Congress Just Repealed Law That Made it Easier to Save in an IRA

individual retirement account
People walk outside of the U.S. Capitol on April 27, 2017. AP Photo/Jose Luis Magana

If you’re saving for retirement at all, you’re ahead of the curve. You are better off than the 67% of Americans who are not putting aside any cash for later in life.

The shockingly high percentage of people who could retire into poverty prompted several states to create programs to get people saving. The state-run programs, made possible by Obama-era initiatives, would require businesses without employer-sponsored retirement plans to automatically enroll their employees in individual retirement accounts.

California, Connecticut, Illinois, Maryland and Oregon passed legislation necessary to make their respective state-sponsored IRA programs a reality. Although the details varied by state, the programs did not require employer contributions and allowed employees to opt out.

These states hoped easier access to IRAs would convince more workers to save toward retirement.

California and Maryland began their respective programs in 2016, while Oregon and Illinois planned to launch their automatic-enrollment pilot programs later in 2017. Connecticut hoped to launch its program in 2018.

But Congress threw a wrench in these states’ plans and the plans of any other states considering following suit. On Wednesday, the Senate passed two bills repealing the Obama-era IRA laws. That vote came three months after the House of Representatives passed accompanying bills to do the same.

Why Congress Voted to Repeal the Key Rules

To keep the cost of the programs under control, Obama administration rules exempted state-run plans from some Employee Retirement Income Security Act regulations.

According to the Department of Labor, ERISA sets the minimum IRA plan standards.

Because Congress voted to repeal the rules, state-run plans will have to meet ERISA requirements.

Opponents of the state-run programs believed those plans should not be exempt from federal regulations that private companies must comply with. Opponents believe these exemptions could result in these plans failing to protect people who use them.

“This resolution, once passed and signed, will roll back a last-second Department of Labor regulation that eliminated long-standing federal protections for the retirement savings of private-sector workers,” Sen. Orrin Hatch, a Utah Republican, said in March. “Ultimately, I have to wonder why states and municipalities want to do away with these protections in the first place.”

But supporters of automatic-enrollment plans say repealing the rules puts financial companies’ interests ahead of the needs of those who would benefit from a public option.

“Without access to easy and affordable retirement savings options, far too many workers are on track to retire into poverty,” officials from 22 states wrote in a letter asking Senate Majority Leader Mitch McConnell to vote against the repeal. “States across the country have been innovating to address this problem.”

You Still Need to Plan for Retirement

According to CNN Money, Oregon will likely continue with the launch of its program, even if the state must abide by ERISA regulations. But it’s not clear how other states will move forward following the repeal.

As the battle plays out, it is still important to start saving if haven’t already. The earlier you start saving, the less you’ll need to put away each month to retire comfortably.

Of course, saving for retirement can be a little complicated if you don’t understand your options. But don’t worry — we’ve got your back with detailed guides explaining 401(k) plans vs. IRAs and Roth IRAs.

Your Turn: Does your employer offer a retirement plan? If not, how do you save?

Desiree Stennett (@desi_stennett) is a staff writer at The Penny Hoarder.

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