The election of the two Georgia Senate Democratic candidates—and the resulting shift in control of the U.S. Senate—could have profound implications for President-elect Joe Biden’s policy agenda—including retirement plans.
The election of Democrats Raphael Warnock and Jon Ossoff brings the party ratio in the Senate to 50 Republicans and 50 Democrats (including two independents who caucus with the Democrats). With Vice President-elect Kamala Harris serving as President of the Senate and the tie-breaking vote, that would give Democrats effective control of the chamber, including the ability to set the agenda and control the committees.
During the campaign, one of Biden’s more progressive and controversial provisions was a proposal to “equalize” the savings incentives in defined contribution plans for middle-class workers, contending that the current tax benefits for these plans provide upper-income families a large tax break for saving with limited benefits for lower-income workers (who pay less, or in some cases nothing, in federal income tax). While it’s not clear what appetite Democrats in Congress will have for this proposal, having control of both chambers keeps the prospects for this proposal alive for the time being.
Biden has also proposed providing access to an “automatic 401(k)” plan for almost all workers without a current pension or 401(k). This concept has been circulating for years and appears to be based on an Obama administration proposal to require employers in business for two years that have more than 10 employees to offer an automatic payroll deduction IRA program to its employees.[i]
Other campaign proposals included providing small businesses with an additional tax incentive for creating retirement plans and protecting Social Security, which could include either an increase in the payroll tax for those making more than $400,000 or a financial transaction tax (FTT). Biden has also proposed paying for his proposals by repealing various provisions contained in the Tax Cuts and Jobs Act, including raising the corporate tax rate and the individual rate for those with annual incomes in excess of $400,000.
Once Biden is sworn in and his cabinet begins to take shape, the administration will propose a fiscal year 2022 budget that will provide more details for his policy proposals and give Congress a chance to review and develop its own proposals. Had Republicans retained control of the Senate, much of Biden’s tax agenda would have been dead on arrival, but that does not appear to be the case now.
Other big changes ahead involve the two key committees with jurisdiction over the Internal Revenue Code and ERISA.
Sen. Ron Wyden (D-OR) will take over as chairman of the Senate Finance Committee, replacing Sen. Charles Grassley (R-IA). Wyden has a bipartisan streak when it comes to retirement policy and previously worked with former Sen. Orrin Hatch (R-UT) and Sen. Grassley in sponsoring the Retirement Enhancement and Savings Act, which eventually helped formed the basis of the SECURE Act.
He also supports broad-based initiatives to help working families save, including a restructuring of the current Saver’s Credit and restoration of the myRA program eliminated by the Trump administration. He also has a strong populist streak and may seek corporate-based tax increases to help offset the cost of expanding various savings-based tax credits.
Sen. Patty Murray (D-WA) is positioned to take over the Senate Health, Education, Labor and Pensions (HELP) Committee. She has been very vocal in her criticism regarding the recent regulatory initiatives by the Department of Labor, including the department’s fiduciary rulemaking efforts, as well as its initial proposal regarding the investment duties of ERISA fiduciaries, notably as it related to environmental, social and governance-related (ESG) investing. Murray has also been a proponent of initiatives to help women with their retirement savings efforts. Should Murray pass on the Senate HELP post, next in line would be Sen. Bernie Sanders (I-VT).
While Biden’s Labor Department will likely want to revisit the recently finalized rule on Financial Factors in Selecting Plan Investments, along with the final proxy voting rule and prohibited transaction exemption on investment advice, the Democrats’ control of the House and Senate increase the chances that these rules could be overturned under the Congressional Review Act. This is what happened with the reversal of the Obama administration’s DOL safe harbor exempting states’ and municipalities’ auto-IRA programs from ERISA, where President Trump and the Republican-controlled Congress overturned the rule.
With narrow party margins in both the House and Senate, compromise will still generally be required to move legislation through, since it currently takes 60 votes to end a filibuster in the Senate. That said, the Democrats can use the “budget reconciliation” process to pass major tax and spending legislation through Congress under expedited procedures that only require a simple majority for passage. This process was used to pass the Tax Cuts & Jobs Act (by Republican majorities) and parts of the Affordable Care Act (by Democratic majorities), and will likely be used to act on much of Biden’s tax and spending agenda.
Another key result of the shift in the U.S. Senate is that it could make it easier for Biden’s cabinet appointees and department nominees to receive votes and be confirmed. Under Republican control, Sen. Majority Leader Mitch McConnell (R-KY) would have determined when and which nominees come up for a vote. Under a Majority Leader Chuck Schumer (D-NY), the threshold for consideration will certainly be different. While Biden has not yet named a nominee for Secretary of Labor, he may well feel that he now has more leeway to choose a nominee who has more of a pro-union stance.
There’s going to be a lot to keep up with in the weeks and months ahead. And this is just the place to do so.
[i] This is also a priority of House Ways & Means Committee Chairman Rep. Richard Neal (D-MA), who previously introduced legislation requiring employers (except for certain organizations that would be exempted) to maintain a 401(k) or 403(b) plan that covers all eligible employees.