Coming midterms could be catalyst for success of long-sought priorities
A flurry of bills introduced this session of Congress and the looming November elections are raising hopes on the prospects for expanding retirement security, Capitol Hill watchers say.
"Elections have a way of shaking things up," said Andrew Remo, director of legislative affairs for the American Retirement Association in Arlington, Va., which represents plan sponsors, service providers and other retirement professionals.
"It has been 12 years since Congress has done a comprehensive retirement bill, so there's a lot of pent up demand," Mr. Remo said.
Barbara Van Zomeren, St. Cloud, Minn.-based senior vice president of the ERISA team at third-party administrator Ascensus LLC, agreed. "It seems ripe for something to happen. I think retirement is more of an issue than it has been in the past," she said.
Hopes for action on retirement issues were first raised in March, when Senate Finance Committee Chairman Orrin Hatch, R-Utah, and ranking member Ron Wyden, D-Ore., reintroduced the Retirement Enhancement and Savings Act, which the committee had already passed unanimously in the previous session of Congress. (The session ended before floor votes could be scheduled.)
A House counterpart bill was introduced March 15 by Rep. Ron Kind, D-Wis., and Mike Kelly, R-Pa.
Among other provisions, RESA would make it easier for smaller employers to join open multiple employer plans, ease non-discrimination testing rules for plan sponsors, lift a 10% safe-harbor cap on default contributions for automatic enrollment and auto escalation in defined contribution plans, and give cooperatives and small-employer charities smaller Pension Benefit Guaranty Corp. premiums.
While these ideas enjoy bipartisan support, more controversial provisions include annual "lifetime income" disclosure by plan sponsors to show participants the annuity value of their defined contribution accounts, and a ban on "stretching out" defined contribution and individual retirement account payments to non-spouse beneficiaries of larger accounts beyond five years.
Other retirement proposals introduced this Congress include several sponsored by longtime retirement advocate Richard Neal, D-Mass., the ranking member of the House Ways and Means Committee. One proposal would require many employers to offer a 401(k) or 403(b) plan or incur an excise tax. It, too, would make it easier for small businesses to use multiple employer plans, and expand automatic enrollment and escalation features. It also calls for use of target-date funds or other qualified default investment alternatives, with at least 50% of vested accounts having a lifetime income component. A second bill would modify the current auto-enrollment safe-harbor cap of 10% of pay and establish a new safe harbor to get employers to contribute more.
Those concepts "are taken seriously by the retirement community. Many people think that mandates would be the only way to move forward," said Geoff Manville, principal, government relations, at Mercer LLC in Washington. If Democrats take control of the House by winning a majority in the mid-term elections in November, those ideas are certain to get traction, he and others noted.
Another package introduced by a bipartisan group of senators in July mirrors RESA's provisions for pooled employer plans and incentives to increase auto enrollment and auto escalation. It also calls for short-term savings accounts to help with financial emergencies and allowing part of tax refunds to go into "rainy-day" savings accounts.
A more modest proposal from Sens. Rob Portman, R-Ohio, and Ben Cardin, D-Md., included in an Internal Revenue Service reform measure, would let plan sponsors self-correct "inadvertent" errors instead of going through the more expensive voluntary compliance program.
Even the occasionally raised idea of creating a private-sector version of the $553.8 billion Thrift Savings Plan, Washington, reappeared in the 115th session of Congress in a bill introduced by Sen. Jeff Merkley, D-Ore., to give workers without workplace access to a retirement savings plan — the American Savings Account — with low-fee investment options similar to those offered in the TSP.
Pulling in tax reform
Things got even more interesting in July. House Ways and Means Committee Chairman Kevin Brady announced plans to include RESA provisions in "Tax Reform 2.0" legislation aimed at making permanent the tax-rate cuts for individuals and pass-through businesses that 2017's contentious tax reform process only allowed to be temporary until 2026, because of the lost revenue. While the Texas Republican has not offered details, he also floated the idea of universal savings accounts, similar to Roth accounts but with fewer limits on withdrawals; allowing 529 education accounts to be used to pay student debt; and allowing people to access retirement accounts without penalty for expenses related to childbirth or adoption.
The retirement ideas, said Mr. Brady when he announced them, would have bipartisan appeal, but using them to pass another round of tax reform did not sit well with RESA co-sponsor Mr. Hatch, who is retiring in December. "(Mr. Hatch) does not want to lose the legislation to a misguided partisan effort at political point-scoring," a Senate Finance Committee staffer said in an email to Ways and Means staff and others.
The best bet
Given that state of politics, some retirement advocates think the most likely idea to get passed this year will be creating open multiple employer plans. "If there's any type of law that can actually be passed in this politically charged environment, it's one that deals with this idea," said Steven Friedman, shareholder at Littler Mendelson PC, New York, a law firm specializing in labor management issues advising clients on retirement benefit plans. "I think that for small employers, who for one reason or another don't want to go through the headaches and expense of establishing a plan, there could be real benefits. Employers would love the economies of scale and I think the service providers would love to do something like this," Mr. Friedman said.
Legislation allowing for open MEPs "is low-hanging fruit. There is no reason not to do it," said BlackRock (BLK) Inc. (BLK) co-Chairwoman Barbara Novick, New York. "Whether RESA is the one that moves, or other ones, there are opportunities. There are quite a few things that could come to fruition," said Ms. Novick, who leads the firm's government relations and public policy efforts. "If we could at a very minimum increase access to retirement savings, that would be a major improvement, and probably the most important is automatic enrollment."
Lynn Dudley, senior vice president for global retirement and compensation policy at the American Benefits Council in Washington, said lawmakers also are sensitive to plan sponsors' needs to address non-discrimination testing rules without delay. "We have many, many plans where hundreds of thousands of people could lose benefits this year. I don't think that's something that (members of Congress) take lightly, and companies are speaking up," she said.
Mr. Manville of Mercer thinks if anything gets done this year, "it will be some combination of all of the above. We have a growing list of bills building up behind the dam. September will be a crucial month."
November will be, too. In addition to midterm elections, the Joint Select Committee on Multiemployer Pensions, which Mr. Hatch co-chairs, is working toward a November deadline to come up with solutions for struggling plans, "there is the potential for momentum on retirement generally if that committee comes out with something," said Dominic DeMatties, a partner in the Washington law firm Alston & Bird LLP and a former federal benefits tax counsel. "There's no doubt in my mind that there are people on both sides of the aisle who are interested in moving some of these provisions."