Senate Republicans voted Wednesday night to rescind an Obama-era policy that allows states to offer retirement savings plans to millions of workers.
Retiree and worker protection groups say the move will hurt employees at small businesses.
Many small businesses say they can’t afford to set up retirement savings plans, such as 401(k) plans, for their workers. That’s a big reason why so many Americans aren’t saving, says Cristina Martin Firvida, the AARP’s director of government affairs.
“There are 55 million Americans who have no way to save for their retirement at work,” Firvida says.
She says when bigger companies automatically enroll workers in retirement plans, the vast majority of people stick with it and keep saving. They could opt out, but they don’t.
And Firvida says if similar plans were in place for workers at small businesses, “they would be 15 times more likely to save for retirement if they could do that straight out of their paycheck.”
Because of that, Oregon, California, Illinois and five other states have passed laws to help small businesses enroll workers in state-designed plans. That legislation was given a boost by the Obama administration policy that Congress just overturned.
Oregon’s state treasurer, Tobias Read, says he’s disappointed by the vote. He explains that the Obama administration created guidance for states, effectively saying, “if you do the savings plans this way, you’re within federal law.”
By rescinding that, Congress has now created uncertainty, he says. That could discourage more states from passing these laws.
Oregon is facing that uncertainty, too. But Read says with 1 million workers with no workplace retirement plan, his state is going to push ahead.
“We believe we are safely within the law and we want to take the chance to help working Oregonians,” Read tells NPR.
One of the first small business owners to take part in the so-called Oregon Saves plan will be Saleem Noorani of Albany, Ore. He runs two wine and beer shops and he has 11 employees who will be automatically enrolled in the pilot phase of the savings plan this summer.
“They are all very excited that they are even being able to participate in the program,” Noorani says. He says setting up a 401(k) plan was just too expensive for his small business. But the Oregon plan is free for him.
Noorani’s workers will choose from a few investment options. These plans are similar to state-designed 529 college savings plans. The state creates the framework, but the investments are managed by a private company — in Oregon’s case it’s State Street Global Advisors.
“I was so glad to see Oregon come up with this plan where it makes it so easy and so simple,” Noorani says. But he says he’s also very confused about why Republicans in Congress have now voted to make these plans harder for states to set up.
“I’m a Republican and I can’t find any logical answer for it,” Noorani says. “When you see something that’s such a great solution out there, why do you go around and sabotage it?”
The financial industry has been lobbying Congress to get rid of the Obama policy.
Lisa Bleier is a managing director and associate general counsel with the Securities Industry and Financial Markets Association, or SIFMA. She says, “Every state is coming up with all different ideas as to how they’re going to do it.” Bleier says that will create problems. SIFMA has other objections, too. And some in the industry think the government just shouldn’t get involved.
Dennis Kelleher is president and CEO of the financial watchdog group Better Markets. He says there’s another reason for the industry’s opposition: If states set up plans that are relatively low-cost for workers, that might push the whole market in that direction and hurt financial firms’ profits.
“It’s all about protecting profits and that’s all this fight was really about,” Kelleher says.