By: Editorial Board
Source: New York Times
Who’d Want to Limit Retirement Plans? House Republicans
There is no overstating how unprepared Americans are to retire. Nearly half of private-sector employees — some 55 million people — do not have an employer-provided retirement plan. Most of them are low- to middle-income earners who will end up relying on Social Security for between half and all of their income in retirement.
And yet, as early as Wednesday, House Republicans are expected to pass a measure to thwart efforts by California, Illinois and other states to establish basic retirement savings plans for employees at companies that do not offer such coverage. In California, for example, participating employees would have a small percentage of pay deducted from their paychecks, unless they opted out. Those amounts would be pooled and managed by investment professionals chosen by the state in a bidding process; the plan would be overseen by a board of government and business leaders appointed by the governor and the Legislature.
Financial firms claim that the plans represent unfair government competition. That’s false, but that doesn’t seem to concern House Republicans as they use a fast-track process to derail the states’ plans, siding with the financial industry over ordinary savers.
First, under the plans, states establish the legal framework for deducting contributions from employees’ paychecks, but they do not run the plans. Second, state plans do not compete unfairly because mutual funds and other financial firms have not competed for the small-business market where employees without retirement coverage tend to work. If they had, tens of millions of Americans would not be without coverage, and the state plans probably wouldn’t be needed.
So why do financial firms object? One reason may be that, by law, state plans are transparent about their fees and operations. In contrast, 401(k) plans and other retirement options are infamous for hidden fees, excessive costs and needless complexity. The industry has taken a lot of flak from policy makers and investor advocates for those high costs, and comparisons with state-based plans will only intensify the unwanted scrutiny.
The House Republican measure would effectively repeal a Labor Department rule, issued last year, that gave states with strict investor protections the green light to start and to promote the plans without running afoul of federal pension law.
The rule was enacted rather late in the Obama administration, which gives lawmakers a window of opportunity to overturn it quickly. Unfortunately, the House is charging ahead on its destructive course, and both Congress and the Trump administration have shown an appetite for helping Wall Street at the expense of average citizens.
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