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Executive Overreach: Replacing 401(k)s and IRAs with “Obamacare for Retirement” 

October 06, 2016

For almost eight years, the Obama Administration has circumvented Congress to advance policies that empower Washington bureaucrats, not the American people. One of the latest examples of the Administration’s executive overreach can be found at the Department of Labor, where officials have been shameless about their efforts to create Obamacare for retirement.”  

Earlier this year, the Department of Labor (DOL) finalized its “fiduciary rule” dramatically changing how Americans plan for retirement, despite serious concerns from Members of Congress. And recently, the Obama Administration finalized yet another rule—again, without approval from Congress—dramatically changing who’s in charge of Americans’ retirement. Taken together, these two rules could destroy the voluntary system of private-sector retirement plans such as 401(k)s and Individual Retirement Arrangements (IRAs), and replace them with government-run retirement plans.

Here’s how the Administration’s latest executive fiat affects employers and workers planning for retirement:

  • Your private sector plan could get the axe because of another “employer mandate.” The new rule encourages states to require private-sector employers to enroll their employees in government-run retirement plans. In other words, in some states, employers will be forced to offer a public retirement plan option and possibly cut off families’ access to their existing privatesector retirement plans. As a result, employees could be automatically enrolled in a government-run plan that gives them fewer options and less control over their retirement decisions unless they opt out. 
  • You may lose control over your savings. The new rule eliminates many of the important protections for savers that exist in the private sector. These government-run plans would not be subject to the same protections as privatesector plans, which must comply with provisions in the Employee Retirement Income Security Act and the Tax Code. As such, employees enrolled in government-run plans could lose their savings because of poor plan management—for example, if a plan does not invest money responsibly or set aside enough funds to pay out the promised benefits. The rule also eliminates the longstanding requirement that people have access to their accounts at any time, which could mean that they wouldn’t have the option to transfer their investment to a private-sector IRA. 
  • Your savings could be used to “bail out” failing public pensions. The government has a terrible track record of managing retirement plans. State pension plans are underfunded by $5 trillion, which means they have only forty cents available for each dollar they have promised to pay out. State pension plans in Illinois and New Jersey are on the path to bankruptcy. This rule could facilitate states raiding the retirement savings of hardworking American families to prop up their failing pension plans for public employees. 

Proponents claim the DOL’s rules will help more Americans plan for the future. In reality, the rules will do the exact opposite. Not only will the rules limit access and choice, they also will put the government between individuals and families and their hard-earned money. 

The Ways and Means Committee has and will continue its work to hold the Administration accountable for these harmful regulations and protect Americans’ ability to plan and save for retirement.