NTSA Summer Advocacy Update Focuses on Federal, State Developments

What happens in Washington and in the states affects not only retirement plans collectively, but also the plans central to the work of the NTSA and its members and those whom they serve. In the NTSA Summer 2018 Advocacy Update, broadcast on July 11, American Retirement Association Government Affairs Counsel Joseph Caruso covered key legislative and regulatory developments at the state and federal level.

Highlights of the update include the following.

Tax Reform. Caruso noted that the ARA had reported that the idea of “Rothification” had resurrected and that the House Ways & Means Committee was considering including it as a part of future tax reform proposals. But the article caught the attention of Chairman and (R-TX); a spokesperson from the committee subsequently issued this statement:

“Chairman Brady continues to advocate for making our tax code more family-friendly including helping future generations save for retirement. The Ways & Means Committee has no plans to revisit the issue of so-called ‘Rothification’ as part of any 2.0 proposals and any rumors to the contrary are simply not correct.”

Nonetheless, Caruso said of tax reform proposals that would affect retirement plans and the way the tax code treats them, “As a revenue raiser, it’s always something that’s a viable option.” And he noted that it appears possible that a future tax reform package will include universal savings accounts.

Universal Savings Accounts and MEPs. Caruso touched on proposals for universal savings accounts, under which:

• any individual age 18 or over can open an account;

• up to $5,500 can be set contributed after taxes;

• distributions are exempt from income taxes; and

• individuals can take distributions for any purpose.

He commented that universal savings accounts enjoy support but also engender some misgivings. For instance, some are concerned that such accounts could cause employers to ask themselves why they offer a retirement plan in the first place.

Caruso also said that multiple employer plans (MEPs), which offer two or more unrelated employers that may not want to administer a plan by themselves to share those functions, remain in active discussion.

Automatic Retirement Plan Act. Caruso outlined the Automatic Retirement Plan Act of 2017, a measure Rep. Richard Neal D-MA) introduced on Dec. 1, 2017. He noted that the bill would require many employers to offer a 401(k) or 403(b) plan, with exceptions for:

• governments;

• churches; and

• companies with 10 or fewer employees, or that have been in business for less than three years.

The measure would allow for “open” MEPs and would provide a start-up credit to encourage plans to offer them.

The Retirement Enhancement and Savings Act. Caruso provided highlights of the Retirement Enhancement and Savings Act (RESA), which is before the House and Senate, would:

• expand MEPs or pooled plans;

• require lifetime income disclosure for DC plans;

• expand the due date for adopting plans;

• remove auto-enrollment safe-harbor cap; and

• increase the tax credit for plan start-up costs and auto enrollment adoption.

Caruso did not evince confidence that RESA would become law, however, remarking that it is “unlikely to go anywhere” — that is, unless the Democrats become the majority party in the House after the fall elections.

SEC ‘Best Interest’ Standard of Conduct Proposal. Caruso noted that in the wake of the Department of Labor’s fiduciary rule being stopped in its tracks, the Securities and Exchange Commission issued its own proposal for a “best interest” standard of conduct. He noted that under it, brokers would be considered to be acting in the best interest of a client if they satisfy three obligations: disclosure, care and conflict of interest.

Caruso said that the ARA is “especially concerned that the definition of “retail customer” in the SEC’s proposal does not include investment recommendations to small plan sponsors. “We believe these merit protection,” he said. Caruso added that there are provisions in the proposal that are “duplicative of current federal regulations.” In addition, he said, the language concerning provision of account statements “would impose a heavy cost on advisors,” many of whom run small offices.

DOL Fiduciary Rule. The fiduciary rule may be moribund, but that doesn’t mean it’s off the radar screen. “While the fiduciary rule is dead, the discussion will continue,” said Caruso. And now, he said, the 5th Circuit decision invalidating the rule raises prohibited transaction concerns for advisers involved with rollover transactions when the adviser is also a plan fiduciary. “We return to the five-part definition of ‘investment advice,’ he said. Caruso also noted that states are taking action now as a result of the DOL’s rule being stymied.

State Activity. Caruso outlined activities that state governments are undertaking concerning fiduciary rules as well as state-sponsored retirement plans and accounts. This includes legislation:

• in Connecticut that requires service providers under 403(b);

• in Nevada that adds financial planning to fiduciary duties, enacted in 2017;

• in Massachusetts that concerns automatic enrollment;

• in Colorado that would allow new employees to choose between the PERA defined contribution plan and the hybrid defined benefit plan, and was signed into law on June 4;

• in Michigan that would allow new employees to choose between the PERA defined contribution plan and the hybrid defined benefit plan; and

• in Tennessee that concerns open 403(b) provider access.

The NTSA Summer 2018 Advocacy Update is available on demand. Information on NTSA webcasts, including those available on demand, is available here.