Barry’s Pickings: November 7—Five Good Questions

Art by Joe Ciardiello

My assumption is that no one reading this column is going to vote next Tuesday based on any candidate’s views on retirement policy. It is just not—this time around at least—that sort of issue. Nevertheless, the predicted outcome—Democrats take control of the House, Republicans retain control of the Senate—may well have consequences for retirement policy.

The last time the Democrats controlled the House was 2010. Before 2009, when they turned their attention exclusively to the financial crisis, stimulus and the Affordable Care Act, those Democrats concerned with retirement policy were focused on the fairness of the 401(k) system and 401(k) fees. This time around, significant issues facing policymakers in our area include the multiemployer plan financial crisis and a growing collection of needed improvements to the current system, primarily although not exclusively with respect to 401(k) plans.

The multiemployer plan crisis

The Bipartisan Budget Act of 2017 (BBA 2017) requires the Joint Select Committee on Solvency of Multiemployer Pension Plans to produce legislation by November 30, 2018. It’s hard to imagine a solution to this problem that does not involve some sort of bailout. And it’s hard to imagine Republicans supporting any bailout financed with federal revenues.

How do we square this circle? Use money in the mine cleanup fund? Some sort of industry-wide levy? Or a raid on the Pension Benefit Guaranty Corporation’s (PBGC)’s single employer system? Again, it’s hard to imagine most Republicans (other than, perhaps, some in rust-belt states) supporting these sorts of solutions. But if Democrats control the House, they will be in a position to demand a solution before they allow action on any other retirement policy items. Indeed, depending on how strongly they feel about it, they may be in a position to hold any legislation hostage to this issue.

Is it possible—in this age of Trump—that Republicans may be prepared to surrender some of their intransigence on this issue? President Trump won West Virginia, Pennsylvania and Ohio—the three states arguably hardest hit by the multiemployer plan crisis.

Good question No. 1: Is there a bipartisan solution to the multiemployer plan crisis?

Improvements to the current system

The list of needed improvements to the current system is getting pretty long. They include (in no particular order and leaving out a lot): incentives for small employer plan formation; a more effective 401(k) safe harbor; nondiscrimination “relief” for closed groups; expanding the use of electronic participant communications; lifetime income disclosure; authorization of open multiple employer plans (MEPs); and an improved system for connecting “missing” participants with “missing” benefits.

Most of the proposals on these issues have some bipartisan support. But there is significant opposition to some of them, e.g., liberalizing electronic participant communications and requiring lifetime income disclosure.

Many of these changes are long overdue. But in real life the current system can survive without them. This (unlike multiemployer plan finances) isn’t a crisis.

Good question No. 2: Will it be possible for a divided 116th Congress to make more progress on these issues than the Republican-controlled 115th Congress could?

Retirement savings tax policy and fairness

This is—perhaps (and hopefully)—an issue whose time has passed. The last time the Democrats controlled the House, Chairman of the House Education and Labor Committee George Miller, D-California, was quoted as saying that the 401(k) system was “an inadequate vehicle” that “has not been terribly successful” (in his defense, that was in 2008-2009, at the height of the financial crisis). A number of Democrats, including, e.g., the former director of President Obama’s National Economic Council (in a 2014 New York Time Op-Ed), described the current system as providing “upside-down” tax incentives, primarily benefiting “upper income Americans.”

More recently, during the 2017 tax reform project, there was a move by Republicans in the House to “Rothify” some or all 401(k) contributions, to raise revenues. Opposition to this proposal—with Democrats like Senate Minority Leader Chuck Schumer in the forefront—may have solidified the 401(k) system’s status as (as Senator Schumer put it) a “middle class” tax benefit.

Good question No. 3: Will the 116th Congress leave this issue alone for a while?

401(k) fees

Has the fee issue gone away? Some of the issues that were of concern to Democrats 10 years ago, critically fee disclosure, have been addressed through regulation. Others might have been addressed by the fiduciary rule. Since that rule was struck down by the 5th U.S. Circuit Court of Appeals, there has been little activity—some guidance on compliance from the Department of Labor (DOL) and an initiative begun by the Securities and Exchange Commission (SEC) that is a bit of a mess.

Congressman Neal, D-Massachusetts, expected to take over as Chairman of Ways and Means if the Democrats win the House, backed legislation that would have required Congressional approval of the DOL’s fiduciary rule. He can be put down as a moderate on this issue.

Good question No. 4: Will there be an effort in the House to revive interest in new rules on the three key issues addressed by the fiduciary rule—conflicts of interest, inadequate fund menus (especially in small employer plans) and IRA rollovers?

PBGC premiums and the budget

In the federal budget, PBGC premiums are counted as revenues even though they may only be used to pay unfunded defined benefit plan benefits. Because they aren’t “taxes,” increasing PBGC premiums has proven to be an easy way of raising revenues without raising taxes.

One of the most distinctive features of the last eight years with respect to retirement policy has been the willingness of Republicans to increase PBGC premiums as a way to finance bipartisan highway legislation and close budget gaps. At the cost of undermining the single-employer define benefit (DB) plan system, as employers look for ways to get out of it.

BBA 2017 seems to have signaled a new approach to deficits. Whatever its merits as policy, it may mean that there will be less pressure of find “pay-fors” for popular legislation.

As a general matter, Democrats seem to be more supportive of the DB system, although there are of course Republicans who also enthusiastically support it. Thus, generally, Democratic control of the House may make it harder for those who want to solve budget problems by increasing PBGC premiums. The multiemployer plan crisis may, however, test Democrat commitment in this regard.

Good question No. 5: Will the 116th Congress stop looking at retirement policy as a revenue raiser?

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Of course, given the current level of partisan hostility, the biggest question of all is: Will the two teams in Congress be able to do anything other than argue with each other? That’s a really good question.

Michael Barry is president of October Three (O3) Plan Advisory Services LLC, and author of the new book, “Retirement Savings Policy: Past, Present, and Future.” 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.