The turn of the New Year can be a time to start fresh, which
is why so many people make New Year’s resolutions, vowing to change some
behavior, or in some way live differently than in the past. On a less personal level, for workers and
most businesses, it’s the start of a new tax year, and of course a time to
begin reckoning with the tax year just ended.
For those we’ve sent to Washington, D.C., to govern us, it’s
an opportunity to regroup and take a fresh look at priorities for the coming
session. This year, 2015, is a pivotal
one, with the seating of new senators and congressmen and the start of the final
Congress with President Obama at the helm.
The dynamics have changed, of course, with both the House of
Representatives and Senate controlled by the Republican Party, mirroring the potentially
adversarial scenario faced by Mr. Obama’s two immediate predecessors, President
Bush and President Clinton.
Because of this shift in the balance of power on Capitol
Hill, there has been lot of uncertainty over how the 114th Congress and
the President will interact, and how they will be able – or not – to govern in
the roughly 22 months until the 2016 presidential and congressional elections. The Republicans now hold 247 seats in the
House and 54 in the Senate, an advantage that party has not enjoyed since the
71st Congress of 1929-1931. To start this year, the early indications are an ongoing inability to interact seems to be continuing.
One thing that did not
change with the 2014 elections is the leadership of the federal agencies with oversight
over tax-favored savings arrangements, such as employer-sponsored retirement
plans, IRAs, Health Savings Accounts, Coverdell Education Savings Accounts, and
the like. This means that the power
within these agencies has not shifted as a result of the elections, and the
philosophies that might be reflected in their guidance are unlikely to be
different during the next biennium.
Having said that, however, there’s no denying that the
ultimate leaders of such agencies as the Department of Labor and the Treasury
Department – both cabinet functions – are political appointees. Whether desirable or not, pressure sometimes
finds its way down from the very top, through the cabinet members, and
ultimately to the ranks where guidance is written and issued. Many believe, for example, that the Department
of Labor’s highly unpopular fiduciary definition guidance was first withdrawn –
and then subsequently kept on hold – for political reasons in the presidential
election year of 2012, and through 2014.
It now appears that at the end of this administration, a strong push to issue this guidance is at hand.
But the intersection of presidential power and regulatory
action can work both ways. Prior to the
2012 and 2014 election the White House had reason to temper aggressive
regulatory actions, for fear of election losses. That is less a concern, at least at the
presidential level, since our president cannot run again for reelection. Perhaps because of this, we have already seen
bold – some would say excessively bold – moves taken by executive action. The last two years of a president’s term are
sometimes the period in which the country’s top leader seeks to leave his stamp
on the nation, and it could be so with regulatory actions that are favored by
the current administration. The proposed fiduciary regulation may be a good example of this.
One consideration that could temper aggressive executive and
regulatory activism in the next two years is a weighing of the odds for the 2016
election, with the obvious concern that unresponsive or uncompromising regulatory
action could weigh against Democratic candidates in both congressional and presidential
elections.
Despite the difficulty of governing with a divided,
polarized government, one bright spot for the coming Congress is the elevation
of Senator Orrin Hatch (R-UT) to chairmanship of the Senate Finance
Committee. Sen. Hatch has substantial
credentials when it comes to retirement issues, and his committee plays a key
role where retirement savings-related legislation is concerned. In the last session of Congress Sen. Hatch
introduced the Safe Annuity for Employee Retirement (SAFE) Act, and it will be
one of his priorities in the 114th Congress.
But don’t let that title fool you; the bill is not only, or
primarily, about annuities. Yes, the
legislation advocates that retirees have access to investment options that can
provide lifetime income. In that respect
it reflects the philosophy of the current qualifying longevity annuity contract
(QLAC) regulations. For example, dating
back to 2013, Sen. Hatch’s bill mirrored these regulations in limiting to 25%
the use of retirement assets to purchase qualifying deferred annuities. The objective of both Sen. Hatch’s
legislation and the current QLAC regulations is to enable what policy makers
and lawmakers have long advocated – investment planning that takes into account
guaranteed lifetime income options. Such
options are not the entire answer, but can be part of the formula in the
retirement security equation.
But Sen. Hatch’s bill goes way beyond the annuity
dimension. It encourages greater use of
automatic enrollment and automatic escalation of contributions in deferral-type
plans. It simplifies plan testing,
reporting and disclosure. It enhances
the popular and successful 401(k) safe harbor plan, enhances the portability of
lifetime income options from employer plans to IRAs, and offers numerous other
positive – some might say overdue – retirement savings enhancements.
Whether these exact provisions are embraced, or refined, or in
some form eventually become law, is of course uncertain. In the current political environment an
odds-maker would probably not give ANY legislation a high probability of
success. But if legislation such as this
fails it won’t be for lack of vision and effort. Sen. Hatch seems to have “the right stuff” to
lead on the retirement savings front.
Whether others will have the good sense to follow is, of course, another
question.
