A New Administration's Impact On Retirement Policy

With a decisive outcome in the 2024 elections, Republicans will assume control of the White House and both Houses of Congress. As the new administration takes shape, we look at the expected impact on retirement legislation and policy issues.

What do we know?

Republicans secured a trifecta by winning the White House and both Houses of Congress, but the Republican majority in the House may be smaller than at present. Add in competing Republican House factions that may persist into next year, which may make it difficult for House leadership to pass legislation without securing some Democratic support. In the Senate, Republicans will have a 53 seat majority, which paves an easier path to passing legislation – however, the Senate majority cannot overcome a filibuster which requires 60 votes to pass certain legislation. It should also be noted that President-elect Trump filling out his cabinet with Members of Congress and Senators could further slim the Republican House majority as replacement seats aren’t guaranteed to stay in party and, at a minimum, will take time to replace Members moving into the administration.

What can we expect this year?

Congress must pass critical legislation by the end of this year, including a Continuing Resolution to fund the government through year-end (and potentially into March or longer so that the new Administration can fill its critical cabinet positions). In addition, Congress will have to pass the NDAA (National Defense Authorization Act), the farm bill, and perhaps one or two other critical bills. With those “must-do” items on the docket, there may be opportunities to include other bills in those packages, including the CIT/403(b) legislation that we have been championing. If you sponsor a 403(b) plan, you may want to contact your Senator and Member of Congress to urge them to enact this legislation. We think there is currently a slim possibility of this bill’s inclusion in moving legislation.

What can we anticipate next year?

Extension of the 2017 tax cut legislation will be legislative priority #1 in 2025. We have already begun working with key Members and their staffs on what might be included in that legislation. Our conversations indicate that retirement tax incentives won’t be used as a “pay-for”, but we cannot take that for granted. Negotiations could include discussion of the full “ROTHification” of all retirement plan contributions. This proposal was defeated in the early 2000s, but we think the idea could be revived as it would raise substantial money during the 10-year budget window. If full ROTHification is not enacted, we may see additional incremental steps in that direction, as we did with certain provisions in SECURE 2.0, such as having increased catch-up contributions done on a ROTH basis, and permitting employers to allow employees to designate employer matches as ROTH.

SECURE 3.0 is being discussed, but will not be enacted in 2025. With the Republican party in control of the House, Congressman Richard Neal (D-MA), the House’s chief champion of retirement legislation, will not be able to control the agenda in the House Ways and Means Committee. That, coupled with the incoming Administration’s focus on Cabinet appointments and extension of the 2017 tax cuts, will leave little time to enact any other major pieces of legislation. However, work is already beginning and key areas to be included are access/coverage, making plan transfers easier, and a continued focus on lifetime income.

A focus on deregulation will significantly impact retirement policy. A particular focus will be on regulations put forth during the Biden Administration, including the following:

• The Department of Labor’s fiduciary regulation will be pulled back. Recent litigation has delayed implementation of the rule and signals that it will likely be overturned. With the current briefing schedule in the litigation, it is unlikely that the Court’s decision will occur before the new Administration is in place in late January. Whether the court overturns the regulation or not, we anticipate that the new DOL will pull back the regulation entirely. In that case, the law would revert to the 1975 five-part test to determine who and under what circumstances someone is providing fiduciary advice to a plan sponsor or participant. PTE 2020-02, a prohibited transaction exemption under ERISA and the Internal Revenue Code, which was issued by the first Trump Administration, and kept in place by the Biden Administration, will likely remain in place going forward. For plan sponsors and intermediaries, this should finally end the 15 year saga of the DOL attempting to revise the 1975 fiduciary regulation and bring certainty in determining who and when fiduciary advice is provided.
• The DOL’s ESG regulation will be pulled back, significantly impeding fiduciary ability to consider climate change and other environmental, social and governance factors in making investment decisions. The DOL is currently being sued in Texas by 26 Republican Attorneys General seeking to overturn that rule. After an appeal to the 5th Circuit Court, the case is back with the District Court to review in light of the Supreme Court overturning the Chevron doctrine earlier this year (which required courts to defer to a regulatory agency’s interpretation of an ambiguous statute). Even if the DOL prevails in court (which is unlikely), the new DOL will most likely pull back the Biden Administration regulation. If that happens, the Trump era rule, which relied on determining whether an investment was “pecuniary” or “non-pecuniary”, could become the standard to determine whether an investment could be included in a plan.
• SEC rules regarding ESG will also be targeted. ESG rules, such as the requirement for climate-related disclosures, are likely to be reversed. Anti-ESG and DEI will be a key focus for the incoming Administration: it is also expected that Congress will pass several “anti-ESG” bills and will specifically target any SEC and DOL rules that promoted ESG investments, further chilling the demand for ESG investments.
• The DOL will be more open to private equity, other alternatives, and cryptocurrency investments in 401(k) plans, but it remains unclear how much encouragement will be given to these types of investments. We saw indications of this at the end of the first Trump Administration, when a letter was issued to several private equity funds stating that up to a 15% investment in a PE fund as part of a TDF or other QDIA could be appropriate. The Biden Administration “clarified” that letter by suggesting that such investments should be carefully considered within a fiduciary framework. Given hedge fund, private equity, cryptocurrency, and other alternative fund support of the Trump campaign, it is anticipated that they will play an important policy role in the next Administration, including retirement policy that supports those types of investments.
• The SEC’s swing pricing/hard close rule will not be reproposed. This rule, which would require all trades, including those in 401(k) plans, to be executed by 4PM to get that day’s price, was fought by recordkeepers as most that administer 401(k) plans are unable to complete all trades by 4PM. With SEC Chairman Gary Gensler stepping down from the SEC in January it is highly unlikely that the swing pricing/hard close rule will be reproposed.
• The SEC will not regulate CITs. Chairman Gensler has repeatedly commented that CITs should be regulated as mutual funds are — under SEC jurisdiction, and subject to registration requirements. Once Chairman Gensler steps down from the SEC, we do not expect that area of regulation to be pursued.

As the new Administration’s agenda and priorities come together, we look forward to continuing work with members of Congress and regulatory agencies on advocating for policies that improve outcomes for retirement plan participants.