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Special report: Outlook 2019

Bipartisanship to be key to change in Washington

Rep. Richard Neal has a long record of backing legislation to increase retirement savings.

Chances for real retirement legislation will depend on everyone just getting along

The Washington outlook for 2019 depends on whether you are an optimist or a pessimist.

As the year starts with a new balance of power in Congress split between Republicans in the Senate and Democrats in the House, it will take bipartisanship to get anything passed. Some Washington observers see that as a good omen, at least when it comes to ideas for improving retirement security.

"I am pretty bullish about retirement security being high on the agenda next year. It's important in terms of solving a public policy challenge that's affecting millions of Americans," said Shai Akabas, director of economic policy at the Bipartisan Policy Center in Washington.

"There's real interest in moving forward," agreed Geoff Manville, principal, government relations, at Mercer LLC in Washington. "It would be a complementary effort on the House and Senate side, not a competition."

A likely vehicle is some combination of the Senate's proposed 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.

Another bipartisan contender is a proposal 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. It also calls for giving sponsors of frozen defined benefit plans relief from strict non-discrimination testing, a bipartisan fix floated in many bills.

The 116th Congress could also work on other ways to improve retirement security for millennials, including more health savings account incentives and making accounts more portable.

The biggest game changer will be when Rep. Richard Neal, D-Mass., takes over as chairman of the House Ways and Means Committee, which has jurisdiction over tax-related retirement measures. Mr. Neal is a longtime proponent of increasing retirement savings and sponsor of several proposals, including one that would require many employers to offer retirement plans.

Robert Melia, executive director of the Iselin, N.J.-based Institutional Retirement Income Council, expects some combination of those ideas to gain traction in 2019, with an emphasis on guaranteed lifetime income options. "There's a whole conglomeration of trends pointing toward that," he said.

Sen. Charles Grassley, R-Iowa, is on deck to be the next chairman of the Senate Finance Committee, which also oversees tax-related retirement issues. Mr. Grassley's previous stints as chairman, including presiding over passage of the Pension Protection Act of 2006, has retirement advocates encouraged.

"I think he will be a terrific bipartisan broker of all the ideas that are going to be floated," said Mercer's Mr. Manville.

'Pretty pessimistic'

Other Washington observers are expecting a lot less. Alan Glickstein, senior retirement consultant at Willis Towers Watson PLC in Dallas, is "pretty pessimistic."

He notes that 2019 "is the last shot we have before the next presidential election (in 2020). So, we really have part of a year with a brand-new Congress. Even though there's bipartisan support, I just think we are going to run out of time," he said.

The clock is definitely ticking for Washington to solve the multiemployer pension crisis, which could delay action on other retirement issues. As 2018 drew to a close, members of a special joint House and Senate committee were still negotiating a package of reforms to save struggling plans, head off more plans running into trouble and shore up the multiemployer program of the Pension Benefit Guaranty Corp.

Officials there, led by a new director when Gordon Hartogensis is confirmed, have pledged to work with Congress on protecting multiemployer guarantees, and to work in-house on ways to strengthen both the multiemployer and single-employer programs.

Eye on Labor Department

Bipartisanship also will play a role on the regulatory front, particularly if legislative efforts stall. Many of the issues raised in the various retirement proposals could wind up being addressed by the Department of Labor's Employee Benefits Security Administration.

Officials there are working to implement an Aug. 31 White House executive order to revisit rules on open multiple employer plans and minimum distributions, and to reduce notification paperwork requirements of plan sponsors through electronic delivery. Regulators are working to address concerns raised on both sides of the political aisle.

"I think we will see some activity; I just don't know if it will be regulatory or legislative," said Jack Towarnicky, executive director of the Chicago-based Plan Sponsor Council of America, a division of the American Retirement Association.

With some controversy over legislative proposals to mandate disclosure of lifetime income, the DOL could be called on to advance a more moderate approach.

Because of changing workforce demographics and greater awareness of sustainable investing particularly among younger workers, the DOL might also do more to assure plan fiduciaries that they could consider ESG issues in connection with proxy voting, other shareholder engagements and investment decisions, predicts Lynn Dudley, senior vice president for global retirement and compensation policy at the American Benefits Council in Washington.

"You might see them find some ground that they can work on. It's more than just DB plans interested in those kinds of investments. It's a different workforce and the workforce is rapidly being supplanted by millennials," she said.

An active year for SEC

The new year promises to be busy for the Securities and Exchange Commission, where Chairman Jay Clayton will continue his push to protect "Mr. and Mrs. 401(k)." He will also need to fill the vacancy left by Democratic Commissioner Kara Stein's departure in December.

At a December oversight hearing in the Senate, Mr. Clayton fielded repeated calls to keep an eye on corporate stock buybacks, which have grown since the 2017 tax cuts. He is also under pressure from all sides to revisit proxy voting and the use of proxy advisers. Changes should be expected, Mr. Clayton told the Senate panel.

"I think there's broad agreement that there are elements of the proxy ecosystem that can be improved," he said.

Institutional investors are also hopeful that the SEC will issue guidance or propose a standardized way to evaluate companies on how they deal with ESG factors.

Other priorities for the chairman are cybersecurity, digital assets and finalizing a proposed Regulation Best Interest for financial advisers. SEC officials are working, too, to solicit ideas on expanding investor access to private offerings.

They will also be dealing with a power shift at the House Financial Services Committee, when longtime ranking member Maxine Waters of California becomes leader. Ms. Waters' priorities are protecting consumers and investors from abusive financial practices and preventing another financial crisis. She also is expected to work on housing reform and making the financial services sector more inclusive.

Ms. Waters' priorities have been transparent, noted Jim Toes, president and CEO of the Security Traders Association, and "this committee really did prove itself to be able to work in a bipartisan way" on measures like the JOBS Act 3.0, which makes it easier for startups to access capital markets through an expanded definition of accredited investor and an easier on-ramp for initial public offerings.