If Joe Biden is sworn in as the 46th President, much of the fate of his retirement tax policy proposals may depend on the results of two Senate runoff elections in Georgia.
While we are still several weeks away from knowing what exactly the presumptive President would propose, the likelihood of Biden’s agenda moving forward in the 117th Congress will be highly dependent on which party controls the Senate.
And that comes down to what happens with the special runoff elections for Georgia’s two Senate seats, which are set for Jan. 5, 2021. It’s already highly unusual for two Senate seats from the same state to be up for reelection in the same year, but to also have them be the deciding factor of control of the Senate and conceivably the President’s agenda makes it even more intriguing.
The first race includes Democratic candidate Reverend Raphael Warnock, who will face Sen. Kelly Loeffler (R-GA). Loeffler was appointed by Gov. Brian Kemp in December 2019 to replace Sen. Johnny Isakson, who retired for health reasons in August of last year. The second race is between Sen. David Perdue (R-GA) and Democratic candidate Jon Ossoff, who lost a 2017 runoff election for Georgia’s 6th congressional district.
The Senate’s current breakdown for the next Congress is 50 Republicans to 48 Democrats (including two independents who caucus with the Democrats). If one or both Republican candidates in Georgia are victorious in January, the GOP would retain control of the Senate in the 117th Congress. If the Democrats win both Georgia seats, the party ratio then becomes 50-50 and the Democrats would be in control, with presumptive Vice President Kamala Harris serving as President of the Senate and casting the tie-breaking vote.
If the Democrats do end up controlling both the House and Senate, then it’s more likely that Biden’s retirement and tax policy proposals will receive a more favorable reception. That’s not to say that every proposal stands a high chance of being enacted, as it will still be difficult to move legislation given the tight margins in both the House and Senate.
Moreover, it takes 60 votes to end a filibuster to move most legislation through the Senate. However, there is a special “budget reconciliation” process that Congress can use to implement key tax and spending proposals under expedited procedures that only take a simple majority to pass. The catch is that every proposal must have a budgetary impact and the provisions can’t be effective beyond the budget’s 10-year window. This is the process that was used to pass the Tax Cuts & Jobs Act and parts of the Affordable Care Act. If the Democrats were to control both houses of Congress, then it’s very likely we might see this process used to pass some of Biden’s retirement tax proposals.
One such proposal outlined in the Biden Plan for Older Americans is to “equalize the savings incentives in defined contribution (DC) plans for middle-class workers.” It's short on details, but surrogates of the campaign have suggested that the proposal would convert the traditional pre-tax savings for 401(k) plans to a flat tax credit, contending that the current tax benefits provide upper-income families a large tax break for saving with limited benefits for lower-income workers. It’s not clear whether Biden would actually introduce this proposal if he takes office, but it would certainly be opposed by the American Retirement Association.
Biden has also proposed to provide access to an “automatic 401(k)” plan for nearly all workers without a pension or 401(k). This concept has been circulating for years and appears to be based on an Obama administration proposal to require employers in business for two years that have more than 10 employees to offer an automatic payroll deduction IRA program to its employees. This is also a priority of House Ways & Means Committee Chairman Rep. Richard Neal (D-MA), who previously introduced legislation requiring employers (except for certain organizations that would be exempted) to maintain a 401(k) or 403(b) plan that covers all eligible employees.
Other Biden campaign promises include providing small businesses with an additional tax-incentive for creating retirement plans. The campaign plan similarly was not specific, but it appears the proposal would build off the SECURE Act’s provisions that provide credits for starting a plan and an additional credit for including automatic enrollment.
Other tax-increase proposals cited by Biden during the campaign include a financial transaction tax, which the ARA also strongly opposes, as well repealing many of the provisions contained in the Tax Cuts and Jobs Act.
If the Republicans maintain control of the Senate, it’s likely Biden’s tax increase proposals would be dead on arrival in the Senate. However, changes to retirement policy in the past have been targeted as revenue raisers, so it doesn’t necessary mean that everything is off the table.
CRA Implications
An additional implication if the Democrats win control of the Senate is that you might see usage of the Congressional Review Act (CRA) for recently published regulations by the Trump administration. The CRA establishes an expedited process for Congress to review and invalidate new regulations issued by federal agencies. (Click here for more on the CRA.) Essentially, under the CRA, Congress generally has a 60-day window to act on a joint resolution of disapproval to take advantage of the law’s special “fast track” procedures. If both the House and Senate pass the resolution and it is signed by the President, the CRA states that the disapproved rule “shall not take effect (or continue).”
In the retirement policy area, this could include the newly finalized rule on Financial Factors in Selecting Plan Investments; a pending rule (if it is finalized) addressing fiduciary duties concerning proxy voting; and an Interim Final Lifetime Income Disclosure Rule.
Additional regulatory areas that could come under review by a Biden administration include the rebooted fiduciary rule, which restored the 1975 five-part test on the conditions for advice to constitute “investment advice” and proposed a new prohibited transaction exemption. Moreover, an Information Letter that affirmed private equity investments can be offered as an investment option for participants in DC plans as part of a professionally managed multi-asset class vehicle may also come under review.
