Election in sight, but focus stays on secure retirement

Looming elections make it challenging to predict the second half of any year, and this is no ordinary year.

The unprecedented global pandemic has put Washington policymakers on edge as they face the typical end-of-year rush to advance regulations, legislation or administrative priorities in case the political landscape changes.

Yet despite growing political uncertainty and a shrinking legislative calendar, there could be more retirement security legislation in 2020 to address the multiemployer pension crisis and economic uncertainty caused by the pandemic.

"The COVID-19 emergency has only worsened the existing retirement crisis in our country," Rep. Richard Neal, D-Mass., chairman of the House Ways and Means Committee, said in a statement to Pensions & Investments. "Now more than ever, we urgently need to stabilize multiemployer plans before they become insolvent and help all Americans prepare for their long-term financial security during these uncertain times."

Even though Congress passed the SECURE Act in December, the first retirement security package in more than a decade, other bills with similar retirement-related goals have been introduced and even more are expected. Among the possibilities for reintroduction are the Automatic Retirement Plan Act, which would require many employers to offer a 401(k) or 403(b) plan, and the Retirement Plan Simplification and Enhancement Act, which among other provisions would exempt retirement savings below $250,000 from complicated required minimum distribution rules and make it easier to take advantage of the saver's credit. Both bill were initially introduced by Mr. Neal in 2017.

Two senators who have taken up the retirement security mantle, Rob Portman, R-Ohio, and Ben Cardin, D-Md., last year introduced the Retirement Security and Savings Act, with more than 50 provisions aimed at improving coverage with small employers and among part-time workers.

There could be more retirement security legislation coming, said Melissa Kahn, Washington-based managing director of retirement policy for State Street Global Advisors' defined contribution team. One possibility is that provisions from existing bills, like the Portman-Cardin proposal, are added to another stimulus bill to address the ongoing COVID-19 pandemic and related economic distress.

Adding bipartisan legislation to a larger spending vehicle like a stimulus bill seems plausible, said David Levine, principal at Groom Law Group in Washington. Notably, the SECURE Act was approved after being attached to a must-pass year-end spending bill.

"Given the size and pace at which these bills move, I could certainly see things being stapled on," Mr. Levine said, including a House bipartisan bill introduced in March to enable 403(b) plan sponsors to offer collective investment trusts to participants.

The latest coronavirus relief package — the Heroes Act — was narrowly approved by the House in May and includes major changes for multiemployer pension plans, but it has far less bipartisan support than previous measures. The Heroes Act legislation includes some funding relief on amortization periods for both multiemployer and single-employer retirement plans.

It also offers several other types of relief for multiemployer pension plans and the Pension Benefit Guaranty Corp., whose multiemployer program is projected to be insolvent within five years. A much-anticipated PBGC exposure report on the program's condition that is expected to be released in August could give some urgency to helping struggling plans, not to mention as many as 1 million participants, some of whom are making multiemployer pension reform a ballot-box issue.

Multiemployer and union groups welcomed many of the Heroes Act changes that include doubling the PBGC guarantee that it provides for insolvent multiemployer plans. A more controversial provision would allow for new composite plans that combine defined benefit and defined contribution features. Based on legislation first introduced in 2018, the Give Retirement Options to Workers Act, that part of the Heroes Act would allow for freezing benefit accruals in the original plan and sharing more investment risk with plan participants.

If Democrats were to win the White House, take back the Senate and hold the House come November, Ms. Kahn said there could be some movement in the "lame duck" session after the election and before the new Congress is sworn in next year, but passing anything would be difficult. "If Democrats flip the Senate, (they) would slow walk anything that the Senate tries to do before the end of the year," Ms. Kahn said. "If Vice President Biden were to win, then we're going to talk about a whole different agenda."

On the regulatory front, agencies including the Securities and Exchange Commission are racing the clock to complete priorities in the event of leadership changes in the White House or Congress, where power is currently split between a Democratic House and Republican Senate. For the SEC, those include expanding access to private markets and reforming shareholder and proxy adviser rules, concepts that have met considerable resistance from market watchdogs and investor groups like the Council of Institutional Investors in Washington. While not exactly expected this year, they are priorities of outgoing Chairman Jay Clayton, who was nominated to take over as the U.S. attorney for the Southern District of New York.

The Department of Labor has been particularly active in recent weeks, finalizing and proposing regulations with major impacts on the retirement community.

In late May, it finalized a rule that permits default electronic delivery of retirement plan disclosures. In June, it took four major actions. One was an information letter giving defined contribution plan sponsors the ability to include certain private equity strategies into diversified investment options while complying with ERISA, while another was a request for information on a prohibited transaction exemption to give fiduciaries of pooled employer plans and other multiple employer plans more latitude with ERISA. It also proposed a rule stipulating that ERISA plan fiduciaries cannot invest in ESG vehicles that sacrifice investment returns or take on additional risk, and unveiled a prohibited transaction exemption to permit investment advice fiduciaries to receive compensation for their advice.

Implementing and finalizing these rules and guidelines will keep the department quite busy for the rest of the year.

The flurry of activity "is pretty typical of an administration in its last year, really trying to get a lot of guidance out before a possible change in administration," Ms. Kahn said.

Any regulations not in effect when a new administration takes over in January will likely be halted or scrapped entirely, Mr. Levine said. "If any of these items that are proposed by the Trump administration are not finalized, I would certainly expect a Democratic administration to press pause and take a look," he said.

Even with all that activity, the Labor Department could still do more, like issuing guidance on the pooled employer plan registration process. PEPs were established in the SECURE Act to make it easier for employers in unrelated businesses to join so-called open multiple employer plans and go live Jan. 1. A PEP must have a pooled plan provider designated as a named fiduciary, plan administrator and the person responsible for specified administrative duties.

According to its spring 2020 regulatory agenda, the Labor Department is also planning to propose a "deregulatory action" on proxy voting that would "modernize fiduciary practices related to the voting rights associated with ERISA plan investments and harmonize those regulations with the requirements of other regulators."

Getting final consensus on any controversial proposal like that in this unusual year would be quite a feat. In May, Preston Rutledge stepped down as assistant secretary of labor for the Employee Benefits Security Administration. Jeanne Klinefelter Wilson is serving as the acting assistant secretary and could remain in that role for the foreseeable future.

"Recognizing we're in an election year and there's a lot of focus on a lot of things, it wouldn't surprise me if Jeanne stays in that role," Mr. Levine said. "But the administration could pop up and (nominate) someone, we just don't know."

The Labor Department's proposed exemption for fiduciaries announced June 29 harmonizes with the SEC's best-interest rule package approved in June 2019. It is more commonly known as Reg BI for its centerpiece best-interest standard that aims to compel brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts.

The SEC's Reg BI went into effect June 30 and the commission will spend the next few months ensuring the necessary parties are in compliance, although SEC Chairman Jay Clayton said initial Reg BI examinations will be less onerous because of the disruptions caused by coronavirus outbreak.