Throughout the presidential campaign we heard a number of proposals pertain to retirement and retirement plans that President Biden is likely to pursue now that he’s taken office. With the recent election of both Democratic candidates in the Georgia runoff giving the Democrats a narrow margin in the Senate, the Biden agenda for retirement stands a better chance of becoming reality.
Committees and control
Beyond a slim majority in the Senate, having control of the body allows the Democrats to name committee persons and to control the agenda of the various Senate committees. This includes any committees involved with bills surrounding 401(k) plans specifically and retirement plans in general.
While having control of the Senate doesn’t guarantee passage of any bills proposed by the Biden administration if they make it through the House, having control of the committees and a narrow margin in voting can help.
Senator Ron Wyden (D-Oregon) will take over as the chair of the Senate Finance Committee. He has a reputation as being able to work with both sides of the aisle to get legislation passed. He worked with Republican senators in sponsoring the Retirement Enhancement and Savings Act, legislation that formed the basis of the SECURE Act.
Senator Wyden supports programs to help families save and might well support increased taxes on corporations to finance these types of initiatives.
Senator Patti Murray (D-Washington) is in line to take over as chair of the Senate Health, Education, Labor and Pensions (HELP) committee. She has been critical of the DOL’s recent regulatory initiatives including their efforts regarding new fiduciary rules and their initiatives regarding the investment duties of plan fiduciaries as they relate to ESG investing. She is a proponent of regulations designed to encourage women to save for retirement. Should Senator Murray pass on this chairmanship, next in line would be Bernie Sanders (I-Vermont).
Additionally, President Biden should have an easier time having his cabinet secretaries approved. He recently indicated that he will be nominating second term Boston mayor Marty Walsh as his Secretary of Labor. Mayor Walsh undoubtedly will play a key role in trying to get Mr. Biden’s agenda on retirement related issues passed.
Here are a few of the retirement policy objectives we expect to see the Biden administration push forward.
Tax break implications for 401(k) participants
Currently those who contribute to a traditional 401(k) account on a pre-tax basis receive a tax break based on the amount of their pre-tax contributions as the amount of these contributions are excluded from their taxable income for the year. This tends to provide a larger tax break for higher income plan participants.
The Biden proposal, known as Equalizing Savings Incentives, would do away with the tax break based on the amount of pre-tax contributions, participants would instead receive a tax credit based on a percentage of the amount of their contribution. It is likely that this will result in a smaller tax benefit for higher income participants. This step might make contributions to a designated Roth account more attractive for some of your plan’s participants. Plan sponsors who do not offer this option in their plan might consider adding it.
Other policy initiatives
There are several other retirement related policy initiatives that we expect to see from the new Biden administration to note:
- Universal Retirement Plan Coverage would provide access to an automatic 401(k) for workers without access to a workplace retirement plan. This idea has been around for a number of years. Basically this would require any employer who is in business for two years or more with at least ten employees to offer its employees an automatic payroll deduction IRA program.
- During the campaign, other Biden proposals included providing small businesses with additional tax incentives to provide their employees with a retirement plan. Protecting Social Security benefits is also a high priority. These priorities could potentially be funded via an increase in the payroll tax for those earning $400,000 or more. Another idea to fund these initiatives that has been floated is a new financial transactions tax.
- Senator Wyden is known to favor programs to help working families save. He favors a restructuring of the current Saver’s Credit and the reinstatement of the myRA program designed to help those without a 401(k) save for retirement. This program was eliminated by the Trump administration.
- It is thought that the Biden administration will look to revisit and perhaps repeal the recent DOL ruling regarding the use of financial factors in selecting plan investments by plan fiduciaries. It is also thought that they will review recently enacted rules on proxy voting and the prohibited transaction exemptions for financial advisors.
- In addition, it is likely that the Biden administration will review, revise and perhaps repeal portions of the Tax Cut and Jobs Act, the tax reform package enacted at the end of 2017 by the Trump administration and Congress. Some of these changes may impact retirement plans and retirement plan sponsors.
The results of the Georgia Senate runoff elections could have a profound impact on legislation pertaining to retirement and retirement plans that will be proposed by the Biden administration. From control of both houses of Congress, to an easier path to confirmation of cabinet nominees, to having Democrats in leadership roles on relevant committees, the Biden agenda regarding retirement may have just gotten a smoother ride due to the Georgia election results.
This will be a fluid situation as we move through 2021 and beyond. We will certainly keep our clients apprised of how any changes in existing rules, or new legislation, will impact their 401(k) and other retirement plans. If you have questions on any of these potential legislative initiatives or anything else regarding your organization’s retirement plan, please feel free to contact us.
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.