Senate kills small biz retirement plan rule

WASHINGTON — The U.S. Senate has overturned a 2016 Department of Labor guideline that aided small businesses in setting up retirement plans for their employees. The vote was 49 to 1.

The guideline, issued by the Obama administration, provided means for states to set up retirement plans without running afoul of federal pension laws, according the AARP Inc. and Small Business Majority (SBM), which had supported the plan.

"Striking down this rule will have a chilling effect on states that are establishing their own retirement savings programs, which in turn will harm small businesses and their employees," said SBM Founder and CEO John Arensmeyer.

The U.S. House of Representatives took similar action in February.

AARP Executive Vice President Nancy LeaMond said the Senate's vote this will "limit opportunities for families who want to save for a better life as they age.

"Too many small-business employees don't have a way to save for retirement out of their regular paycheck."

Research shows that people are far more likely to save for retirement if they can contribute to a workplace plan, such as a 401(k), through payroll deductions, AARP said. About 55 million employees don't have this option.

Under such plans, AARP said, employers automatically direct a portion of a worker's paycheck into an IRA. Employers do not add any money to the account, and workers can also choose not to participate.

The financial services industry opposes these programs, calling them unfair competition to banks and investment firms, AARP said.

Small businesses throughout the U.S. often struggle to offer retirement benefits to their employees because they typically lack the resources to do so, the SBM said.

State-managed retirement plans — such as those already offered in California, Illinois and Oregon — are an option for small-sized employers to offer these benefits to their employees at no cost, the SBM said, thus providing small businesses the opportunity to offer benefits on par with larger businesses.

More than 20 other states, as well as Seattle, Philadelphia and New York City, have considered adopting such plans, often called "work and save" or "secure choice."

Despite the lack of guidance, some states will move forward to create these savings opportunities, AARP said, but others will likely be reluctant to do so without the guidance.

According to Joel Metlen, public engagement manager for the Oregon State Treasury, Oregon plans to launch a pilot of its OregonSaves program in July despite Congress' action.

OregonSaves is designed for the 1 million Oregonians who don't have a plan on the job, are self-employed or work part time and are ineligible for an employer's plan.

A dozen larger employers will participate in the pilot, according to AARP. They will be required to deposit 5 percent of workers' paychecks into a Roth IRA that offers three investment choices. Over the next three years, Oregon will gradually add thousands of employers, many of them small, to the program.

Mr. Metlen said some employers have raised concerns that the program won't be as easy as the state makes it out to be. But others say their workers want them to join the pilot, he said.