Optimism sprouts over chances for retirement reforms

Since the start of the 116th Congress, the headlines out of Washington have mostly concentrated on shutdowns and investigations, but legislators in both chambers have also made retirement issues a focus, and industry sources are optimistic major legislation on that front will be passed.

House Ways and Means Committee Chairman Richard Neal, D-Mass., held a hearing earlier this month on retirement security where issues like Social Security solvency, the trouble certain multiemployer pension plans face and the success of Oregon's state-based automatic IRA program were front and center. A longtime proponent of enhancing workers' retirement preparedness, Mr. Neal said the Feb. 6 hearing will be the "first of many conversations on this issue."

With Mr. Neal at the helm of the Ways and Means Committee, retirement-related issues will get a lot of attention, said Kent Mason, a partner with Davis & Harman LLP in Washington, who represents numerous plan sponsors and service providers.

"I think it sets a good tone for this year for activity in retirement, setting the stage for this to be an important issue for Chairman Neal," Mr. Mason said.

The same day as the hearing, Reps. Ron Kind, D-Wis., and Mike Kelly, R-Pa., reintroduced the Retirement Enhancement and Savings Act in the House.

Among other provisions, the bill would make it easier for smaller employers to join open multiple employer plans, ease non-discrimi- nation rules for frozen defined benefit plans and add a safe harbor for selecting lifetime income providers in defined contribution plans.

RESA drew bipartisan support when it was introduced in both congressional chambers last session, but it never ultimately passed.

In testimony before the Ways and Means Committee, Roger Crandall, chairman, president and CEO of Massachusetts Mutual Life Insurance Co., urged lawmakers to pass RESA. He is in favor of RESA's open MEPs provision, its expansion of employer tax incentives designed to help offset the costs associated with establishing a new workplace retirement plan, and its provisions designed to simplify and streamline plan administration.

Specifically, Mr. Crandall told the committee it's time to make open MEPs a reality. "For too long, unrelated employers have unnecessarily been prevented from joining together to offer important retirement benefits to their employees," he said. "This barrier to expanded access to workplace retirement plans unfortunately persists despite bipartisan support for open MEPs in both houses of Congress and support across Democratic and Republican administrations in the White House."

There are also other bills that feature elements of RESA that could be incorporated when a retirement reform package is ultimately passed, Mr. Mason said. Those bills include the Retirement Security Act, which was introduced by Sens. Susan Collins, R-Maine, and Maggie Hassan, D-N.H., earlier this month. That bill, among other provisions, would simplify compliance for small businesses that choose to provide employees with employer matches on contributions up to 10% of pay, with an aim of encouraging more generous retirement contributions.

In January, the first bill Mr. Neal introduced was the Rehabilitation of Multiemployer Pensions Act. The bill would establish the Pension Rehabilitation Administration, a new agency within the Department of the Treasury, authorized to issue bonds to finance loans to multiemployer pension plans that are in a "critical and declining" status, plans that have suspended benefits and to some recently insolvent plans currently receiving financial assistance from the Pension Benefit Guaranty Corp.

In the PBGC's annual report released in November, Director W. Thomas Reeder Jr. stressed that most of the 1,400 multiemployer plans covered by the PBGC are not at risk, but 130 plans are, and some will run out of money in less than 10 years. The PBGC's multiemployer program is also headed toward insolvency by the end of fiscal year 2025.

"There's a desperate need here to fix this problem," Mr. Mason said. "I think everybody agrees. I know that there's been a tremendous amount of bipartisan work on it but there are still some sticking points and I think they very much want to work it out, both Republicans and Democrats."

Under the legislation's loan program, terms will require the plan in question to make interest payments for 29 years with final interest and principal repayment due in year 30, according to a summary prepared by the committee's Democratic staff.

For the plans that receive a loan, one restriction for borrowers is they would not be able to make risky investments. Plans that receive a loan must fund the plan's obligations by either purchasing an annuity, investing in a cash-matching or duration-matching portfolio, or a portfolio with a similar risk profile.

There's also a bill introduced by Rep. John B. Larson, D-Conn., chairman of the Ways and Means Social Security Subcommittee, that aims to shore up Social Security while implementing an across-the-board benefit increase for current and new beneficiaries and improving cost-of-living adjustments, among other provisions. The added benefits would be paid for by gradually increasing the contribution rate beginning in 2020 so that by 2043, workers and employers each would pay 7.4% toward Social Security, instead of the 6.2% today, according to the congressman's website.

On Feb. 13, Sen. Bernie Sanders, D-Vt., and Rep. Peter DeFazio, D-Ore., introduced legislation similar to Mr. Larson's in that it expands Social Security benefits. The Social Security Expansion Act would further tax people earning more than $250,000 a year. Current law caps the amount of income subject to payroll taxes at $132,900.

Support for a retirement reform package isn't the issue, said Bradford Campbell, a Washington-based partner for Drinker Biddle & Reath LLP. The question, he added, is whether legislators can "find a vehicle to pass the Congress as a whole to which these sorts of bills can be attached?"

Typically, that vehicle is a spending bill or some other must-pass legislation.

"If there's a budget deal, maybe we could get attached to it, but there's a chance we won't," Mr. Mason said. "It's possible to move on its own but that's hard to do."

Jana Greer, president and CEO, retirement, at American International Group Inc., said she's encouraged by the bipartisan commitment to improving retirement security. "We're close, but I would say to our elected officials: Now is the time to get retirement legislation across the finish line."

Mr. Campbell said he's "cautiously optimistic" that retirement reform legislation will pass this Congress. "Whether it's RESA, whether it's Portman-Cardin (a bill from last Congress), whether it's a bill that Chairman Neal puts together … the bills share a lot of common characteristics so I don't think it would be that difficult to craft final legislation," he said. "It's not as though the sides are miles apart; in fact they're pretty close together."