Committee changes seen giving support in tax fights ahead
While wholesale policy changes are not expected in President Barack Obama's second term, some new Capitol Hill assignments have sparked a glimmer of optimism among retirement and investment industry observers.
As members of Congress grapple with a massive budget challenge only temporarily delayed by the short-term fiscal cliff agreement, having new committee members who really understand pension issues will be critical, observers say, in the next, even more heated, round of negotiations.
On the Senate side, that optimism came with the naming of Johnny Isakson, R-Ga., and Rob Portman, R-Ohio, to serve on the Senate Finance Committee. Both legislators, along with returning member Benjamin Cardin, D-Md., have solid reputations for understanding and carrying the ball on pension issues.
Messrs. Portman and Cardin joined forces more than a decade ago on pension legislation that among other things simplified discrimination rules and raised contribution limits for defined contribution plans. Both senators have been critical of the Department of Labor's proposed fiduciary rule, and have expressed interest in ways to spur greater defined contribution plan participation.
Like Jack Lew, Mr. Obama's nominee to head the Treasury Department, Mr. Portman has held an impressive variety of fiscally sensitive positions, including director of the Office of Management and Budget under President George W. Bush and serving as a member of the House Ways & Means Committee. He also served on the Joint Select Committee on Deficit Reduction, better known as the supercommittee, which attempted to deal with the last round of wrangling over the federal budget deficit.
When it comes to having people in place who can ensure a balanced debate between tax reform and pension protection, “Portman could very well be the one” said Tim Lynch, senior director of government relations for the Washington firm Morgan Lewis & Bockius LLP. “He's probably Lew's equivalent in terms of knowing (budget and tax issues) and he understands pensions. Isakson is a plus in terms of understanding pension law and ERISA, and marrying that with the IRS code.”
Mr. Isakson already has taken a pre-emptive strike against reducing the tax benefits for retirement savings by co-sponsoring a resolution to protect them at the end of the 112th Congress in December.
Messrs. “Portman and Isakson have been very helpful to strengthening the private retirement system, so we're very pleased,” said Judy Miller, director of retirement policy at the Arlington, Va.-based American Society of Pension Professionals and Actuaries. Add in Mr. Cardin, and “we're all hopeful,” she said.
Still, retirement industry observers are realistic about the scrutiny retirement tax incentives face in the hunt for federal revenue. House Ways & Means Committee Chairman Dave Camp, R-Mich., is “very, very focused on tax reform,” said Mr. Lynch. “That might be a little challenging to get anything else squeezed in there. There is no doubt in my mind that they are going to get started. Where they end up is the question.”
Mr. Isakson also keeps his seat on the Senate Health, Education, Labor and Pensions Committee, where Chairman Tom Harkin, D-Iowa, plans to further his universal retirement system proposal. In addition to protecting the tax advantages of retirement savings, “I look forward to working on the questions of pension liability in defined benefit plans,” Mr. Isakson said in an interview. With a pension funding stabilization measure passed in 2012, “some of the pressure is off, but some of the questions remain, more so in the public sector. We're going to have to take a real good look at the assumptions.”
Another friend of the retirement industry, Mike Enzi, R-Wyo., remains on the HELP committee but in a statement said he is looking forward to being “close to the numbers” in his new assignment on the Senate Finance and Budget committees, where the former accountant will be involved in tax policy and the federal budget debate. His replacement as ranking minority member on the Senate HELP committee, Lamar Alexander, R-Tenn., is expected to take some time getting to know the issues, but with no staff turnover, pension industry observers say a committee hearing on pensions is a possibility in the near future.
One wild card on the HELP committee is newly elected Elizabeth Warren, D-Mass., the former head of the Consumer Financial Protection Bureau. “That may strengthen our hand,” said Karen Friedman, Washington-based Pension Rights Center executive vice president and policy director, who thinks the debate over federal spending on entitlements like Social Security will see a joining of forces with pension and entitlement advocates.
Lynn Dudley, senior vice president for policy at the American Benefits Council, Washington, and others are encouraged that Messrs. Portman and Cardin already have expressed bipartisan concern about the Department of Labor's proposed rule on the definition of a plan fiduciary. “They got active the last time and I think they'll be active this time,” she said. Despite the recent and unexpected resignation of Labor Secretary Hilda Solis, a department official said there were no further personnel changes expected there.
For the investment community, one of the biggest leadership changes in the 113th Congress is on the House Financial Services Committee, where both Chairman Spencer Bachus, R-Ala., and his high-profile Democratic counterpart, Barney Frank, D-Mass, stepped down. Incoming Chairman Jeb Hensarling, R-Texas, is an outspoken critic of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which he blames for forcing companies and banks to sit on cash. “This is money not being used for investment and job creation because of — not in spite of — Dodd-Frank,” he wrote in an editorial late last year calling for repeal of the law. Mr. Hensarling, who voted against the 2008 federal bailout of financial institutions, also wants to dramatically reform Fannie Mae and Freddie Mac by shrinking their mortgage portfolios and eventually privatizing them.
While wholesale repeal of Dodd-Frank “is extremely unlikely, there might be some effort to nibble around the edges,” said Neil Simon, vice president for government relations at the Investor Adviser Association, Washington.
IAA members, who are Securities and Exchange Commission-registered investment advisory firms managing $10 trillion in assets for institutions and individuals, are pleased that Maxine Waters, D-Calif., was named the ranking minority member of the committee. In contrast to Mr. Bachus' proposal to subject registered investment advisers to a self-regulatory organization, Ms. Waters last year introduced legislation calling for user fees to beef up the SEC's adviser examination program. “That is our first preference,” said Mr. Simon.
Despite the departure of SEC enforcement director Robert Khuzami, at the end of January, and several other high-ranking officials, plus a new chairwoman, “the change of leadership is not going to diminish the SEC's aggressive enforcement posture going forward,” said one securities lobbyist who declined to be identified. Mr. Khuzami has been credited with reinvigorating the enforcement division and filing a record number of cases, including 20% against investment advisers in fiscal year 2012. No replacement has been named, but one candidate is George S. Canellos, deputy director of enforcement and former director of the SEC's New York regional office.
In Congress, a more bipartisan grounding in pension issues “will be helpful in the context of tax reform,” and just might lead to a bit more bipartisanship overall, said the American Benefits Council's Ms. Dudley. “Maybe we'll see an opportunity to return to that.” Mr. Lynch of Morgan Lewis also notes that a pressing need to deal with multiemployer pension plans “might be the glimmer of hope on bipartisanship.”
But Libby Cantrill, an executive vice president at Pacific Investment Management Co. in New York, a public policy expert and former House Ways & Means Committee aide, is not so sure, given the smaller number of moderate members elected to the 113th Congress. “Just looking at the numbers, we're not necessarily hopeful that the partisan tone will go away any time soon,” Ms. Cantrill said.
“Congress is going to have to address the debt ceiling, sequestration and the continuing resolution,” noted Ms. Cantrill. “A big grand compromise is not the most likely scenario. We think we will likely see more muddling through.”
This article originally appeared in the January 21, 2013 print issue as, "New Congress offers hope for pension issues".