Retirement reforms seen on back burner

With President-elect Donald Trump promising to spend his first 100 days in office pushing an ambitious agenda that includes tax and regulatory reform — and above all, economic growth — retirement issues don't have much of a chance of being noticed, at least in a good way.

“They are not talking about retirement at all. That's the problem,” said Brian Graff, CEO of the American Retirement Association in Arlington, Va., at a Dec. 15 retirement policy conference held by the Employee Benefit Research Institute in Washington. “We're viewed as this big, attractive piggy bank that they can use for their priorities, and it's because we are not the priority. It's the fundamental indifference about retirement that is our biggest challenge.”

Mr. Trump and congressional Republicans who will be leading the tax reform effort want to stimulate economic growth by simplifying the tax code and lowering rates. To offset the revenue loss, they will have to find money somewhere else. That puts the two biggest tax deductions, health care and retirement savings, at risk of at least partial trimming, either through less generous deductions or limits for higher-paid workers.

“There's a potential threat,” said Geoff Manville, principal, government relations, at Mercer LLC in Washington. ”We've seen a number of proposals put forth. Some would reduce the types of plans (eligible for deductions) for simplicity and portability, similar to health care, to level the tax advantage playing field across the entire employer/non-employer space.”

He and others are hopeful that in the hunt for revenue, the recent trend of raising premiums paid to the Pension Benefit Guaranty Corp. will be reversed by legislation backed by Senate Budget Committee Chairman Michael Enzi, R-Wyo., to take PBGC premiums out of the federal budget process and keep more plan sponsors from leaving the defined benefit system.

Republican control of Congress and the White House could also revive a package of retirement savings reforms passed by the Senate Finance Committee in September that would, among other things, allow employers to access open multiple-employer plans, make it easier for them to offer annuities, expand access to 401(k) plans to some part-time workers, and offer startup and automatic-enrollment tax credits for small businesses. The multiple-employer plan model “could do a lot to expand coverage and could transform the industry,” said Mr. Manville.

The Senate Finance package also tried unsuccessfully to address severe underfunding of the $4.4 billion United Mine Workers of America 1974 Pension Plan, Washington. That plan plus several other large struggling multiemployer plans expected to overwhelm a struggling PBGC could provide an unexpected challenge to the Trump administration, which might have to support benefit cuts or new funding sources.

Mr. Trump's call for regulatory reform could present an opportunity for plan sponsors, said Alan Glickstein, senior retirement consultant at Towers Watson in Dallas. “He wants to get rid of two regulations for every one new one. I think it is a great chance for plan sponsors to think about what are the most prevalent ones that we want to get rid of, or at least make less onerous. There may be some fresh opportunities to prioritize some of the regulations that add a burden to plan sponsors.”

The Department of Labor's fiduciary rule, scheduled to go into effect in April, is at the top of the regulatory reform agenda, but a delay is considered more likely than quick repeal. “I don't know how successful they're going to be in repealing the regulation, but I think there will be a significant lack of interest in pursuing it,” said Nancy Ross, a Chicago-based partner at law firm Mayer Brown who thinks that “Obama's pro-labor agenda was one of the most aggressive that I've ever lived through in my practice.”

Mr. Glickstein agrees that it will be a while before the timing on a fiduciary rule repeal becomes clear. “I am expecting change, but not as much, and not as quick as some people might think.”

Another Trump priority is revisiting the Dodd-Frank Wall Street Reform and Consumer Protection Act to see how much can be undone. Incoming Treasury Secretary Steven Mnuchin, a former Goldman Sachs and hedge fund executive, has pledged to undo the parts that impede lending and curb economic growth. Reform could also happen at the regulatory level by changing leaders and priorities at the Securities and Exchange Commission and other agencies. Jim Allen, head of capital markets policy for the CFA Institute in Charlottesville, Va., expects incoming SEC officials to consider having third parties examine investment advisers, and to scrutinize where various rules on disclosure overlap.

A likely vehicle for starting the Dodd-Frank reform conversation is the Financial Choice Act bill that is expected to be reintroduced in January by House Financial Services Committee Chairman Jeb Hensarling, R-Texas. It would repeal the Volcker rule, end taxpayer-funded bailouts and the concept of “too big to fail”; and retroactively repeal the Financial Stability Oversight Council's authority to designate firms as systemically important financial institutions. Institutional investors worry that it would also undo several corporate governance gains from Dodd-Frank.

President-elect Trump's campaign had little to say about retirement issues, but for the congressional committees with jurisdiction over retirement and retirement tax incentives, “there's a lot a pent-up interest in doing something on retirement security,” said Mr. Manville of Mercer. “It's just a question of breaking through.”

Pressure on Congress also is expected to come from states that are moving ahead with their own auto-IRA programs for private-sector workers. “I do think that if enough states try it, the financial services industry will go to Congress and say, "we don't want 50 different ones.' I do think that will be the largest advance,” said Joshua Gotbaum, a Brookings Institution guest scholar and member of the Commission on Maryland Retirement Security and Savings that led to that state's secure choice program, at the EBRI forum.

Until that happens, Washington's attention span, particular in the White House, is not expected to last long enough to study more sweeping approaches to retirement coverage like those promoted in 2016 by several influential policymakers and finance executives, including the Blackstone Group's Hamilton “Tony” James, The New School's Teresa Ghilarducci, State Street Global Advisors' Ronald P. O'Hanley, retired U.S. Sen. Thomas R. Harkin, and the Bipartisan Policy Center.

The proposals include guaranteed retirement accounts for all workers that would be managed by professional money managers, more accessible multiple employer retirement plans and tax incentives to increase automatic enrollment, escalation and small business participation. n