U.S. Senate Votes to Repeal Labor Dept Rule on State-Run Retirement PlansU.S. Senate Votes to Repeal Labor Dept Rule on State-Run Retirement Plans

By Lisa Lambert and Sarah N. Lynch

WASHINGTON, May 3 (Reuters) - The U.S. Senate voted narrowlyon Wednesday to repeal an exemption from strict federalprotections that former President Barack Obama's LaborDepartment had given to state-sponsored retirement savings plansfor lower-income workers.

The exemption, championed by states such as California butopposed by the mutual fund industry, had freed the state-runplans from the strict compliance requirements of the EmployeeRetirement Income Security Act, or ERISA.

Private-sector workers whose employers do not offer 401(k)or other retirement benefits, and who often have low incomes,are automatically enrolled in plans being launched in somestates, such as Illinois. States say the exemption would havelet employers pass workers' money into plans without footingERISA compliance costs.

It stoked fights in Washington, however, over the reach offederal regulation, states' rights and income inequality.

The Republican-led Senate passed the resolution repealingthe exemption by a vote of 50-49. The House of Representatives,also controlled by Republicans, previously approved the measure,which President Donald Trump is expected to sign into law.

It was the 14th Obama-era rule killed by Congress under theonce-obscure Congressional Review Act, which allows lawmakers torepeal newly minted regulations and forbids agencies fromenacting similar rules in the future.

In mid-April, Trump signed a nearly identical resolutionaffecting city-run retirement plans, which are in the designstages. But the resolution for state-run plans was stuck inlimbo for weeks, as Republicans struggled to gather votes andmajor lobby groups representing retirees and business intereststurned up the heat on lawmakers.

Senator Dick Durbin, an Illinois Democrat, missedWednesday's vote because of minor heart surgery, helping theSenate avoid a tie.

Republican Senator Todd Young of Indiana broke party ranksto oppose the resolution, saying Americans were in a "real andongoing crisis" to save enough money for retirement.

"While state-based retirement plans are not my first choice,if implemented carefully, they could help close the retirementsavings gap," he said in a statement to Reuters.

The California plan's primary champion, Democratic stateSenator Kevin de Leon, expressed outrage at the vote, sayingtaxpayers would ultimately foot the bills of people who retirewithout adequate savings.

"Wall Street investment firms fear their profits will take ahit ... even though the investment industry has historicallyignored middle- and lower-income workers at medium- andsmall-sized businesses," he said in a statement.

The mutual fund, insurance and securities industries saidthe exemption would have denied some workers protections thatare guaranteed for others.

"Denying ERISA protections to workers who are automaticallyenrolled would limit their legal remedies to fight against highfees or mismanagement of the plans," said Paul Schott Stevens,president of the Investment Company Institute, a trade grouprepresenting funds holding $19.3 trillion in assets and that areoften used to save for retirement.

(Reporting by Lisa Lambert and Sarah N. Lynch; Editing by PeterCooney)