Congress may torpedo Seattle City Councilmember Tim Burgess’ proposal to have businesses without retirement plans automatically enroll their employees in a city plan providing Individual Retirement Accounts.
For the past year, Seattle City Councilmember Tim Burgess has been working on a proposal to have businesses without retirement plans automatically enroll their employees in a city plan providing each with an Individual Retirement Account (IRA).
In theory, the plan could enroll as many as 200,000 Seattle workers, Burgess says.
Joined by counterparts in New York City and Philadelphia, the council member successfully lobbied President Barack Obama’s Department of Labor last year for a rule change giving large cities legal wiggle room to implement such a plan.
But congressional Republicans are trying to repeal the rule change for cities and a related change for states.
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The House of Representatives approved the repeal in February in a 231-193 vote, and the Senate could consider it this week. Washington state’s four Republican representatives voted for the repeal.
Burgess says he has found the turn of events in Washington, D.C., frustrating, particularly because he views his proposal as good for both employers and employees.
“This is pro-worker, pro-business and pro-growth,” the council member said.
Without savings, many retirees struggle to get by, Burgess said, citing a 2013 AARP survey. It found that 24 percent of Washington baby boomers had less than $25,000 in savings and that 81 percent wished they would have saved more.
Employees are more likely to save when they have access to retirement plans through their employers, but about 40 percent of private-sector workers in the Seattle area have no such access, according to the Pew Research Center.
People of color and small-business employees are least likely to have access to retirement plans through work, Burgess says.
Employees without access to a 401(k) or pension through their employers already can choose to open IRAs on their own. But proponents of city and state plans say many people don’t — and they need to be nudged.
Under Burgess’ proposal, employees at businesses without retirement plans would be auto-enrolled in the city’s plan, with the ability to opt out at any time. The employees would be given a default investment product based on their age and risk profiles, and could choose from a menu of products and could also choose to change their contribution rate.
The city would count on employers to process the employee contributions through existing payroll systems, but the businesses wouldn’t need to contribute any money to the IRAs.
A special city board would select the investment products, but the actual handling of the IRAs would be outsourced to a private firm, Burgess says.
In contrast to the pension plans that Seattle has for its own employees, the plan Burgess wants wouldn’t give private-sector employees a guaranteed rate of return.
In other words, poor investment performance wouldn’t put the city at risk, he says.
Seattle would pay $500,000 to $1 million to set up the plan, and it would cost employers $300 to $500 each to adjust their payroll systems, Burgess says. Fees paid by employees would cover ongoing costs.
Burgess says labor unions likely would endorse his proposal, and the AARP supports state plans.
Initial reactions of employers to such plans tend to be negative, due to concerns about government overreach, according to research by The Pew Charitable Trusts.
Some Seattle business owners likely would consider the Burgess proposal another in a series of city policies that many have resisted as burdensome.
But The Pew Charitable Trusts research shows that employers without retirement plans tend to warm to the idea when they learn more, and Burgess says he expects many Seattle business owners would welcome his proposal.
Sierra Hansen, executive director at the Capitol Hill Chamber of Commerce, says she likes the idea, so long as it doesn’t place too heavy an administrative burden on businesses.
Many employers would like to help their employees save but don’t have enough time or knowledge to set up plans, Hansen says.
They can barely keep up with the work of running their restaurants and stores, she says.
“It would give small businesses an option with a low barrier to entry,” she said. “Seattle can take the legwork out of it and make it really easy for people to save.”
The Seattle Metropolitan Chamber of Commerce is keeping an open mind.
“We haven’t formulated an official position on this particular policy yet, but overall, more people being able to save for retirement is a good thing that promotes inclusive, sustainable prosperity,” said chief of staff Markham McIntyre.
Seattle-based Russell Investments is paying attention.
“Russell Investments is part of a national conversation on retirement savings, and some of our local and state policymakers are addressing these concerns legislatively,” spokeswoman Kate Kauman said.
“Though any legislative approach is not free from concerns, we thank our policymakers for raising and addressing these important issues as we all look to find retirement solutions for every individual.”
Who are the players pushing for Congress to repeal the Obama administration rule change?
The U.S. Chamber of Commerce is opposed to state and city plans, calling them worse in various ways than employer plans.
Rather than launch state and city plans, lawmakers should make it easier for small businesses to offer plans, the group says.
The Securities Industry and Financial Markets Association is likewise opposed, for many of the same reasons.
Employees at businesses without retirement plans can open IRAs on their own and through government-run marketplaces like the one Washington set up in 2015 to connect small employers with plan vendors on a voluntary basis, the trade group says.
Obama’s myRA program allows employers without plans to offer their workers accounts invested in government savings bonds.
Burgess rejects those arguments. Even with limitations, a city plan would be better for employees than what many have now — no plan, he says.
Businesses would at any time be free to launch their own plans and pull their workers out of the city’s plan.
A number of states, including Oregon and California, have enacted plans similar to what Burgess wants in Seattle, and other states are considering the same.
It’s unclear whether Congress repealing last year’s rule changes would stop the states from moving ahead.
This month’s House vote split along party lines: Only one Democrat voted for the repeal, and only three Republicans voted against it.
Burgess and his allies are asking Democrats in the Senate for help, but unless some Republicans join them, the repeal will likely succeed.