With that resolute assessment, NAPA Executive Director Brian Graff apprised attendees at the March 19 opening session of the 2017 NAPA 401(k) Summit on the current high level of federal activity affecting retirement plans. Graff said that he is concerned “every waking moment” — but also that there are things that can be done.
Among the areas of constant and fevered activity are tax reform and the DOL’s fiduciary rule. “I have never seen a level of activity like this,” said Graff, adding “I wish I could tell you” where it’s going.
Tax reform was one of candidate Donald Trump’s central campaign promises, and President Trump and the Republican-controlled Congress are discussing ways to oblige. And that could have implications for the retirement plan industry and those whom it serves.
“It’s impossible to do tax reform without winners and losers,” said Graff. He noted that Speaker of the House Paul Ryan (R-WI) remarked in a Dec. 4, 2016 broadcast of “60 Minutes” that the tax reform plan he was advocating “plugs loopholes” to pay for lower tax rates. “What does that mean?” asked Graff, adding, “One man’s loophole is another man’s incredibly important tax preference.”
Another feature of the potential tax plan is a proposal for a border adjustment tax, which the Tax Foundation estimates could raise $1 trillion. But that proposal may have difficulty surviving the Senate. And if that money is not coming in, said Graff, “The money must come from somewhere,” adding, “Now you know why I’m up all night.”
“At this point, if they do tax reform, there is no chance — no pathway — that we get through it unscathed,” said Graff. “You have to understand, in the context of tax reform, everything is about trade-offs. Tax reform is an exercise in making choices,” he added, noting that the job is get legislators to understand them. “There are people in Washington who do not understand the relative importance of retirement savings plans,” he said.
There is good news, however, Graff said — legislators realize that cutting savings incentives is not good for economic growth, and are cognizant of the political consequences of tax incentives that are attuned largely to those with high incomes.
In addition, Graff noted that while the U.S. House recently passed a resolution against the DOL’s guidance on state retirement plan initiatives, he said he considers it “unclear” whether the Senate will follow suit. “I think these state initiatives are going to continue,” he said.
Another factor to consider are the proposals to reform federal health care law, which includes boosting health savings accounts (HSAs). Under the proposals, there is a huge incentive to save through an HSA, said Graff, “and frankly, they are more attractive than a 401(k).” He added, “We’ve got to think about what this means for our industry.”
The Fiduciary Rule
“I think the Trump administration is intent on delaying the rule,” said Bradford Campbell, partner at Drinker Biddle & Reath and former Assistant Secretary of Labor for Employee Benefits. He gauged the chances of at least a 60-day delay at the “high 90 percents.” What the Trump administration is trying to do, said Campbell, is “figure out what the effect of the rule would be.” Graff added that the administration is trying to determine if real-world experience is proving that the Obama administration’s calculations concerning the rule are incorrect.
“What I’m freaking out about,” said Graff, is that there would be a delay, then a comment period, then another delay. Worse, Campbell posited, would be if the industry was to start complying with the rule only to have changes made. That, he said, “would be a problem of Biblical proportions.”
So what if that happened? Campbell observed that the DOL’s recent Field Assistance Bulletin provided some assurance that it would be okay to not comply with the rule if the delay of the rule is itself delayed, but it is an imperfect solution. He noted that the problem is that the DOL doesn’t enforce provisions involving prohibited transactions.
And stopping the rule is not as simple as it may seem, Graff cautioned. “There is no button they can press” to just stop the rule, he said, adding, “The DOL can’t just issue a piece of paper saying the rule will go away — the regulation is law.” The only way to do it, he said, is to put in place a regulation that accomplishes that. But that entails economic and regulatory analysis, which “almost certainly” some consumer groups would challenge in court.
It is possible, they said, that Congress may intervene. “Congress is definitely interested in this,” said Campbell, “but be careful what you wish for.” Graff expressed skepticism that congressional action will be the answer, saying that “the other thing to keep in mind is the Senate. The idea that Elizabeth Warren and Bernie Sanders will not filibuster — no chance.”
Campbell suggested that it may be better to pursue the matter through the DOL and not the legislative process. Graff considers that the most likely route; Campbell agreed, as long as the regulatory process is moving, but that if it is not, Congress likely will get involved.
“We’re in the middle of it — I promise we’re in the middle of it,” Graff said of the efforts of NAPA and the American Retirement Association. “It’s not going to be perfect,” he cautioned. “There are no magic unicorns here.”