The proposed $2.6 billion reduction to the Department of Labor’s 2018 budget, as outlined earlier this month in President Donald Trump’s “America First” spending blueprint, could hinder the agency’s ability to regulate and assist employers, experts say.

Under the president’s plan, the Labor Department would see a 21% drop in funding from $12.2 billion to $9.6 billion — one of the largest agency cuts, behind only the Environmental Protection Agency (31%) and the State Department (29%), and tied with the Agriculture Department (21%).

Specifics were not released. However, budget observers say substantial budget cuts would affect the operations of the Labor Department’s Employee Benefits Security Administration (EBSA), Mine Safety and Health Administration (MSHA), Occupational Safety and Health Administration (OSHA) and other units.

The Department of Labor wouldn’t comment on Trump’s budget plan.

Lawrence Lorber, a member of law firm Seyfarth Shaw LLP’s labor and employment department, doesn’t see how $2.6 billion could be slashed from the DOL without reducing staffing and, therefore, enforcement.

“If there is a substantial budget cut, one of the results might be expected to be a reduction of enforcement actions or enforcement staff,” he says. “If you cut enforcement personnel, if you cut travel, it’s obvious by its very nature going to lessen government enforcement.”

And that, says Joe Minarik, former chief economist of the Office of Management and Budget under the Clinton administration, would align with the administration’s mission to cut business rules.

[Image Credit: Bloomberg]
[Image Credit: Bloomberg]

“One way you can reduce regulation in the Department of Labor is to cut back on inspections and surprise visits and inquiries you made of employers to find if they are complying with regulations,” says Minarik, who is also the senior vice president and director of research at the Committee for Economic Development of the Conference Board. “One of the themes of this budget is to cut back on the operating tempo in the regulatory part of the budget. I don’t know that for sure, but that’s where the rhetoric would tend to lead to.”

One expert says OSHA, which oversees work sites and worker health, and MSHA, which is in charge of mine safety, are particularly susceptible to budget cuts. OSHA had a $595 million budget in FY 2017; MSHA had $397 million.

“Anything OSHA or MSHA related is another one of those red-meat, political departments,” says Will Hansen, senior vice president of retirement policy at the ERISA Industry Committee. “[They’re] always going to be on the radar for cuts.” Hansen adds that “the unique routines and procedures in place at those facilities that are subject to OSHA and MSHA regulations [require] more hands-on than auditing a retirement plan document.”

The Conference Board’s Minarik agrees that OSHA audits might not be conducted as frequently if there are staff cutbacks.

The only proposed OSHA cut listed in the budget outline is an $11 million elimination of the agency’s “unproven training grants.” There’s no mention of MSHA.

EBSA and ERISA

Another agency that requires substantial resources is EBSA, which regulates activities that fall under the Employee Retirement Income Security Act (ERISA) such as retirement plan audits. EBSA had a $205.7 million budget in FY 2017.

There’s no mention of EBSA in the budget, but any cuts to the unit are likely to affect salaries or the number of full-time positions at the agency, says Hansen.

“It’s possible that with such an extreme cut, 21%, that while certain departments are highlighted in his proposal, all departments might have to put forth reductions in basic activities, which plan sponsors do rely on for certain guidance and assistance,” he says.

On the other hand, many employers are looking forward to a regulatory rollback.

For example, fiduciaries are required to find participants of terminated defined contribution plans, known as missing participants, and report them to the IRS, as per Labor Department guidelines.

“If there is some relief in enforcement of missing participants, planned sponsors would be in favor of that,” he says. “I think we’re getting clear signals that there's going to be an attempt to drastically decrease the number of regulations of companies in America.”

The “America First” blueprint eyes cuts to the DOL’s Job Corps, a $156 million vocational effort, and elimination of the Senior Community Service Employment Program job training service for older Americans. Trump’s budget proposal described the $434 million SCSEP program as “ineffective in meeting its purpose of transitioning low-income unemployed seniors into unsubsidized jobs.”

The Employment and Training Administration, which provides employee education and development, and had a $3.5 million budget in FY 2017, stands to lose substantial funding under the Trump plan, as the administration aims to shift many of its activities to the states.

Not all Labor Department agencies are threatened by the ax. Trump’s budget proposal would expand the Reemployment and Eligibility Assessments, a service that assesses Americans unemployment insurance eligibility and provides them with a reemployment plan labor market information, and referrals to reemployment services and training. The assessments program had a budget of $185 million in FY 2017.

“They are relatively enthusiastic about some programs that deal with cutting back on delivery of benefits,” says the Conference Board’s Minarik.

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