Institutional investors and their asset managers held their collective breaths as a Republican-controlled Congress worked madly last week to pass a massive tax reform package that, for many of them, is notable for what was left out. Others, including large endowments and private equity firms, are bracing for change.
At the beginning of the tax legislation debate, retirement plan executives were on high alert that the tax-deferred advantage of contributions would be too tempting a target as Republicans looked for ways to offset $1.5 trillion in tax cuts. That mobilized the Save Our Savings Coalition of retirement advocates and providers to head off the feared changes, which were not in the final measure signed by President Donald Trump on Dec. 22.
"The big news is what's not there," said Lynn Dudley, senior vice president, global retirement and compensation policy for the American Benefits Council in Washington. "They gave a lot of thought to the value of employer-based plans and didn't undermine them because now would be a terrible time to do that." Still, said council President James A. Klein, "the need for federal revenue is sure to continue."
Public pension fund officials had even more to worry about, as a provision to impose a new tax on direct investment income lasted until the final round of negotiations between the Senate and House of Representatives before being dropped.
Leigh Snell, director of federal relations for the National Council on Teacher Retirement, Washington, credits "a full-court press" from public pension executives around the country meeting with members of Congress and key tax negotiators, including Senate Finance Committee Chairman Orrin Hatch, R-Utah, House Speaker Paul Ryan, R-Wis., and House Ways and Means Chairman Kevin Brady, R-Texas.
"It was a great example of public plans' ability to respond quickly and to comprehend the implications here," said Mr. Snell, who added investment firms and groups like the Institutional Limited Partners Association in Washington helped Congress appreciate the potential negative impact on public funds.
Theresa Whitmarsh, executive director of the $120 billion Washington State Investment Board, Olympia, said officials are "extremely pleased" the idea was dropped. Ms. Whitmarsh, who chairs the Council of Institutional Investors in Washington, credits "a facts-driven, fully bipartisan effort (that) helped members of Congress protect our beneficiaries' long-term investments."