UPDATED AS OF NOV. 8, 2018
As expected, the Democrats took control of the House of Representatives in the congressional midterm elections, portending a major shift in focus for retirement policy issues.
Currently the party affiliation in the House stands at 219 Democrats and 193 Republicans. In the Senate, the current breakdown is 51 Republicans and 45 Democrats (including two independents who caucus with the Democrats), with the races in Arizona, Florida and Montana still unresolved. There also will be a special Senate runoff election in Mississippi on Nov. 27, 2018.
For retirement policy in the House, the changes are rather significant, as Democrats will now lead the committees and set the legislative agenda. In the Senate, Republicans will likely pick up additional votes, moving closer to the 60-vote threshold needed to break a filibuster, but they’ll still need cooperation from Senate Democrats.
In something of a surprise, some veteran lawmakers on the key retirement policy committees were ousted, including four Republican members of the House Ways & Means Committee and three members of the Senate Finance Committee, including two vulnerable Democrats.
The Ways & Means Republicans who will not be back in the next Congress include Peter Roskam (IL), who is the current chairman of the tax policy subcommittee, Carlos Curbelo (FL), Erik Paulsen (MN) and Mike Bishop (MI). Democratic Sens. Claire McCaskill (MO) and Bill Nelson (FL), along with GOP Sen. Dean Heller (NV), who currently serve on the Senate Finance Committee, were defeated.
Overall, the biggest change is that the two parties within the two chambers, as well as the Trump administration, will need to compromise for any legislation to be enacted, particularly when it comes to must-pass spending and appropriation bills.
Leadership and Policy Impacts in the House
As for the changes coming to retirement policy, Rep. Richie Neal (D-MA), the ranking Democrat on the House Ways & Means Committee, is in line to become chairman of that powerful committee. Neal has long been a champion of retirement policy and late last year introduced two pieces of ambitious legislation that seek to shore up retirement savings.
Neal’s Retirement Plan Simplification and Enhancement Act (RPSEA), introduced in December 2017, includes numerous changes that seek to encourage small businesses to offer plans as well as simplify the existing rules for employer-sponsored plans. Among them are to modify the current automatic enrollment safe harbor and establish a new automatic safe harbor, including changes to minimum default contributions, matching contributions and a special tax credit.
The more provocative Automatic Retirement Plan Act (ARPA) would require employers above a certain size to have or establish a 401(k) or 403(b) plan that covers all eligible employees, while exempting small employers, governments, churches and businesses not in existence for three years. The bill also allows for open MEPs and increases the start-up credit for small employers.
Neal has acknowledged that his ARPA proposal does include a mandate, but told delegates to this summer’s NAPA DC Fly-In Forum that while that provision can be a hard sell for both caucuses, he believes the parties are amenable to moving in that direction. Neal has also shown an interest in addressing the funding crisis currently facing multi-employer pension plans.
Another House committee change that could have an impact on retirement and investment policy is the Education and the Workforce Committee, where Rep. Bobby Scott (D-VA) will likely take over from current chair Rep. Virginia Foxx (R-NC).This committee oversee all matters dealing with workforce-related issues, including labor relations and employment-related health and retirement security matters dealing with ERISA.
In addition, Rep. Maxine Waters (D-CA) likely will take over as chair of the Financial Services Committee, which oversees Dodd-Frank issues. Rep. Jeb Hensarling (R-TX), the current chairman, is retiring at the end of this term.
Senate Finance Changes
While the GOP retains control of the Senate, there will be a key change on the Finance Committee, as current chairman Sen. Orrin Hatch (R-UT) will be retiring at the end of this Congress. Hatch is one of the cosponsors of the bipartisan Retirement Enhancement and Savings Act (RESA), which was reintroduced in this session of Congress after stalling on the Senate floor in 2016. While the bill’s prospects are uncertain, hope remains that it might gain some traction during the upcoming lame duck session.
It’s not clear yet who will replace Hatch as chairman, and while Sen. Chuck Grassley (R-IA) is next in line, he would have to step down from his post as chairman of the Judiciary Committee. Grassley chaired the Finance Committee in the early-to-mid 2000s, when the Pension Protection Act of 2006 was signed into law, and many of that law's provisions originated and advanced through the committee under his leadership.
If Grassley decides to stay as on chairman of the Judiciary Committee, Sen. Mike Crapo (R-ID) would be next in line for the Finance Committee chairmanship. Crapo currently is chairman of the Senate Banking Committee and would have to relinquish that spot in order to take the Finance Committee role.
Crapo hasn’t been particularly active on the retirement policy front, but he is a strong supporter of RESA and the Tax Cuts and Jobs Act, as well as the role of ESOPs in promoting retirement security. He also co-signed a 2017 GOP letter urging the Department of Labor to issue guidance clarifying the application of ERISA to auto portability features in order to help prevent retirement plan cashout leakage when workers change jobs.
In addition, as chairman of the Banking Committee, Crapo helped push through the Senior Safe Act to increase protections for older investors from financial exploitation and abuse.
Crapo also currently sits on the Joint Select Committee on Solvency of Multiemployer Pension Plans, which is tasked with formulating recommendations to improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation. That committee is expected to vote on a report containing findings and recommendations by Nov. 30, 2018.
Any Hope for Lame Duck Session?
As for that lame duck opportunity, we should know in fairly short order whether there will be any appetite in the existing Congress to address pending retirement legislation before the end of this term or pack up and wait until next year.
The House-passed Family Savings Act (H.R. 6757) now pending in the Senate is the retirement component of Ways & Means Committee Chairman Kevin Brady’s (R-TX) three-part “Tax Reform 2.0” initiative. The bill seeks to ease the commonality rules for MEPs and eliminate the “one bad apple” rule, as well as create a new Universal Savings Account (USA) and ease the non-discrimination rules for frozen DB plans. It also includes a safe harbor for the selection of a lifetime income provider within a DC plan, as well as a slew of other provisions, many of which were drawn from RESA.
While there has been no other action on Brady’s tax reform legislation, many still believe there’s a small chance the Senate could act on RESA as part of a legacy-building salute to Hatch.
Even if the Senate does not take up RESA or similar legislation when the chamber returns for its lame duck session, there remains a good chance that retirement policy legislation will be front and center in 2019, despite divided-party rule and likely gridlock on many other policy matters. And that doesn’t include the potential for new initiatives from the administration, such as President Trump’s recent Executive Order and the recently published target dates for fiduciary and advice rulemaking by the Labor Department and Securities and Exchange Commission.