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We recently reviewed Democratic retirement policy proposals with respect to (1) litigation, (2) an enhanced Saver’s Match, and (3) a universal auto-IRA/plan requirement. In this article we briefly review what it will take to advance any significant retirement policy changes in the next (120th) Congress, retirement policy “pay-fors” that will be needed to finance any significant changes, and the prospects for success (or lack thereof) of any of these efforts.
In real life, nothing will happen in the next Congress – even if Democrats take control of both houses – unless it has the support of the White House: a two-thirds majority of both houses of Congress is required to over-ride a Presidential veto, and no one is suggesting that that is a possibility post-mid-terms. So, while it is reported that Congressman Neal (D-MA), who is likely to become Chairman of the House Ways and Means Committee if the Democrats take back the House, is working a “non-bipartisan” version of SECURE 3.0, for such an initiative to have any chance of becoming law it will need some bipartisan support – at least from the Administration.
The good news – for those favoring an expansion of the Saver’s Match and a federal auto-IRA/plan program (two marquee Democratic initiatives) – is that the Administration and President Trump have expressed an interest in something like this. And there are a number of “good policy” proposals (e.g., allowing collective trust investments in 403(b) programs) that may be able to attract some bipartisan support.
Realistically, any such “big-policy” effort will, however, run into two problems.
The first problem is that a bigger, truly broad-based Saver’s Match plus universal coverage will cost a lot of money (in lost tax revenues). The general approach to these sorts of proposals is to pay for them by finding additional revenue within the retirement system.
In that regard, here are some “pay-for” ideas that have been floated:
Ceiling on “jumbo” IRA/defined contribution plan balances. This proposal – usually requiring distribution of amounts in a taxpayer’s IRA and DC balances in excess of, e.g., $10 million – has been a Democrat revenue-raising proposal since the Obama Administration. And it was recently cited in a Brookings Institution report as a possible revenue “offset” for the cost of Saver’s Match expansion. This proposal has some popular appeal but has been opposed by Republicans.
Reduction in contribution and benefit limits. Also suggested by Brookings is a 5 percent reduction in the maximum contributions to employer-based plans and IRAs. That would take a big chunk out of the tax-attractiveness of retirement plans for many employers. This proposal would also likely be opposed by Republicans.
Recovery of defined benefit plan surplus assets. In 2025, Republican Senators proposed legislation that would allow (1) the transfer of some surplus in a DB plan 401(h) account to medical plans for active employees and (2) the transfer of some surplus in a DB plan to a DC plan (to fund, e.g., qualified nonelective contributions under a 401(k) plan) without terminating the DB plan. This would increase revenues by reducing new contributions to those plans. Some Democrats have opposed this proposal.
Other retirement policy revenue raisers are likely to generate similar opposition, either from Democrats or Republicans, depending on whose ox is being gored.
Nevertheless, paying for these changes might be a solvable problem. The other problem – partisan gridlock – is not.
There’s not much point in belaboring this issue, since it is more or less common knowledge: As the difference between how Republicans and Democrats see public policy generally has gotten more and more acute, the possibility of any Congressional bipartisan action has become a longer and longer longshot.
And so …
If Democrats take back either or both of the House and the Senate in the mid-terms, the most likely outcome will be Congressional hearings designed to sharpen the partisan differences. For Democrats, in this regard, one meta-issue and focus of possible hearings is the fairness of the current system. The Brookings Institution report (linked above) provides a nice summary of this criticism/talking point: “a growing body of academic literature finds that tax incentives for DC plans yield limited net new savings, with most benefits accruing to higher-income households that would likely have saved in the absence of the incentive.”
Given Democrat opposition to efforts to reign in fiduciary litigation, it’s likely that this will also be a topic of Democrat-led hearings.
And, of course, some Democrats are on record as opposing DOL’s designated investment alternative proposal and Republican efforts to change (once again) DOL’s view on the application of ERISA fiduciary rules to ESG investment/proxy voting, and hearings on those issues are also possible.
All of which will, in effect, amount to table-setting for the 2028 Presidential election and the 121st Congress.
We will continue to follow this issue.
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This is a publication of O3 Plan Advisory Services. If you have any comments, or have questions about regulatory developments, please contact your relationship manager or Mike Barry at mbarry@octoberthree.com.
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