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ASPPA Washington Update: 2020 Hindsight

Government Affairs

Kicking off the ASPPA All Access virtual conference Oct. 26, Brian Graff, CEO of ARA and Executive Director of ASPPA, ARA General Counsel Allison Wielobob and ARA Chief Government Affairs Officer Will Hansen offered their insights into some of the most important legislative and regulatory developments in 2020—and what may lie ahead in the new year.

Biden’s Tax and Retirement Plans

The Biden tax plan says that it would equalize benefits across the income scale, and argues that it will give low- and middle-income workers a tax break for saving money for retirement. To do that, it would replace the current exclusions and deductions with a refundable flat tax credit. 

The ARA’s concern, the panel noted, is that reduced tax incentives for small business owners will make them less likely to make matching and other employer contributions—or worse, make them less likely to offer a plan at all. “We could be dealing with significant issues,” said Graff, adding that it could pose “threats to the system” and that there is “fear that some proposals could result in employers dropping plans.” 

This “isn’t a new idea,” Graff noted, commenting that it was a bad idea before and is still so, and remarking that the current rules “are in place for a reason. They work.” He added that there are other adjustments that can be made to the current system to create incentives for low-income workers to save for retirement. 

The Biden retirement plan, Graff noted, calls for almost all workers without a pension or 401(k)-type plan to have access to an “automatic 401(k),” which it says would provide an opportunity to save for retirement at work easily. It would create a national plan to supplant the current situation in which states are designing their own such plans. 

What is unclear is whether a national automatic 401(k) plan would be government-run. “We support the private sector fulfilling the requirement” and that it not be government-run, said Graff. 

Wall Street Tax Act 

Another proposal under discussion is for a financial transaction tax to be put in place. Among the measures that would accomplish that is the Wall Street Tax Act, legislation which provides for a transaction tax of 10 basis points to as much as 50 points—a level Graff termed “unbelievable”—to be imposed every time a security is traded. Sponsors of the legislation call it “a new progressive tax on financial transactions” and say that it would “generate billions of revenue, while addressing economic inequality and reducing high risk and volatility in the market.” 

Retirement plans would not be exempt from the tax. And it is estimated, said the panel, that one-third of the $777 billion in revenue it is projected to raise would come from taxation of retirement savings. 

But two-thirds of 401(k) holders make less than $100,000 per year, Graff observed. He termed it “ridiculously ironic” that the industry is criticized for high fees and basis points, but Congress proposes to do it—“You can’t, but we can.” He added, “This is not a tax on Wall Street fat cats, but on middle income Americans.”

DOL E-Delivery Final Regulation 

The regulation stresses notice and access in providing information electronically, the panel noted. The first step—paper notification of electronic delivery and participants’ right to receive information on paper—was postponed because of COVID, Wielobob observed.  

Highlights of the regulation include:

  • Whenever information is available online, participants and beneficiaries with electronic addresses are to be notified.
  • Information is to be available on a website with continuous access. 
  • An electronic address is required in order to default a participant to e-delivery.
  • The rules apply to all ERISA notices, including such notices as benefits statements, SARs, SMMs and black-out notices. 

“We were really pleased,” Graff remarked about the issuance of the regulation, adding that “this is a big deal for the organization and the system. Graff noted that issuing benefits information, reports and documents on paper is very expensive; the panel noted that the regulation is estimated to save the retirement plan system $2.4 billion over 10 years. It was “not the best way to communicate with participants,” said Graff.

“Unfortunately, this is still controversial,” Graff said, noting that there could be a push to make some changes to the rule; for instance, changes that would result in at least one benefits statement having to be send on paper each year. 

ESG Proposed Regulation  

Under the DOL’s proposed ESG regulation, ESG investments, like other investments, would have to satisfy an ERISA fiduciary standard—social purposes could not be the driver for selecting an investment. It also would prohibit ESG considerations regarding any QDIA.

“There are quite a few unresolved issues here,” said Wielobob. Graff went further, remarking that, “The preamble has a chilling effect on plan sponsor willingness to enter into these transactions.” And, Hansen added, it could open the door to new litigation. Graff indicated that the fate of the proposed regulation could hinge on the outcome of the upcoming elections, remarking that “if there is a change in administrations, this will almost certainly be revisited.” 

Proposed Fiduciary Rule 

The DOL’s proposed fiduciary rule—which the panel said is intended to align with regulation best interest regulation—includes provisions that say that:

  • “reasonable compensation” would be allowed, including on rollovers, which the panel said could be an issue for pooled employer plans;
  • 401(k) fiduciary advisors could work with participants on rollovers;
  • documentation would be required for rollovers, including a comparison of fees and services between the plan and an IRA; and
  • recommendations concerning rollovers would be considered advice.

Under the proposed rule, said Wielobob, “we’ve reverted to the five-part test.” She added that “The DOL has said it no longer agrees with the stance on rollovers that it articulated in 2005. It adds a lot of conditions to prohibited transaction relief, she said, adding that “it’s nice to have that clarity on rollovers.” 

But Graff indicated that like the proposed ESG regulation, the election could be key to what happens with the proposed fiduciary rule. There is a “very high likelihood of a Biden administration revisiting this,” he said.