRA plans can no longer be established. While some states and cities may be more hesitant to move forward, others have vowed to continue to press onward. In the wake of the latest legislative actions, states such as Oregon and California have expressed determination to continue with their programs. With many Americans lacking retirement savings and no new retirement initiatives in sight at the federal level, states and cities are not giving up yet.