February 10, 2017

5 Ways DC Threatens Your Retirement Savings:

If you want to cook an omelet, you have to break a couple eggs. 

Unfortunately, the government may break your nest egg in the latest scheme they’ve cooked up to encroach on private retirement savings.

The federal government just exempted state and local governments from long-standing retirement protections (legislation called ERISA) that govern employer based retirement accounts, like your 401(k). Tell Congress that’s a terrible idea before it’s too late.

Retirement plans are regulated at the federal level to ensure uniformity in benefits, rules, and worker protections. It’s been that way since 1974, and it’s working. State laws relating to these plans are generally pre-empted by federal law, meaning that the states cannot pass laws governing employer-provided retirement plans. But the federal government gave states a dangerous exemption in the last months of the Obama presidency.

We outlined the real concerns in the just released “State Auto-IRAs: The Wrong Answer”. Here are the top threats:


1. Unfair Exemptions that Disadvantage Private Employers

The exemption from federal law give states an unfair advantage over private employers in providing retirement benefits to private workers. States can auto-enroll private workers into IRAs without being subject to standard retirement protections, while private employers are not provided that same option. The private sector should not be put in the position of having to compete with state governments to provide retirement benefits. 

2. 50 Different Sets of Rules

States are not required to conform to a set of standard practices, which creates a patchwork of laws between different states or even municipalities. This creates confusion for anyone that lives and works across state or city lines and for companies that employ workers in multiple states. We don’t need more paperwork to track unwanted state mandated auto-IRAs!

3. Exemptions That Weaken Worker Protections

For more than 40 years, common sense retirement rules have offered significant protections for workers in every aspect of their retirement plans. With the states being exempted from these rules, will each state do a good job replicating these protections? Who can workers turn to if their savings are lost or mismanaged? These are real concerns. Retirement protections were passed in response to workers suffering significant losses from theft, mismanagement, and employer bankruptcy. Those rules have now been refined over decades. Starting major new programs from scratch is not a minor undertaking, and exempting them from long-standing protections is an equation for disaster.

4. Some States Have a Terrible Track Record

$5 trillion – that’s the total public pension shortfall across all 50 states. We don’t want to add private retirement plans to that mess, and that’s even before we get to the corruption and shady accounting practices that plague states. We all know who’s left paying the price when government schemes fail: taxpayers funding bailouts.

If they’re not mismanaging accounts, other states are playing politics with retirement dollars by restricting investments to favor state initiatives or engaging in politically motivated investment and divestment schemes rather than investing in the economic interest of the savers. Do you want your retirement savings to get wrapped up in political statements like divesting from energy companies or Israeli companies?

5. Employer-provided Plans Encourage Employees to Save More

A recent study examined state auto-IRAs and concluded that employer sponsored plans like 401(k) plans would be three times more effective at reducing retirement saving deficits.


It’s important to take action now: Five states—California, Illinois, Maryland, Oregon, and Connecticut—have already passed laws mandating IRAs. At least ten others are considering such laws. 

It’s not too late to end the exemption that threatens retirement savings: tell congress to act before time runs out.

The House of Representatives needs to vote FOR:

  • H.J. Res 66, disapproving the rule submitted by the Department of Labor relating to savings arrangements established by States for non-governmental employees
  • H.J. Res 67, Disapproving the rule submitted by the Department of Labor relating to savings arrangements established by qualified State political subdivisions for non-governmental employees.