Loading article...
In this Current outlook we discuss three recent Congressional developments: the confirmation of Secretary of Labor Acosta and Republican Congressional pressure on him to move aggressively on the review of DOL’s 2016 fiduciary rule; Congressional Review Act legislation repealing the Obama Administration’s state plan regulation; and (very briefly) the effect Affordable Care Act “repeal” legislation, passed by the House on May 4, 2017, would have on retirement savings tax incentives.
On April 27, 2017, Alexander Acosta was confirmed as Secretary of Labor. We expect that, relatively soon, an Assistant Secretary of the Employee Benefits Security Administration will be named. Once these Trump-appointed policy officials take over at DOL we should have a better idea of the Trump DOL’s view, going forward, of the Obama DOL’s fiduciary rule.
In that regard, we note that on May 2, 2017, 124 House Republicans sent Secretary Acosta a letter urging a delay of that rule “in its entirety.” This letter states:
While we appreciate that the department has now delayed enforcement of its rule for 60 days [with regard to which, see our April 2017 Current Outlook], we urge you to act expeditiously to reverse this significantly flawed rule. … The delay that appeared in the Federal Register on April 7, 2017, contravenes the presidential memorandum which directed a new economic analysis of the Rule and the impact it is having on the marketplace. Rather than facilitating an orderly review period, the preamble illogically concludes that the record supports applying major aspects of the Rule before the President’s review and updated economic analysis are complete. This is nonsensical.
This letter follows an earlier (April 28, 2017) letter from Chairman of the House Financial Services Committee Hensarling (R-TX) and Subcommittee Chairs Huizenga (R-MI) and Wagner (R-MO) that was, if anything, more critical of DOL’s April 7, 2017, action. That April 28 letter stated:
On April 7, 2017, the DOL’s Employee Benefits Security Administration (“EBSA”) issued a final rule that contains provisions that seem to contravene the directives in the Presidential Memorandum of February 3. For instance, EBSA determined it was appropriate to extend the applicability of the rule by only 60 days and certain other provisions until January 1, 2018 – despite flatly conceding that the “careful and thoughtful process” required by the President’s directive will take significantly longer than 60 days. Additionally, EBSA affirmatively stated that the fiduciary definition and Impartial Conduct Standards “will become applicable on June 9, 2017,” even before the substantive comment period regarding the review of the rule had closed. …We are concerned that the final rule prejudged the outcome of the review instructed by the Presidential Memorandum, even if additional delays are eventually deemed necessary.
Thus, while we don’t know (yet) Secretary Acosta’s views of the fiduciary rule (and DOL’s 60-day extension of the applicability date), Secretary Acosta certainly knows about Republican opposition to it.
As we noted in our April 2017 Current Outlook, Congress passed and the President signed Congressional Review Act legislation voiding DOL’s December 2016 regulation providing certain cities a “path forward” for the adoption of mandatory auto-IRA programs for private employers. On May 3, 2017, the Senate passed CRA legislation (previously passed by the House) voiding DOL’s August 2016 regulation providing similar relief to states. President Trump is expected to sign this CRA.
The two CRAs in effect put back on the table the issue of ERISA coverage of state auto-IRA programs. In the preamble to the August 2016 regulation, DOL stated that:
If the employer automatically enrolls employees in a benefit program, the employees’ participation would not be “completely voluntary” and the employer’s actions would constitute the “establishment” of a pension plan, within the meaning of ERISA section 3(2).
ERISA coverage raises two issues for these state programs. First, ERISA’s administrative and fiduciary rules would generally apply to them. And, second, these programs could be found to “relate to” an ERISA plan, triggering ERISA preemption. The state legislation authorizing mandatory auto-IRAs for private employers generally conditions implementation on a finding that the program is not covered by ERISA.
Thus, these CRAs are likely to (at a minimum) send the states that are aggressively pursuing these programs (e.g., Oregon, California and Illinois) back to the drawing board. It is hard, at this point, to see a way forward for them. Nevertheless, Oregon State Treasurer Read released a statement on May 3, 2017, (after the Senate vote) in which he said:
In Oregon, OregonSaves [the Oregon mandatory auto-IRA program] will continue to move forward with our pilot program that is launching on July 1 this year. The need to address the oncoming retirement crisis is too great. This action will not halt our commitment to working Oregonians.
For more detail on these programs, see our article Update on state plans – 2016.
On May 4, 2017, the House approved legislation “repealing” the Affordable Care Act. Included in this legislation is a repeal of the 3.8% tax on net investment income applicable to certain high-income taxpayers. That change, because it reduces the taxes on investment income for some taxpayers, will (for those taxpayers) reduce the amount of taxes “saved” by saving in a tax qualified plan. Please see our article Repeal of Affordable Care Act: effect on retirement savings for a detailed discussion of this issue.
***
We will continue to follow these issues.