2019: The Year of Retirement Reform
President Trump and Congress made their mark on the United States in 2017 with the most significant tax reform in 30 years. With four significant pieces of retirement reform legislation before Congress, retirement reform could be the dark horse of 2019. Each piece appears to have some level of bipartisan support in their current drafts, while multiple state level and regulatory advancements to retirement savings are also moving forward.
At the federal level, the four major retirement acts with traction are:
1. Retirement Enhancement and Savings Act (RESA)
Initially introduced in 2016, the bill was reintroduced in 2019. It has been the main focus of retirement policy in Congress over the past few years. According to Shai Akabas, Director of Economic Policy at the Bipartisan Policy Center, “there is an expectation in Washington that this bill will move on a bipartisan basis relatively soon.”
The bill would make a number of changes and modifications to the existing retirement system by: expanding access for workers in multiple employer defined contribution plans; removing the age limitation on IRAs for contributions; removing some restrictions on automatic enrollment in 401(k)s; and easing the path to use lifetime income options inside a qualified retirement plan.
2. Retirement Security and Savings Act of 2019 (RSSA)
Introduced to the Senate in the last session on December 19, 2018, RSSA will likely be reintroduced soon. Its biggest hurdle is competing for Congress’ attention with RESA, which appears to be the current front runner. And it’s unlikely that two retirement bills with a focus on current retirement savings options in employer plans pass in the same year.
RSAA – a straightforward bill with few controversial aspects – would increase savings in 401(k)s and IRAs; help with small employer coverage of part-time workers; modify RMD rules for those still working after age 70.5; and remove obstacles for including lifetime income options in retirement plans.
3. The Retirement Parity for Student Loans Act of 2018 (RPSLA)
When it was first introduced to the Senate on December 18, 2018, it was referred to the Committee on Finance. Like the RSSA above, the RPSLA’s introduction came in the last session and will need reintroduced.
This bill would allow 401(k), 403(b) and SIMPLE retirement plans to make matching contributions to an employee’s retirement account by treating student loan payments like salary deferral contributions. An employee could focus on paying off their student debt and still have their employer contribute to their retirement plan. While this strategy appears to have a broad amount of support, it’s not clear the bill would pass as a standalone. It would likely merge to another retirement bill or attached as a provision.
4. Social Security 2100 Act
Introduced in both the House and Senate in 2019, the Social Security 2100 Act has 203 cosponsors in the House. Akabas said the Act is really “the Democrats’ opening bid” and he expects back and forth discussion over it. The bill would increase Social Security benefits and fix the funding issues plaguing the system by increasing taxes.
To gather bipartisan support, which it would need to pass the Senate, it is unlikely that the sole fix for the funding issues would be tax increases. As such, if this bill moves forward, it would likely need some additional changes. However, while the overall bill may not garner the needed support, it does represent a comprehensive approach to fixing Social Security, which is really the first major attempt at solving the issue to receive broad support in years.
With that out of the way, what’s happening at the regulatory and state level?
The Securities and Exchange Commission (SEC) is currently working on a proposed fiduciary rule that would broaden the existing rules around investment advice and require more financial advisors to act as a fiduciary for clients.
This regulation has taken center focus since the courts threw out the Department of Labor’s expansion of the fiduciary standard last year. The DOL stated it’s still working on clarifying its own fiduciary standard, but it’s not expected to be a sweeping change of existing law.
Many advisors and financial service professionals don’t operate under a legal fiduciary standard today. But since the demise of the DOL’s fiduciary rule, states have tried to advance their own regulations and rules, with an expectation that some states and probably the SEC will finalize rules expanding the fiduciary standard in 2019.
Another movement gaining traction at the state level is passage of automatic enrollment IRAs for employees who don’t have access to an employer-sponsored retirement plan. A few states have recently passed bills that would create an automatic enrollment IRA plan, with New Jersey slated to become the next. More states are expected to consider bills like these as a way for employees without an employer-sponsored retirement plan to save for the future.
With 2017 the year of tax reform, 2018 had a heavy focus on immigration and government funding, 2019 could shape up to have significant focus on retirement savings changes.
In addition to national and state-based efforts to strengthen retirement policy, grassroots initiatives are also working on this effort. One campaign is Funding Our Future, which is composed of a diverse coalition of educational and corporate partners working to elevate retirement security as a top priority for Americans and policymakers alike.
With expanded savings options, broader fiduciary requirements for financial advisors, automatic IRAs and Social Security funding discussions on the table, there’s at least a little optimism that positive retirement changes could be coming out of Washington this year.