Retirement security could be only issue both sides accept

There aren't many truly bipartisan issues in Washington these days, but lawmakers on both sides of the aisle are eager to pass another retirement security package in 2021 and are optimistic about their chances.

In the House, Ways and Means Committee Chairman Richard Neal, D-Mass., and ranking member Kevin Brady, R-Texas, introduced the Securing a Strong Retirement Act in October. The bill, which would have to be reintroduced in the new Congress, would require, among dozens of provisions, 401(k), 403(b) and Savings Incentive Match Plan for Employees — known as SIMPLE plans — to automatically enroll workers upon becoming eligible while giving employees the opportunity to opt out; raise the age at which individuals are required to begin withdrawing a percentage of their tax-deferred retirement plan to 75 from 72; and create a national online database of lost retirement accounts in order to reduce the number of missing participants. "Retirement policy is an area where I see great potential for bipartisan agreement," Mr. Neal said in a statement to Pensions & Investments. "I anticipate (the Securing a Strong Retirement Act) will quickly advance" in 2021.

Mr. Brady touted the bill during a webinar hosted by the Bipartisan Policy Center on Dec. 10 and said it builds on the Setting Every Community up for Retirement Enhancement Act, commonly known as the SECURE Act, a massive retirement security package Congress passed in 2019.

The Securing a Strong Retirement Act already has strong support in the House and "we are working to move it as soon as possible," said Jesse A. Solis, a spokesman for Republicans on the Ways and Means Committee, in an email.

In the Senate, Rob Portman, R-Ohio, and Ben Cardin, D-Md., will likely lead the way in taking up retirement security legislation next Congress. The two reintroduced the Retirement Security and Savings Act in May 2019 and are expected to do so again in the new Congress. The bill features more than 50 provisions aimed at improving coverage with small employers and among part-time workers. Similar in scope to the House proposal, the bill would reduce barriers to lifetime income options, establish a new automatic enrollment safe harbor for employers to meet non-discrimination requirements and allows employers to make matching contributions to retirement accounts of employees paying off qualified student-loan debt.

Mr. Portman in December chaired a hearing on the challenges facing Americans' retirement security and sounded optimistic about the passage of legislation in the next Congress. "This is an opportunity for bipartisan work … Regardless of who gets the majority in the Senate come January, this is an area where I think we have the potential to make some real progress because I think it has been, and will be, bipartisan," he said.

After winning two Jan. 5 runoff elections in Georgia, Democrats will control the Senate. Though there will be a 50-50 split between the two parties, the tiebreaking vote will come from Vice President-elect Kamala Harris. That means Democrats will lead each of the Senate committees and Sen. Chuck Schumer, D-N.Y., will decide what business comes before the Senate floor. Republicans had been in control of the Senate since 2015.

With the Georgia victories, Democrats will have control of both chambers of Congress and the White House, which means President-elect Joe Biden should have an easier time confirming nominees to his administration and a greater chance of passing legislation he campaigned on.

On retirement, Mr. Biden during the campaign said he wanted to "equalize" the retirement provisions of the tax code because a majority of the current tax advantage benefits the nation's wealthiest families. Whether that initiative gets a push in 2021 remains to be seen.

William Kalten, Stamford, Conn.-based senior director of retirement and executive compensation at Willis Towers Watson PLC, expects action on a retirement security package early in 2021, but passage is never a guarantee. "The tricky part would be on the Senate floor because retirement bills don't usually end up moving on their own through the Senate," he said. "So they'll probably have to tack it onto something and that can get tricky."

In 2019, the SECURE Act was added onto a year-end spending bill.

Lawmakers could not reach a deal before the 116th Congress adjourned on multiemployer pension reform as the crisis continues to worsen.

The Pension Benefit Guaranty Corp.'s multiemployer program had a deficit of $82.3 billion as of Sept. 30, 2019, according to the agency's latest projections report released in September. The report projects a "very high likelihood" of the multiemployer program's insolvency by September 2026 and "near certainty" by September 2027.

The PBGC doesn't have the tools to solve the problem itself, said Chantel Sheaks, executive director of retirement policy at the U.S. Chamber of Commerce in Washington. "I know the PBGC wants to help on this one but any kind of relief really has to come from Congress."

In a joint December statement, Finance Committee Chairman Chuck Grassley, of Iowa, and former Health, Education, Labor and Pensions Committee Chairman Lamar Alexander, of Tennessee who retired at the end of 2020, said talks with their Democratic colleagues in the Senate and House did not succeed, as both parties tried to strike a balance over saving both the retirement benefits of an estimated 1.5 million retirees and the PBGC's multiemployer program while also reforming the multiemployer pension system "instead of relying on taxpayers to bail out a private-sector system in perpetuity."

"While each side has agreed to make significant changes, we have yet to find an agreement that satisfies our respective principles and objectives for resolving this situation," the senators said, adding that they remain committed to finding a solution "and will continue looking for a balanced, sensible approach to resolve this increasingly critical problem."

For Mr. Neal, "passing a measure to provide workers and retirees in those plans with relief will continue to be a top priority of mine in the 117th Congress," he said in his statement to P&I.

The Department of Labor was busy in the last few months of 2020, churning out regulations stipulating that ERISA plan fiduciaries cannot invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk; permitting ERISA-governed fiduciaries to only cast proxy votes when they would have an economic impact on the retirement plan; and finalizing a prohibited transaction exemption to allow investment advice fiduciaries to receive compensation for more types advice.

Each of the rule-makings had 30-day comment periods, leading stakeholders to criticize the Labor Department for moving too quickly. The rules prohibiting investments in non-pecuniary vehicles and on proxy voting will be in effect before the Biden administration takes office Jan. 20 (the proxy voting rule's effective date is Jan. 15). For the Biden administration to undo a rule that's already in effect, it would need to go through a traditional and potentially lengthy notice-and-comment period.

Stakeholders in the sustainable investing community have condemned the Trump administration for what they describe as an anti-environmental, social and governance philosophy, but expect the Biden administration to approach the issue differently.

Heather Slavkin Corzo, Washington-based head of U.S. policy for the Principles for Responsible Investing, said she'd like the Labor Department to "break out from the pingpong that we've seen" on ESG issues in recent decades when the White House transfers parties.

"I would like to see the DOL issue a rule that requires ERISA fiduciaries to have sustainable investment policies and to make clear that ESG factors are likely to be material factors that ERISA fiduciaries have an obligation to take into account as they're making investment decisions," she said.

The Biden administration will also have a decision to make on the recently finalized investment-advice exemption, which has an effective date of Feb. 16. The new administration has the option to halt and review any rule-making effort that is not in effect, meaning that the exemption has an uncertain fate.

Some stakeholders expect the Biden team to revisit the investment advice issue. It was in 2016 that the Labor Department under the Obama administration finalized a rule, commonly known as the fiduciary rule, that aimed to broaden the definition on when a person or entity is taking on fiduciary responsibilities. The 2016 rule was struck down in federal court in 2018.

"I think it's an important issue for Democrats and (the Biden administration) would take the time and spend the energy" to introduce a new fiduciary rule, Willis Towers Watson's Mr. Kalten said.

But the new administration will have its hands full and may not view these issues as top priorities, said Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute in Washington. "With everything else going on in the world right now, I think that retirement policy is probably not one of the higher items on the incoming administration's priority list," he said.

Shortly before press time, Mr. Biden named Boston Mayor Marty Walsh as his pick to lead the Labor Department. Mr. Walsh, who has served as Boston's mayor since 2014, has an extensive labor background, including leading Boston's Building and Construction Trades Council from 2011-2013.

Richard Trumka, president of the AFL-CIO, said in a statement that Mr. Walsh "will be an exceptional labor secretary for the same reason he was an outstanding mayor: he carried the tools. As a longtime union member, Walsh knows that collective bargaining is essential to building back better by combating inequality, beating COVID-19 and expanding opportunities for immigrants, women and people of color."

The Securities and Exchange Commission will soon have a 3-2 Democratic majority, and is expected to be more receptive to requiring additional corporate disclosures on ESG issues, particularly diversity and climate risk.

Much like the Labor Department, the SEC may also revisit the investment advice issue. It took the regulatory lead under the Trump administration on the subject and in June 2019 adopted a standard of conduct package, known as Reg BI for its centerpiece best-interest standard, designed to address the obligations of broker-dealers and investment advisers when they provide recommendations or investment advice to retail investors. Reg BI went into effect June 30.

"I expect the Biden administration to revise that rule and adopt a uniform standard for broker-dealers and investment advisers," Mr. Kalten said. Currently, investment advisers are held to a more strict fiduciary standard than broker-dealers.

Jason E. Brown, Boston-based partner in the asset management group at Ropes & Gray LLP, is anticipating the SEC to take a keen interest in private funds and their fees, expenses and potential conflicts of interest. That focus could lead to an uptick in enforcement and exam activity, he added.

"Whether we're going to see a return to the broken windows model" — where even small offenses are penalized — "of (former SEC chair under the Obama administration) Mary Jo White depends on who's named chair and who's the head of enforcement," Mr. Brown said.

On Dec. 21, the SEC said it will expand the scope of its Reg BI compliance examinations starting in January. In April, the SEC said initial examinations would be less onerous and focus on "good faith" efforts because of the disruptions caused by the COVID-19 pandemic.

Jay Clayton stepped down as SEC chairman at the end of 2020 and Commissioner Elad L. Roisman, a Republican, was named acting chairman. Mr. Biden has yet to announce a nominee to lead the SEC, but is reportedly considering two former Democrat commissioners — Kara Stein and Robert Jackson Jr. — and Allison Herren Lee, a Democrat currently on the commission.