The Department of Labor's green light for states to set up private-sector retirement savings programs also has raised the prospect that some cities might follow suit.
A final rule issued Aug. 25 by the DOL granted a safe harbor, under certain conditions, for states to set up payroll deduction individual retirement accounts for private-sector workers who do not have access to workplace retirement savings programs.
Pressed by some cities and retirement advocates to do more, DOL officials also proposed that other governmental entities be allowed to offer such programs. “The department believes that well-designed political subdivision-level payroll deduction savings programs have the potential to effectively reduce gaps in retirement security,” the proposal noted.
With a tight one-month deadline for comments on the proposed rule and just four months left in the current administration, the chances of it being finalized are slim. But even the possibility of an expansion could have an important impact, advocates say.
“It may ultimately create pressure for additional states” to consider setting up their own programs, said Cristina Martin Firvida, director of government relations for economic security with AARP, which works with policymakers.
New York, Philadelphia and Seattle already have signaled their interest by asking the Department of Labor to extend the safe harbor.
“The fact that the DOL has recognized the interest is going to have a positive effect in sparking the conversation between cities and states. (DOL officials) have shown their dedication” to improving retirement security, said Angela Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University's McCourt School of Public Policy in Washington. She sees the proposed expansion as “a great next step in what is going to be a longer journey.”
For Philadelphia Controller Alan Butkovitz, the proposed extension “is extremely helpful.” With political gridlock at the state level, “the fact that there's aggressive federal action is very positive. It will be helpful to allow the city to take some practical steps on an issue this important. I think local action and federal action will dovetail very well,” he said in an interview.