This article originally appeared in the Winter 2014 issue of NAPA Net the Magazine. To view a PDF version of this article, with commentary from Judy Miller, ASPPA's Director of Retirement Policy, CLICK HERE.
In physics, a wave is a traveling disturbance that travels through space and matter, transferring energy from one place to another, such as a sound wave, or even an ocean wave. In politics, a “wave” can serve much the same function, and the wave that was the 2014 election could serve as a catalyst for change for retirement plans. Certainly, having regained their Senate majority and deepened their hold on the House, the GOP — with a wary eye on the 2016 elections — may be ready to act on a range of issues affecting the retirement industry.
In a Nov. 6 members-only webcast, NAPA Executive Director/CEO Brian Graff and Political Director Jim Dornan discussed the shifts in power in the nation’s capital and what that might mean for legislative change generally, and retirement plan/tax reform proposals specifically. And while the dust hasn’t yet fully settled on those prospects, NAPA’s political insiders say there’s reason to think the dynamics have shifted sufficiently to create some opportunities — and potential threats — to retirement plan-related legislation.
The House of Representatives
Dornan explained that in the House, the GOP now has its strongest majority in nearly a century — freeing Speaker John Boehner’s hand to pursue his agenda without necessarily having to rely on the support of Tea Party Republicans, and to perhaps even pick up some moderate Democrats on certain issues.
The current leadership — Kevin McCarthy (R-Calif.) as Majority Leader and Majority Whip Steve Scalise (R-La.), will remain in their positions. As for committee chairs, Paul Ryan (R-Wis.) will take over Ways & Means from the retiring Dave Camp (R-Mich.), while John Kline (R-Minn.) will remain as head of the Education and the Workforce Committee. Jeb Hensarling (R-Texas), the current chair of the House Financial Services committee, is likely to retain that post.
The Senate
In the Senate, the GOP wrested control of Senate seats from Democrats in Arkansas, Colorado, Iowa, Montana, North Carolina, South Dakota and West Virginia, and nearly two weeks after the polls closed, picked up Alaska as well. Meanwhile the GOP retained seats in Georgia and Kentucky, the latter held by soon-to-be Senate Majority Leader Mitch McConnell.
Virginia reelected incumbent Sen. Mark Warner (D), but his challenger, long-time political operative Ed Gillespie, transformed what was expected to be a runaway into an election eve nail-biter that wasn’t officially called until the weekend after Election Day. The contest in Louisiana will be decided in an early December runoff, since neither incumbent Mary Landrieu (D) nor GOP challenger Rep. Bill Cassidy got more than 50% of the vote. (Editor's Note: After publication, Cassidy won the runoff with 58% of the vote.)
No matter how the Louisiana race shakes out, the GOP will hold the majority. As a result, there will be a major reshuffling of power and legislative agendas, with current Democratic committee chairmen becoming ranking members and current Republican ranking members becoming chairmen.
By and large, the Senate follows seniority rules for chairmanships. In the Senate, that means that the Health, Education, Labor and Pensions (HELP) committee (which will have jurisdiction over the Department of Labor’s fiduciary definition reproposal) will be chaired by Sen. Lamar Alexander (R-Tenn.), while the Senate Finance Committee will be headed by Sen. Orrin Hatch (R-Utah) and the Senate Banking Committee by Sen. Mike Crapo (R-Idaho), though there are rumblings that Sen. Richard Shelby (R-Ala.), who has previously chaired that committee, is interested in taking on that role again. Dornan noted that ASPPA would be keeping an eye on movements there.
What’s Different Now
Those shifts notwithstanding, Graff explained that it’s the next election, in 2016, that might provide the real impetus for change on Capitol Hill. While Democrats were forced to defend a number of seats in November in states that went for Mitt Romney in 2012, in 2016 the election map will be a mirror image — with Republicans forced to defend Senate seats in a number of states that voted for President Obama in 2012.
According to Graff, that dynamic will put a lot of pressure on the GOP to govern and show that it can accomplish things, and to do so in a short period of time.
Of course, the Democrats (including the president) will be motivated to show that the Republicans can’t get things done. But Graff explained that both McConnell and Boehner are what we might think of as “traditional” politicians who “know how to deal.” One other difference from the past several years: The momentum for negotiating any bipartisan “grand bargain” will likely shift from the House to the Senate.
Prospects for Tax Reform
“The tax code is almost as popular as the U.S. Congress,” quipped Graff, even as he noted that even if the House doesn’t get comprehensive tax reform, they want to do what they think is right — and campaign on it, even if it isn’t enacted into law. In contrast, he said the Senate wants to do something.
The Tax Reform Act of 2014, a proposal put forth by retiring House Ways & Means Chairman Dave Camp (R-Ohio) earlier this year, purported to reform the current tax structure, but it contained a number of provisions that would be detrimental to retirement plan formation.
For example, under the bill, small business owners could pay a new 10% surtax on all contributions made to a qualified retirement plan now, and then would have to pay tax again at the full ordinary income tax rate when they retire.
The proposal also would have frozen contribution limits at the current rate (not even allowing indexing for inflation) until 2023.
Those concerns notwithstanding, Camp’s tax reform proposals is now something of a “marker” for future tax or spending proposals, having been scored by the Joint Committee on Taxation as giving back more than $63 billion to the Treasury if enacted.
As for some specific alternative legislative windows that could open, Graff noted that in the absence of a comprehensive tax reform bill, there will be legislative vehicles that could be used to enact pension reform, adding that the expiration of the multi-employer pension funding rules could provide an opportunity to enact broader pension reforms.
Finally, he explained that the process of renewing more than 100 expired provisions in the tax code, dubbed “tax extenders,” could be another opportunity to enact retirement policy changes.
While the 113th Congress may leave office without much in the way of legislative accomplishments, several retirement-related proposals could provide a good foundation for the work of the next Congress. In addition to Sen. Hatch’s SAFE Retirement Act, similar “spread-match” safe harbor proposals, as well as “open” MEP proposals, were included in legislation proposed by Rep. Richard Neal (D-Mass.) in the House (HR. 2117) and Sens. Susan Collins (R-Maine) and Bill Nelson (D-Fla.) in the Senate (S. 1970). Expect retirement savings legislation in the new Congress from all three.
Sen. Tom Harkin (D-Iowa), the current chair of the HELP committee, is retiring, so he will not be reintroducing his USA Retirement Funds Act (S. 1979), although someone else could take it on. One possibility: Sen. Sherrod Brown (D-Ohio) who was a co-sponsor of Harkin’s bill.
