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With an Eye on 2016, Will Washington “Work?”

Having regained their Senate majority and deepened their hold on the House, the GOP — with a wary eye on the 2016 elections — may be ready to deal.

In a recent webcast, ASPPA Executive Director Brian Graff and Political Director Jim Dornan discussed the shifts in power in the Nation’s Capital and what that might mean for legislative change generally and retirement plan/tax reform proposals specifically. And, while the dust hasn’t yet fully settled on those prospects, ASPPA’s political insiders say there’s reason to think the dynamics have shifted sufficiently to open some opportunities — and potential threats — to retirement plan-related legislation.

Dornan explained that in the House, the GOP now has its strongest majority in nearly a century — freeing Speaker John Boehner’s hand to pursue his agenda without necessarily having to rely on the support of Tea Party Republicans and perhaps even pick up some moderate Democrats on certain issues. The current leadership — Kevin McCarthy (R-Calif.) as Majority Leader and Steve Scalise (R-La.) will remain in their positions. As for committee chairs, Paul Ryan (R-Wis.) will take over Ways & Means from the retiring Dave Camp), while John Kline (R-Minn.) will keep Education & the Workforce. Jeb Hensarling (R-Texas) is the current chair of the House Financial Services committee, though Dornan noted that he is expected to be challenged by Frank Lucas, who currently chairs the Agriculture Committee (R-Okla.).

The Senate

In the Senate, the GOP wrestled control of Senate seats from Democrats in Arkansas, Colorado, Iowa, Montana, North Carolina, South Dakota and West Virginia, while also maintaining control in Georgia and Kentucky, the latter now-Senate Majority Leader’s Mitch McConnell’s seat.

Virginia, decided late, stayed with the Democrat incumbent, but challenger and long-time political operative Ed Gillespie’s campaign transformed what was expected to be a runaway into an election eve nail-biter that wasn’t conceded until the weekend after Election Day. Dornan noted that the contest in Louisiana, as expected, will be decided in an early December run-off, since neither incumbent Mary Landrieu (D) nor GOP challenger Representative Bill Cassidy got more than 50% of the vote. Alaska’s contest between incumbent Sen. Mark Begich (D) and Republican challenger Dan Sullivan remains too close to call, though Sullivan holds a slim lead, according to published reports.

Despite the few seats still in play, the GOP will hold the majority and as a result, there will be a major reshuffling of power and legislative agendas with current Democratic committee chairmen becoming ranking members and current Republican ranking members becoming chairmen. By and large, the Senate follows seniority rules for chairmanships. In the Senate, that means that the HELP (Health, Education, Labor and Pension) committee (which will have jurisdiction over the fiduciary regulation reproposal) will be chaired by Sen. Lamar Alexander (R-Tenn.), while the Senate Finance Committee will be headed by Sen. Orrin Hatch (R-Utah) and the Senate Banking Committee by Sen. Mike Crapo, though there are rumblings that Sen. Richard Shelby (R-Ala.), who has previously chaired that committee, is interested in taking on that role again. Dornan noted that we’d be keeping an eye on movements there.

What’s Different Now

Those shifts notwithstanding, Graff explained that it’s 2016 that might provide the real impetus for change on the Hill. While Democrats were forced to defend a number of seats in states that in 2012 went for Mitt Romney, in 2016 the election map will be a mirror image — with Republicans forced to defend Senate seats in a number of states that went with President Obama in 2012.

That dynamic will put a lot of pressure on the GOP to govern, to show that it can accomplish things, according to Graff — and in a short period. Of course, the Democrats (including the president) will be motivated to show that the Republicans can’t get things done. But Graff explained that both McConnell and Boehner are what we might think of as “traditional” politicians who “know how to deal.” One other difference from the past several years — the momentum for any “grand bargain” will likely shift from the House to the Senate.

Tax Reform Prospects

“The tax code is almost as popular as the U.S. congress,” noted Graff, even as he noted that even if the House doesn’t get comprehensive tax reform, they want to do what they think is right — and campaign on it, even if it isn’t done. In contrast, he said the Senate wants to DO something.

Graff explained that tax reform was high on the GOP congressional agenda, though there was a very limited window of time to pass reform; it would have to be done in early 2015, before the 2016 election year and presidential campaigning starts. He noted that many GOP legislators — both conservative and moderate — are calling for it, but cautioned that tax reform means different things to different people. While former Ways & Means Chairman Dave Camp’s tax reform proposal would likely serve as a starting point for the GOP, Graff cautioned that it contained problematic provisions for retirement plans, including imposing additional limits on 401(k) contributions and using the “savings” from capping 401(k) savings to pay for other things in the federal budget.

As for some specific alternative legislative windows that could open, Graff noted that there will be legislative vehicles that could be used to enact pension reform, in the absence of comprehensive tax reform and that the expiration of the multi-employer pension funding rules could provide an opportunity to enact broader pension reforms. Finally, he explained that renewing the over 100 expired provisions in the tax code, dubbed “tax extenders,” could be another opportunity to make retirement policy changes.

State Houses

There were also some significant shifts in executive power in three key states that have considered, or are considering, state-run retirement plans: Illinois, Maryland and Massachusetts. Graff noted that in Illinois, the Republican challenger ousted the Democratic incumbent Gov. Quinn and that this would likely deter the Illinois state house from considering State Sen. Biss’ bill — the Illinois Secure Choice Savings Program Act — in the current legislative session, which ends this year.

In Maryland, the Republican challenger also ousted the hand-picked Democratic successor of former Gov. Martin O’Malley, who had signed an executive order that created a Maryland Retirement Security Task Force. That task force will now expire at the end of O’Malley’s term early next year.

Administrative Actions

Finally, Massachusetts, where Republican Charlie Baker bested Democrat Martha Coakley, had passed legislation in 2012 that created a state-run defined contribution plan for small non-profit employers. However, that plan is currently awaiting approval from the IRS and is not yet in operation.

As for the still-pending fiduciary regulation reproposal, Graff noted that last May the Department of Labor updated its regulatory agenda to postpone the expected release of its fiduciary rule re-proposal from August 2014 to January 2015. He also said that over the past few months, White House staff have led an outreach effort to meet with all the stakeholders the proposal would affect as the Obama Administration tries to figure out what to do in this area — if anything. He noted that during these meetings, the Obama Administration has indicated that a rule is “not imminent” and that they are working to get more information from industry in order to develop appropriate “prohibited transaction exemptions” (PTEs). Concerns about rollover advice loom large and he noted that any re-proposal will likely focus on that issue. Should a regulation emerge that the industry opposes, he explained that there would be opportunities to prevent the implementation of the rule through the appropriations process in a Republican-controlled Congress.

You can listen to the full webcast here: