UpFront | Published in May 2017

Retirement Account Taxation Is On the Table

By John Manganaro | May 2017
Art by Jackie Ferrentino
Will Hansen, senior vice president of retirement policy for the ERISA [Employee Retirement Income Security Act] Industry Committee, is among the list of policy-watchers who have given up making predictions about what may unfold in Congress over the coming years. “Conventional political wisdom has all but broken down,” Hansen observes. “Unfortunately, this is happening at a time when a big shift is going on in the way people work and in the way they save for retirement.
The outlook for work and retirement is shifting significantly for Americans, he continues. “Unfortunately, it has really only been a quiet issue when viewed from the legislative front. There is not enough conversation going on about the question: ‘How do we alter our retirement policy to adapt to an independent-contractor-dominated work force?’ The natural legislative response should be moving toward open MEPs [multiple employer plans] and that type of an approach, making it easier for those in this situation to be able to save. This has been pushed to the back burner, at least in recent months.”
Hansen says he believes “we will start to see proposals soon that will have a number of provisions—good and bad—that alter the retirement system. Some of this may have to do with open MEPs, but really there’s a lot on the table that is being considered.” Of course, what gets proposed and what can get passed are two different matters, but more—and more aggressive—proposals will start to emerge imminently, he expects.
“Based on the health care debate, it is reasonable to predict that any major tax reforms will be very difficult to accomplish,” he says. “On health care, there is a complicated market and ecosystem, but, with tax reform, it’s all that much more complicated even than health care.”
With the current climate and mood on the Hill, Hansen “[does] not believe major tax reforms can be completed [without] some sort of massive change in the way the administration and Republicans work with each other and across the aisle.”
He further observes, “It can be surprising to realize just how much diversity there actually is within both of our
political parties.” In the governing Republican Party, on the right there are groups such as the Freedom Caucus, and on the other side are more moderate Republicans concerned about appearing too conservative in swing districts. “If Congress is going to get anything done, it very well may have to be bipartisan.”
Hansen concludes it is “unfortunate there is little evidence that our political leaders are having an honest, well-thought-out discussion on retirement policy in general. It has been generations since this happened. There are certain members in the Senate who have put forth some proposals, thinking back to last fall, which we see as having good, and bad, implications for plan sponsors.” Besides that, he says, the discussions taking place on Capitol Hill fail to account for the importance of letting individuals invest for retirement, pre-tax.
“So we have to work hard to prevent Congress from starting to think about these incentives as possible sources to make changes to pay for something else—which would be similar, frankly, to the way many of them seem to view the Pension Benefit Guaranty Corporation [PBGC] premiums,” Hansen says. “The thing is, not many people are retirement policy experts on Capitol Hill … so they would rather avoid [the subject] than tackle it.” The next phase of the conversation is expected to kick off when President Trump releases his own tax reform proposals. Industry experts anticipate these will be revealed after press time for this issue, but regardless of what reforms he proposes, they will almost certainly have to be reshaped through bipartisan effort to have any real chance of success.