Divided Congress dims prospect for real change

A more divided Congress following the Nov. 6 midterm elections means that both parties will have to cooperate more to get anything done, including retirement legislation.

The biggest change was shifting power in the House of Representatives. Although some races were still being counted the House, as of midday Nov. 9, will have 225 Democrats and 197 Republicans when the 116th Congress begins in January.

Senate Republicans solidified their majority, although a final count was still undetermined as of midday Nov. 9, and there will be a special runoff election in Mississippi on Nov. 27 because neither candidate received a majority of votes to replace Republican Sen. Thad Cochran.

The key number is the 60 votes they will need to break any filibusters.

For the markets, "maybe this is the just-right outcome" with shared power, said Brian Nick, chief investment strategist for Nuveen in New York, who added that few people expected candidates to get into specific policy proposals now or going forward.

"Our view coming into this was that there wasn't going to be a whole lot of legislating in 2018 and 2019," Mr. Nick said.

With a Democratic majority in the House and a Republican majority in the Senate, "it's almost tied the hands of the new Congress," Mr. Nick said.

"There's only so much appetite" for big ideas, including how to deal with unchecked federal debt, he said.

The debt "is the first question I get. It is certainly an anxiety," Mr. Nick said. "We need to raise the debt ceiling next year, and pass budgets. Given that we are looking at a divided Congress, it could be more brinksmanship."

As the tax-cut stimulus starts to wear off after 2019, "this could be the first (Congress) in a long time that is going to be in session during an economic slowdown. Does that become the impetus for an economic stimulus package?" Mr. Nick asked.

For now, congressional attention is shifting to committees, where many leadership changes have to be sorted out. Among those questions is who will replace retiring Senate Finance Committee Chairman Orrin Hatch, R-Utah. One eligible candidate, Sen. Charles Grassley of Iowa, is well-versed in retirement issues from presiding over 2006's Pension Protection Act.

On retirement issues, the biggest difference will be seen in the House Ways & Means Committee, which has jurisdiction over tax-related retirement measures. That committee now will be chaired by Rep. Richard Neal, D-Mass., a longtime proponent of increasing retirement savings and sponsor of several proposals, including one that would require many employers to offer a 401(k) or 403(b) plan or incur an excise tax.

The need for more bipartisanship could boost a discussion draft floated by Sens. Ben Cardin, D-Md., and Rob Portman, R-Ohio, that would let plan sponsors contribute to 401(k) plans while employees pay down student debt.

Bipartisanship also is the only hope for a solution to the multiemployer pension crisis as well as a stalled effort to promote infrastructure spending.

The first order of business for both parties will be having something to show for the lame-duck session through the rest of 2018, which will deal with must-pass legislation on expiring tax extenders and some technical corrections.

That has retirement advocates cautiously optimistic that Capitol Hill staffers will be able to find common ground on a compromise package between the Senate's Retirement Enhancement and Savings Act, and the House-passed Family Savings Act. Both proposals would make it easier for smaller employers to join open multiple employer plans, ease non-discrimination rules for frozen defined benefit plans and add a safe harbor for selecting lifetime income providers in defined contribution plans.

Financial services firms can expect to get a cooler welcome if and when Rep. Maxine Waters, D-Calif., next in line to chair the House Financial Services Committee, follows through on her pledge to protect consumers and investors from abusive financial practices, and to consider further safeguards to prevent another financial crisis.

Ms. Waters has spent the past two years criticizing Republicans for what she considers lax oversight of the White House and regulatory agencies under the committee's jurisdiction, including the Securities and Exchange Commission.

Ms. Waters' committee will be one of several now controlled by Democrats with potential authority to investigate President Donald Trump's tax returns and 2016 election interference allegations.

According to the Center for Responsive Politics, this month's midterm election was the most expensive ever, with more than $5.2 billion estimated to have been spent, surpassing the previous record of $4.2 billion.

The CRP found that the securities and investment industry spent at least $100 million more than in 2014, favoring Democrats over Republicans — 53% to 47% — for the first midterm election cycle since 2006. While that category of donor traditionally was led by stockbrokers, bond dealers and brokerage houses, "as Wall Street itself has evolved — and likewise Washington's interest in regulating the new frontiers of finance — the industry's Washington money game is now dominated by the new breed: hedge funds and private investment firms," the Center for Responsive Politics said on its website.