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Retirement policy legislative/regulatory outlook — 2021

The new Congress and the Biden Administration are beginning to take shape. In this article we review likely 2021 retirement policy initiatives in Congress and at the Department of Labor. We begin with a brief discussion of the new Senate leadership on the key retirement policy committees.

New Senate leadership

On February 3, 2021, the Senate finally passed an organizing resolution, passing control of Senate committees to the Democrats. Leadership of the two committees with responsibility for retirement policy is as follows:

Health, Education, Labor and Pensions (HELP) Committee: Chair Senator Murray (D-WA), Ranking Member Senator Burr (R-NC).

Finance Committee: Chair Senator Wyden (D-OR), Ranking Member Senator Crapo (R-ID).

Legislative outlook – the budget reconciliation process

Unless Democrats in the Senate can secure at least 60 votes through bipartisan support for a legislative initiative, sufficient to produce 60 votes to cut off debate and force a vote, the only vehicle for (partisan) legislation will be budget reconciliation, which only requires a bare majority (50 Democrats plus the Vice President sitting as President of the Senate).

Generally, budget reconciliation legislation is limited to proposals related to spending and taxes. Under the “Byrd rule” (named after former Senator Robert Byrd (D-WV)) the following measures are excluded:

  • measures with no budgetary effect (i.e., no change in outlays or revenues);
  • measures that worsen the deficit when a committee has not achieved its reconciliation target;
  • measures outside the jurisdiction of the committee that submitted the title or provision;
  • measures that produce a budgetary effect that is merely incidental to the non-budgetary policy change;
  • measures that increase deficits for any fiscal year outside the [generally 10-year] reconciliation window; and
  • measures that recommend changes in Social Security.

The Senate Parliamentarian generally will rule on whether a particular measure is/is not excluded under the Byrd rule.

Generally, only one reconciliation bill is allowed per fiscal year. As there was no reconciliation bill during the calendar 4th quarter of 2020, in 2021, Democrats will have an opportunity to move two reconciliation bills, one for the fiscal year ending September 30, 2021, and one for the fiscal year ending September 30, 2022.

Reconciliation round 1 – COVID relief – possible DB funding relief

For “reconciliation round 1,” Democrats are moving COVID relief legislation. This legislation is likely to include single employer defined benefit plan funding relief, probably a somewhat scaled back version of the proposal we discussed in our article House Committee Chairmen introduce single employer funding relief. Single employer funding relief would significantly increase financial planning flexibility for sponsors of certain underfunded plans.

A critical issue will be whether these single employer DB funding proposals will qualify for inclusion in reconciliation legislation under the Byrd rule. Perhaps more problematic: whether multiemployer relief legislation will qualify for inclusion. It is very unlikely that, if multiemployer relief is dropped because of the Byrd rule, Democrats would nevertheless include the single employer relief proposal.

As we understand it, Democrats are hoping to pass this first (COVID relief) round of reconciliation legislation in March 2021.

Reconciliation round 2 – tax legislation

For “reconciliation round 2,” Democrats are expected to move tax legislation. As we discussed in detail in our article on President Biden’s tax proposals, this legislation is likely to affect retirement plans/retirement savings policy both directly and indirectly.

Directly, it is possible that this legislation may include (in increasing order of likelihood): changing the 401(k) tax incentive from an income exclusion to a tax credit; capping the value of the 401(k) income exclusion (e.g., at 28%); capping contributions/allocations when an individual’s defined contribution plan plus IRA balances exceed a dollar limit (e.g., $2 million); increasing the Saver’s Credit (for low income savers) and making it refundable.

Indirectly, Biden proposals to increase the income and capital gains tax rates on high income individuals will make tax qualified retirement savings more attractive to those individuals. The proposed increase in the corporate tax (from 21% to 28%) will, at a minimum, affect corporate tax planning for some DB plan sponsors.

Finally, it is likely that there will be an attempt to include Congressman Neal’s (D-MA and Chairman of the House Ways and Means Committee) retirement policy proposals – his “SECURE 2.0” proposal and his automatic retirement plan proposal – and elements of the proposals made by Senators Portman (R-OH) and Cardin (D-MD). Again, a critical issue will be which of these proposals can survive application of the Byrd rule.

As we understand it, Democrats expect to move this second round of reconciliation legislation in the Fall of 2021.

Agency outlook

As we noted in our article Biden Administration agency agenda, the Biden Administration is likely to revisit and revise several Trump Department of Labor initiatives, most obviously:

DOL’s 2020 regulation on “Financial Factors in Selecting Plan Investments” (AKA the ESG rule) – in a day-one Executive Order President Biden directed that DOL’s ESG rule be reviewed. This action leaves sponsors in some doubt about the rules applicable to the evaluation of ESG-themed funds and, particularly, their inclusion in default target date funds in DC plans that allow participants to choose investments from a plan fund menu.

DOL’s 2020 prohibited transaction exemption for fiduciary advice – this PTE was frozen (before it could take effect) by a day-one Biden White House memorandum. This action increases the uncertainty as to the rules applicable to a host of plan and participant interactions with persons who, e.g., under the law as interpreted by the preamble to the PTE, might be advice fiduciaries.

We are unlikely to get clarity on these issues until (at least) DOL leadership is staffed. President Biden’s nominee for Secretary of Labor, Boston Mayor Martin Walsh, is currently before the Senate.

Other DOL guidance that may be revisited by the Biden DOL include the DOL’s 2020 proxy voting regulationand the application of ERISA to state plans (the complexities of the latter issue are detailed in our article on the Biden agency agenda generally).

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We will continue to follow these issues. 

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