Republicans win it all

For the last six years we’ve had a divided government. President elect Trump will be taking office with Republican majorities in both the House and the Senate. That will give him, and Republican Congressional leadership, the ability to move legislation in a way that we haven’t seen since the first two years of President Obama’s Administration.

How might any of that affect retirement policy?

Paying for infrastructure

In his acceptance speech, the only policy initiative President-elect Trump mentioned was infrastructure. During the campaign, he said “we are going to rebuild our infrastructure” and that Former Secretary of State Clinton’s $275 billion infrastructure spending number “is a fraction of what we’re talking about, we need much more money than that to rebuild our infrastructure. … I would say at least double her numbers and you’re going to really need more than that.”

To pay for all that new infrastructure, Mr. Trump proposed that “citizens would put money into [an infrastructure fund] and we will rebuild our infrastructure with that fund and it will be a great investment and it’s going to put a lot of people to work.”

During President Obama’s second term there has been broad bipartisan support for infrastructure spending – in 2015 Congress passed the Fixing America’s Surface Transportation (FAST) Act, providing for $305 billion in infrastructure spending over five years.

The problem – in a time of tight budget constraints – is how you pay for it. In the last four years, Congress has often looked to raise revenues from retirement policy changes – most often, raising PBGC premiums and relaxing DB funding rules. In addition, Congress has a list of generally smaller and more technical retirement policy revenue raisers, including, for example, limiting “stretch IRAs” and repeal of the ESOP dividend deduction.

But if they get really creative, policymakers may consider funding that infrastructure fund that Mr. Trump talked about with retirement savings. That sort of thing has been discussed with respect to state and municipal retirement plans.

Fundamental tax reform

Half way through the Presidential race, Mr. Trump scrapped his own tax proposal in favor of the one proposed by House Republicans. We know that fundamental tax reform – including simplification and reduction of marginal rates – has been a Republican priority for some time.

There is likely to be considerable pushback on any such proposal, as cutting taxes “for the rich.” It is likely that whatever passes will be less simple, and that the rate cuts will be less dramatic, than what the House Republicans have proposed.

And, any fundamental tax reform proposal is likely to include a revision of the corporate tax.

A successful reform of the Tax Code will inevitably affect the retirement savings tax deal. Perhaps significantly. And it’s impossible, at this moment, to say how. But, for example, if the capital gains and dividends tax is reduced – that will make retirement savings marginally less attractive as a “tax break.” At the same time, it may make Roth-style savings more attractive. And, as we have discussed, the way in which the corporate tax is “fixed” could easily affect the relative appeal of saving in a retirement plan vs. saving outside one.

Budget concerns will continue to limit action on retirement policy initiatives

The budget constraints under which President Obama and the Congress have operated for the last eight years aren’t going away any time soon. We have nearly $20 trillion in debt. If the last eight years are any guide, budget constraints will prioritize policy initiatives that either: (1) produce jobs; and/or (2) raise money (ideally) or (at a minimum) don’t cost money.

There are a number of proposals that would improve the current system at little or no cost – for example, initiatives with respect to electronic reporting and disclosure and retirement income initiatives.

However, many initiatives, especially those intended to get more money into the retirement saving system, will cost money. Thus, (modest) proposals for an improved 401(k) designed-based safe harbor or (more grand) proposals for a federal mandatory private sector employer plan program will increase tax deductions/exclusions and thus decrease revenues. So will proposals to keep money in the system, for example, through improved rollover rules. And so will (even more obviously) proposals to spend money on getting people/money into the system – for example, an enhanced plan startup credit or Saver’s Credit.

All of these proposals – even those with strong bipartisan support – will face the challenge of limited budgets and competing priorities.

What can be done with a 51 or 52-seat Senate majority?

As of this writing, the Republicans look like they will have a 51 or 52-seat majority in the Senate. That is not enough, generally, to move legislation that is opposed by at least 41 Democratic (or independent and caucusing with Democrats) Senators. But – as President Obama and Senator Harry Reid (D-NV) showed in 2010 and former President Bush showed in 2001 – it is possible to move certain legislation through the Senate via the Reconciliation process with only a simple majority.

The new Administration and Congressional Republicans and Democrats may try to work together, especially on issues like infrastructure spending. But there are likely to be issues – like fundamental tax reform – with respect to which the new Administration and Congressional Republicans will wind up “going it alone.”

Reconciliation legislation, however, is subject to a number of restrictions. Most critically, Reconciliation legislation must generally affect the budget. And the Senate Parliamentarian will decide what can and what cannot be included in a Reconciliation bill – for example, in 2010, the Senate Parliamentarian ruled certain provisions of the Affordable Care Act could not be included.

The ability to move controversial legislation such as tax reform and repeal of parts of the Affordable Care Act will depend in part on this process.

In the agencies

Given the Obama Administration’s policy – after it lost the Democratic governing majority in Congress – of acting through Executive Actions, many policies of the current Administration may be up for grabs.

As Senator Elizabeth Warren (D-MA) recently said in the New York Times, personnel is policy. There are three critical sub-cabinet positions that affect retirement policy: the head of the Department of Labor Employee Benefits Security Administration (EBSA); the Treasury Deputy Assistant Secretary for Retirement and Health Policy; and the Director of the Pension Benefit Guaranty Corporation. Who staffs those positions may have a significant affect on what gets done (or doesn’t get done) over the next four years.


With respect to regulations, consider that, in a memorandum issued January 20, 2009, President Obama’s (then) Chief of Staff Rahm Emanuel instructed all agencies that no proposed or final regulation be sent to the Office of the Federal Register for publication “unless and until it has been reviewed and approved by a department or agency head appointed or designated by the President after noon on January 20, 2009.”

The Department of Labor’s Conflict of Interest rule has been very controversial. While final, it has not been implemented – “partial” implementation begins in April 2017. There will certainly be pressure from some for the new DOL to repeal this rule.

As a general observation: we can expect (as has been typical in the past) that the current Administration will rush to get at least the more controversial of current regulatory initiatives finalized before the new Administration takes office.

DOL has under consideration several regulatory proposals that may receive a different treatment under a new Administration, including: the (largely finalized) guidance for state private sector retirement plans; proposals with respect to the treatment of Open MEPs; adoption of electronic participant communications; lifetime income disclosure rules; fixing the annuity carrier selection safe harbor; and guidance with respect to the use of a clearinghouse.


There are fewer controversial initiatives at IRS. It may be easier, in the new Administration, to get a viable solution to the frozen plan/closed group nondiscrimination problem. But for the most part current benefits issues at IRS are generally technical – for example, the treatment of hybrid plans.


With respect to the single employer PBGC insurance system, under the Obama Administration, PBGC policy was at first driven by concerns about PBGC’s “deficit.” In that regard, increasing PBGC premiums dovetailed nicely with policymakers’ desire to show more “revenues” to support unrelated spending – under the budget, PBGC premiums count as revenues even though they cannot actually be spent outside of the PBGC pension insurance programs. More recently the Administration has raised concerns that further increasing premiums may encourage many employers to fully (or partially, via de-risking) exit the single employer insurance system. The Obama Administration has consistently advocated giving PBGC more control over setting premiums and giving it the ability to include sponsor financial condition as a variable of the premium setting equation.

The other issue that has dominated PBGC policymaking has been a profound concern about the near-term viability of the multiemployer insurance system.

None of these issues is going away, and they don’t necessarily break down along Republican vs. Democratic lines. The new Director of the PBGC will have to grapple with all of them – the appropriate level of single employer premiums and whether they should reflect sponsor financial condition, pressure to raise premiums to produce “revenue” for the budget, and the serious problems in the multiemployer system.

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As we get more information – as the new President begins to set priorities and make key appointments – we will revisit these issues.