Barry’s Pickings: Eugene Scalia as Secretary of Labor
Michael Barry, president of O3 Plan Advisory Services LLC, reflects on the Department of Labor’s regulatory agenda under former Secretary Alexander Acosta and wonders if Eugene Scalia will move things along more quickly.
On taking office as Secretary of Labor, Alexander Acosta published an editorial in the Wall Street Journal announcing that “President Trump has committed—and rightly so—to roll back unnecessary regulations …. As the Labor Department approaches this regulatory rollback, we will keep in mind two core principles: respect for the individual and respect for the rule of law.” Apparently, the latter principle required ongoing support for a regulation—the Fiduciary Rule—that many regarded as testing the limits of his agency’s regulatory authority.
It is one of the unusual ironies of this ironic time—when we have a current President who spent a considerable amount of his public life pre-Presidency challenging the prior President’s citizenship status—that President Trump’s pick for a new Secretary of Labor—Eugene Scalia—represented one of the main plaintiffs in the lawsuit against Secretary Acosta challenging the Department of Labor’s (DOL)’s Fiduciary Rule, characterizing it as “a leading example of the kind of regulatory overreach that the White House counsel and other White House officials have criticized.”
In real life, the DOL under Secretary Acosta did not do a lot—in the area of retirement policy—to accomplish President Donald Trump’s “roll back unnecessary regulations” or to adopt policies that a bipartisan consensus recognizes as needed.
For the first year or so, the Acosta DOL expended significant effort defending and explaining and tweaking the Fiduciary Rule. Until the 5th U.S. Circuit Court of Appeals, in March of 2018, vacated it, finding that it was “inconsistent with the entirety of ERISA’s ‘fiduciary’ definition” and that the DOL “lacked statutory authority to promulgate the Rule.” So much for the rule of law.
In key areas where innovation was needed—liberalizing the rules on electronic participant communications, authorizing a defined contribution (DC) plan annuity safe harbor, and developing a path forward for open multiple employer plans (MEPs)—the Acosta DOL has moved very slowly, or not at all. They have a (yet to be published) project on electronic communications and recently released a request for information on open MEPs.
During the past two and one-half years, in addition to ongoing work on the definition of “investment advice” (about which there is a lot of skepticism), the DOL has tweaked (marginally) the environmental, social and governance (ESG) investing rules and extended the “association MEP” rules to state and municipal chambers of commerce, which, as far as I know, weren’t asking for MEP authority.
Right now there is a bill in Congress—the SECURE Act—that won a massive, bipartisan, 417-3 majority in the House. It includes several provisions that in fact could be implemented by the DOL through regulation, in a relatively short period of time. To take the easiest example, the DC annuity safe harbor could be proposed tomorrow as a regulation. Everyone supports this. Why hasn’t the DOL simply acted on it?
The issue of open MEPs is, arguably, more complicated—but, to judge by its recent “association MEP” regulation, DOL’s view of its latitude in defining who is an “employer” under the Employee Retirement Income Security Act (ERISA) Section 3(5) certainly seems expansive enough to meet those complexities.
My sense is that the permanent staff at the DOL still thinks they were right (whatever the 5th Circuit may say) on the Fiduciary Rule. They don’t like open MEPs—and basically see the possibility of a provider-based retirement system as fraught with “conflicts of interest.” Just to be clear, the kind of conflicts of interest they are wothe rried about here are those inherent in the profit motive—the kind of “conflict” that a store owner has with its customers—the fact that providers want to make a profit from the services they provide. And the DOL staff is not about, on their own initiative, to create a DC annuity safe harbor that takes the employer-fiduciary off the hook. They’ve had this proposal in front of them for years and have done nothing.
My bottom line: Acosta ran the DOL/Employee Benefit Security Administration (EBSA) the way a generic manager would run a generic agency. He made no meaningful attempt to change the fundamental policies developed by the Obama/Borzi EBSA over eight years. Policies that President Trump had committed to “roll back.”
What a new Secretary can do
What is it going to be like if, and hopefully when, Eugen Scalia—one whose most recent jobs was suing the DOL on its signature retirement policy initiative—takes over as Secretary? The following would be a good start:
Investment advice: (1) Provide guidance that waives any legal problems that have been created by (in effect, premature) compliance with the now-vacated Fiduciary Rule, including letting retirement plan sponsors and providers “reboot” to the old system. (2) Clarify that the Securities and Exchange Commission (SEC) Regulation Best Interest (Reg. BI) has no effect on prior (and pre-Fiduciary Rule) guidance with respect to such issues as ERISA fiduciary status or the definition of investment advice. (3) Clarify the extent of plan sponsors’ duty-to-monitor compliance with the new Reg. BI.
Electronic participant communications: Adopt robust electronic/default guidance as soon as possible.
DC annuity safe harbor: Adopt the SECURE Act proposal, which generally defers to state insurance regulation on the issue of the financial condition of the annuity carrier, as soon as possible.
Open MEPs: Let’s have a full airing of the relevant concerns—rather than talking points. Let’s have those outside of the DOL who oppose open MEPs explain why they think there is an inherent risk of abuse in “profit seeking enterprises” and why they think that states, municipalities, and non-profits would be better and more efficient at running plans, and more “fair” to participants, than providers. And then let’s move forward with a workable solution that will make retirement services cheaper for smaller enterprises.
A better process
Finally, I want to repeat something I said back in January 2017: The DOL should, in my humble opinion, be moving the regulatory process along much faster. We should have had something on electronic participant communications and a DC annuity safe harbor in 2017. It seems that where agencies are given hard deadlines they are able to meet them. Maybe that should be the norm.
Obviously, it’s easy for an outsider to criticize this process. But can we have some accountability-for-efficiency from this agency? Or is this really a (much easier) problem of simply setting the priorities?
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I have high hopes for a Scalia DOL. Scalia seems to be very competent and to have very good instincts.
The first challenge, of course, will be to get him confirmed.
Michael Barry is president of O3 Plan Advisory Services LLC. He has 40 years’ experience in the benefits field, in law and consulting firms, and blogs regularly http://moneyvstime.com/ about retirement plan and policy issues.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.
SURVEY SAYS: Will Social Security Be There for Your Retirement?
There are some who think Social Security will no longer be an option when they retire, some who think it will exist but benefits will be smaller, and even some who think the system will be saved and pay as it does today.
Last week, I asked NewsDash readers, “Do you think Social Security benefits will be available when you retire?”
The good news is that only 12.1% of responding readers said “No.” The greatest percentage of respondents (45.5%) indicated they believe Social Security benefits will be available and similar to current benefits, while 41.4% believe Social Security will be available, but at reduced benefits. One percent of responding readers haven’t decided.
In verbatim responses, there was belief by many that Congress will pull it together to make Social Security sustainable. “No politician or political party wants to be known as the ‘Social Security killer,’” one reader said. “SS will die when all members of Congress decide they don’t want to be re-elected,” said another. But, most believe there will be a cut to benefits. Many believe applicants will be subject to a means test, which some agree with, but many think will punish those who have been diligently saving for retirement. Respondents offered several suggestions for changes that could be made to make Social Security more sustainable, including taking away the cap on income that can be taxed for it. Editor’s Choice goes to the reader who said: “It better be – I’ve paid enough into it!”
Thank you to all who participated in our survey!
Verbatim
Our government needs to think smarter and work together to streamline this issue, and many other issues, and do more for the hardworking American people.
I am already collecting Social Security, but believe that benefits for high-income individuals will be cut back as the system comes under more stress. Politically, Congress must continue Social Security, but will scale it back in ways that hurts the fewest number of voters possible (i.e., wealthy individuals).
I believe that SS will be around long term. With the birth rate decrease the benefit may have to change in the future as not as many people are paying into the system to sustain the current level of benefits. I’m 60 so if any changes occur I believe they would grandfather those receiving the benefit and not reduce the current payout. It is good that they closed some loop holes that were draining the system like those born before 1954 that can claim the spouses benefit and pend theirs until age 70 to get the richest benefit.
I believe there will eventually be a Social Security means test, effectively penalizing those of us who have been responsible and saved for our retirement.
The Social Security system is unfair and unbalanced. I pay a lot into it but probably won’t get a lot out of it.
The system will be shored up somehow and the budget deficit will triple.
I’m normally an optimistic person, but as a Millennial, I don’t think I can rely on Social Security benefits when I’m ready to retire. Thankfully, I’ve been saving for my whole career so far with this assumption, so if benefits are around when that time comes, I will be pleasantly surprised!
I think benefits will be determine by a means test.
The system is sustainable, but there will have to be changes.
But it will be means tested so you may have an objective to not qualify by being too rich (by the govt’s standards). By the way, I think this is wrong – raise my taxes if you think I have too much money don’t take benefits away as that is sneaky
A modest increase in the current tax and a substantial increase in the taxable earnings base will solve threats of insolvency. The rate should be reviewed every five years to consider further modest adjustments.
The program as it is simply is not sustainable. If it survives, I believe there will be across the board cuts and it will become a means tested benefit, making it unavailable to many.
It would be a shame if I retire and get nothing after paying in for over 40 years. Thankfully I have a pension and 401(k) plan at work. The government keeps dipping into SS with no oversight, and we can’t stop them! I am more concerned about health care cost in retirement!
If (and that is a big if) Washington decides to seriously address the state of Social Security, it can live on in a solid state. There are simple steps that can be taken, but first they need to convince the American people to support them.
Since those that are collecting currently would never have their benefit changed, I think those who work in the public sector that still have DB plans or others with a retirement over a certain amount are probably going to be dropped off to be able to pay those that only had DC only plans or none at all.
If politicians want to continue to be re-elected, they will need to maintain SS. We all know who votes in elections, and you want to keep those people happy. I still don’t know why they haven’t made the simple fix yet of removing the cap on SS. Tax all income for SS, but keep benefits as they are now. We will start to see if it is true that the rich don’t have a problem with being taxed more.
I think I will be able to receive SS benefits but I do all my retirement planning without them.
It will exist if only because it would be political suicide for either party to let it die or kill it off.
I do believe there will be something available for my generation (about 30 years from retirement) but not as we know it today. It just can’t maintain at this rate without change.
What scares me more are the people who believe that Social Security was set up as a primary plan, and then complain that it isn’t enough to live on.
If we keep the money in the Social Security system so that it can provide the benefits promised, I think it will be ok. I do expect at some point, the Social Security retirement age will increase again. People are living longer so some changes seem appropriate.
Social Security is likened to a Balanced Budget. Political Hot Potatoes those in power dare not to challenge. It might take away their non-Social Security System.
I assume only the lowest earners will receive a benefit and the higher wage earners will have the amounts significantly reduced or taken away completely.
SS will die when all members of Congress decide they don’t want to be re-elected.
Looks like it will not be possible without increasing premiums or debt, possibly lowering the maximum covered earnings level so it would protect the same benefit to those with lower incomes.
I just think the Social Security system will be sustained as it is a major source of consistent income for many retirees.
Since I plan to start taking SS in or around the end of 2020, I certainly hope it’s still there! When I was in my 20s, the “saying” went at the time that it would be gone by now; what’s old is new and we’re still thinking this.
I have about 12 years until I can draw on Social Security so I sure hope it is still around in its current state. Every little bit helps. I am certainly not planning on it to fund my retirement but it would provide a little bit of “pin money” to sock away in an old coffee can. My son, however, is only 23 years old. I predict him surviving a zombie apocalypse before he benefits from Social Security in his retirement.
The closer I get to retirement age, the more I think it will be there for me. Regardless of what you think you can’t totally depend on it.
I’m old enough to begin drawing, so I’m confident that when I retire I’ll receive as much as expected. I’m not as confident that I’ll continue to receive that amount for the duration of my lifetime. Elected officials refuse to deal with the upcoming crisis. With the growing deficit and current extreme partisanship there will be no compromise or working together to solve the problem until the point in time that it can’t be ignored. I suspect there will be an attempt to add means testing. Which I view as a mistake. It would reward those who didn’t save adequately for retirement and penalize those who did.
I think it will still be around, and I’ll take it early or on time before I start tapping into my own retirement savings!
I would like to see a report of how much is going in (contributions), earnings and where is it currently going (distributions). Much like an investment savings statement.
Although I think the system will be similar to the current system, there may be more “means testing,” resulting in lower payouts or more taxes for people like me who prepared for retirement.
Yay! I am retiring next month! So excited that the day is finally approaching.
Anyone with any financial sense can see that revenues need to increase and the growth in program benefits need to be curtailed. The problem: politicians are the only ones that can implement these common sense adjustments.
It’s been so poorly managed with no foresight regarding our changing population (why is it a surprise that boomers are drawing payments & there aren’t enough people to keep up with filling the coffers? we knew this!) — I have no hope that in 25 years when I could apply for benefits that it will still exist. I would much prefer to take my SS taxes & put them into my own retirement account or HSA, where I have much better odds of being able to utilize the money in retirement.
Congress will continue it in some fashion. They need to get re-elected.
Due to the mismanagement of the system by our government, I think they will have to reduce benefits to keep it solvent. Given the current attitude in Washington that it is an entitlement, we will be lucky to get 50% of what we should get. I would love to see our Senate and Congress have their entitlements cut.
It better be – I’ve paid enough into it!
I think the government will rob Peter to pay Paul in order to keep the program going. No lawmaker will propose or vote for a bill that reduces or eliminates benefits because it would be political suicide. Not saying that something shouldn’t be done to “fix” the system, but I cannot see lawmakers actually making the tough choices. They will indebt our country even more because their solution to every problem is to throw money at it hoping that will solve the problem.
I expect that the Social Security Retirement Age for my children will be much later than mine. With longer life expectancies, payment of benefits starting at 62-67 is not sustainable.
I will be eligible to retire in 11 years. Depending on who will be the next President of the United States will have a great impact on how much Social Security will be available. Many of the Democratic candidates are talking about giving the benefits I paid in to Social Security over my lifetime to those who have never contributed or who will never contribute a single penny. That is the money that I contributed to my retirement and hoped would be there for me, just like my father did when he retired. Now I am saving every penny that I can just so I have money that I know will be there for me.
While mathematically unsustainable, I think it’s foolish to think it’s an all or nothing outcome – there’d be huge protests if it disappeared, and huge protests if withholdings were increased to support unreduced benefits. As with most liabilities coming due in the next 25-50 years, compromise will be absolutely necessary.
I retire in 2 years at age 70. I doubt changes will be made by that date. But in the future, we will need to: 1) raise the minimum age to 70; 2) stop increasing benefits because people deferred receipt; 3) implement a means test. The wealthy don’t need it – the tax they paid was their admission to the economic system that made them rich.
We as a country need to stop talking about it and do something!
Whether we like it or not, changes need to come to the Social Security system. Since the program was never intended to support everyone, I believe an income and means test should drive how much of a benefit is payable. Those more well-off would receive less. It’s just like any other tax citizens pay to keep the country running.
A very simple solution to the SS crisis – which is due to many things, but mainly fewer people working then collecting – is to raise the ceiling in which people stop contributing to SS from their salary. If they would raise that ceiling to $200,000 / $250,000 much more money would flow into the system and put any crisis way, way down the line.
Social Security can be saved in many ways – one by removing the cap on taxable earnings. The tax can also be increased. It is a necessary safety net for many who have little or no retirement savings, as well as those plan participants in 401(k) plans, which are dependent upon positive market changes.
Political suicide to let SS drop. I just hope someone realizes it before they do it.
No politician or political party wants to be known as the “Social Security killer.” It will be worked out, although I am counting on my benefits being less than projected when I retire in 20 years or so.
When planning for retirement 20 years ago, I assumed Social Security would not be available. Now that I’m 15 years out from retirement, I think it will be available; however, I have doubts whether it will survive to my kids.
I recently heard that the Millennial group is almost as large as the baby boomers. If this is the case, and they pay their fair share as the baby boomers have, with a few tweaks to the system, maybe it will survive.
I think benefits will be reduced again, but I hope not affecting retirees in the near future, as I expect to retire within 2 years! We have managed to save a significant amount on our own, but we are still counting on SS to be an added cushion so we can have more fun in retirement!
People are living much longer — paying in less to Social Security and receiving more during retirement years. Adjustments will be necessary to keep it viable for future generations.
The sooner the better for adjustments to assure benefits can continue as promised.
I believe that the credits required to receive benefits could be increased to 60 credits or 15yrs.
Politically, Congress will not allow anything to happen to social security.
There are several options for congress to use to shore up Social Security and I believe as we reach a crisis point they will act. Also, I’m close to retirement age so my answer is also based on my belief there won’t be benefit cuts imposed on those already collecting from the system.
I’m selecting “with reduced benefits” as I believe the normal retirement date will be raised from its current level.
Shouldn’t be that hard to fix with tax increases — increase the wage base — and a few small benefit tweaks
It’s not will I have Social Security benefits available, but how much and how long will benefits be available. We need changes and the longer we wait, the more painful it will be to all.
It is a program with too great an impact on all Americans and it would be detrimental to the U.S. economy if it didn’t continue to provide comparable benefits.
Neither Social Security nor 401(k)’s are stable as of today. What is the solution? There isn’t any. Poverty, homelessness, medical costs, climate change all affect our future. So Social Security seems a pretty small issue compared to what is currently going on in society today
Without changes to either mirror a system like Railroad Retirement or increase funding (by increasing rates or increasing federal funding) the system will run out of money. With the current political split on raising taxes there doesn’t seem to be the appetite for either of those funding sources so Social Security will sunset.
At a time when 401(k) plans have largely replaced pension plans, Social Security can and should provide minimum stability for retirement, it is absolutely essential to many who have do not have other retirement assets, for whatever reason that may be.
Unless there is an overhaul of the system, it will be broke within the next ten years.
As long as I can vote and breathe the air, SS will be there.
Discussion of SS running out has been around since I was in high school in the late 80s. Nothing new, it just cannot be sustained without an overhaul – which has never happened.
NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.
