“Elections have consequences.”
—President Barack Obama, January 23, 2009
After winning the presidency in 2008, President Barack Obama famously said those words to then House Republican Whip Eric Cantor as Democrats took unified control of the federal government for the first time in 12 years. Eight short years later, President Donald Trump and congressional Republicans found themselves in the same position. Both seismic shifts of power in Washington, D.C., underscored why elections truly matter. To modify a line from the musical Hamilton, it is not enough to be in “The Room Where It Happens.” The real consequence of elections is having enough votes and/or controlling the pen to determine the outcomes from the room where it happens.
As we start to look to 2021—and who isn’t ready to move on from 2020—two things will be instructive to predicting the outlook for employee benefits policy: Who controls the White House and each chamber of Congress. My crystal ball remains in the repair shop, so the best I can do is to outline some potential outcomes, how policy changes might advance, and what direction employee benefits policy could take in 2021 and beyond.
One thing is clear, the scope of policy change in the next Congress will depend on whether we continue to have a divided government. If the Democrats retain control of the House and win the White House and Senate, more sweeping changes are likely. If we continue with a divided government, change will be slower and less far-reaching. However, since many retirement issues are bipartisan, there is a significant opportunity for change in either legislative environment.
Even numbered years always end in November federal elections, so let’s start at the top of the ballot where voters will face a choice between re-electing Trump or turning the reins over to former Vice President Joe Biden. Trump made scant retirement policy proposals during his first or current campaigns. During the Trump administration’s first term, his effect on retirement policy has been through deregulatory actions, as well as taking a strong position that 401(k) plans should not be touched during the tax reform effort in 2017. On the other hand, Biden has already put forward a range of proposals on retirement savings and taxes.
Some of Biden’s proposals, such as reinstating the Obama administration’s fiduciary rule or revisiting other Trump administration regulations, can be accomplished through the regulatory process (subject to potential judicial challenge). Others will require the cooperation of Congress.
In contrast to many of his Democratic primary opponents, Biden has offered a more modest set of proposals related to retirement, and a less expansive role for government in retirement savings. Nonetheless, the following Biden proposals could be significant if enacted:
|•||Equalize retirement tax breaks: The Biden retirement proposal that has recently received the most attention focused on his plan to “equalize the network of retirement savings tax breaks.” Unfortunately, few if any details have been provided on exactly what that means or how it would be implemented. It is possible that this proposal might resemble an idea floated in previous Obama-Biden budgets to cap the value of an employee’s retirement savings exclusion at 28%. Alternatively, he has also expressed vague support for expanding the Savers Credit and making it refundable.|
|•||Other proposals to enhance retirement savings: Biden has also signaled support for tax breaks for small employers that start a retirement plan, special “catch-up” contributions for family caregivers, and tax benefits for Americans who buy long-term care insurance using retirement savings.|
|•||Automatic 401(k): For workers who are not offered an employer-sponsored retirement plan, Biden proposes to provide them access to an “Automatic 401(k).” Biden has not provided details on what this means. However, multiple budgets released by the Obama-Biden administration included a proposal that would require employers who do not offer a retirement plan to automatically enroll their employees into a payroll deduction IRA.|
We must all keep in mind the old adage that candidates “campaign in poetry and govern in prose,” and know that the ultimate details of all policy proposals will be fleshed out long after the campaign speeches have faded and the campaign white papers have been forgotten. The transition from poetry to prose will ultimately be facilitated by the administrative rule-making process and congressional procedures. Only Congress can enact laws, so there is often a long and bumpy road from a candidate’s or president’s proposal to its potential evolution into law.
One tool I expect we will hear a lot about should Biden win the presidency and Democrats take control of the U.S. Senate is the Congressional Review Act (CRA). The CRA is an oversight tool that Congress may use to pass legislation to overturn a rule issued by a federal agency. Some of the first actions of a new Democratic Congress and a Biden administration would involve using the CRA to unwind a number of regulations finalized at the tail end of the Trump administration—without anyone having to get into a time-traveling DeLorean.
Leading into the November election, the Trump administration continues to advance its regulatory agenda at the Department of Labor (DOL), the Treasury Department and across the federal bureaucracy. Many of these pending regulations, including the DOL’s recent environmental, social and governance (ESG) and proxy voting proposals, are expected to be finalized before January 2021. In 2017, we saw Republicans use the power of the CRA to revoke 15 Obama administration regulations, including the DOL’s state- and city-run retirement plan regulations, when they had unified control of the federal government. The main limitation on the use of the CRA by Democrats will be the short time window available. The statutory limits to unwind Trump rules under the CRA and the constraints placed on a Biden administration to issue new regulations could impact the potential to successfully unwind those rules.
Diving deeper into a scenario where Democrats control the White House and both chambers of Congress, their ultimate ability to advance big changes in tax, retirement savings, health care and a host of other issues will likely be constrained by the size of their Senate majority, and the challenge of racking up the 60 votes needed to overcome Republican filibusters. While Obama and leading progressive Democrats have called for the elimination of the Senate filibuster rules, that seems like a less-than-certain outcome at this time. However, even a slim Democratic majority in the Senate can advance many of the tax and employee benefit policy proposals Biden has put forward using a procedural tool called budget reconciliation.
The budget reconciliation process allows for tax legislation that accomplishes specified goals related to taxes, entitlements or the debt limit and is NOT subject to Senate filibusters to be advanced through Congress. This wonky congressional device was used by Republicans to advance the 2017 tax reform law under the Trump administration and by congressional Democrats to advance portions of the Affordable Care Act under Obama. Expect a Democratic majority to adopt this tool to advance tax and health care reforms, though it is no guarantee of success, as we saw in 2017 when Republicans failed to repeal and replace the Affordable Care Act.
One wildcard for the future of employee benefits policy (and most other legislative changes) will be the ongoing focus of policymakers on coronavirus. As we have seen this year, the critical need to respond to that crisis has pushed most other issues to the side. Coronavirus response and recovery will continue to dominate the legislative and regulatory agenda for months to come regardless of the election outcomes. Some responses may include retirement policy changes, but other reforms will likely be put on the backburner until the crisis recedes.
Regardless of the election results, proposals related to the expansion of the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the existing employer-sponsored retirement savings system are well positioned to move forward in the next Congress. Key retirement security leaders on the Hill are expected to roll out a second package of bipartisan reforms and improvements to help Americans prepare for a secure retirement. House Ways and Means Committee Chairman Richard Neal, D-MA, in partnership with Ranking Member Kevin Brady, R-TX, is drafting the next round of bipartisan retirement legislation. Introduction of this bill could come this year as a marker, but enactment is not expected until 2021 at the earliest. Senators Rob Portman, R-OH, and Ben Cardin, D-MD, continue to work on overlapping legislation in the Senate.
Potential items for inclusion in a bill next year include:
|•||Required minimum distributions (RMD) changes: Building on the SECURE Act, which increased the RMD age to 72, key leaders have been exploring further increasing the RMD age to 75. A related proposal would entirely exempt individuals with small retirement savings balances from having to calculate and take RMDs.|
|•||Student loans: Senate Finance Committee Ranking Member Ron Wyden, D-OR, along with Senators Portman and Cardin, has introduced legislation to allow employers to treat employees’ student loan payments as an elective deferral to their 401(k) plans for purposes of the employer match. The nexus between student loans and employer-sponsored retirement plans seems like another possible area for broad bipartisan agreement.|
|•||Missing participants: This year’s economic turmoil has also shined a spotlight on the issues surrounding missing retirement plan participants. Bipartisan and bicameral legislation has been introduced to address some of these issues by, among other ways, establishing a national registry for missing participants, increasing the automatic cash-out limit to $6,000, and requiring the DOL to clarify plan sponsors’ obligations when participants go missing.|
One item that is not likely to be included in the SECURE Act 2.0 mix is the proposal that Neal previously introduced to mandate all employers offer a retirement savings plan to their employees. That proposal has failed to gain traction with Republicans, but is one to keep our eyes on should Democrats take control of the Senate and/or the White House in the upcoming elections.
Should Trump win re-election and Republicans take control of the Congress, changes to employee benefits are also in store. For example, House Republicans tried to advance universal savings accounts in their 2018 Family Savings Act, and some Trump administration officials have voiced support for more universal savings structures. Under those previous proposals, universal savings accounts would be established and taxed much like Roth IRAs, except that amounts contributed, likely up to $5,500 per individual, could be withdrawn tax-free at any time and for any purpose.
As Obama reminded all of us, elections do matter because elections have consequences. With the 2020 elections fast approaching, we will soon know who will occupy the White House for the next four years, and who controls the House and the Senate. Those electoral results will determine what we can expect with regard to tax, retirement savings and other employee benefit proposals. Knowing who controls the room or rooms where it happens will let us know what changes, big or small, to expect and how they will impact employees and employers across the country. So don’t forget to vote.