IMHO: “After” Thoughts

Still bleary-eyed from sitting up watching the returns pile in the night before, I immediately launched into what I felt was an insightful assessment of the mood of the electorate, the trends of various interest groups that had, at least according to exit polling, shifted allegiances since 2008, the influence of the Tea Party, and the historical context of the shifts (it’s actually pretty rare for the party in power NOT to lose Congressional seats in a mid-term election).  

After patiently listening to me ramble for several minutes, he finally interjected—“I mean, what does this mean for retirement plans.”  

Well, IMHO, you can’t completely separate the two.  By any measure, the results were “historic”; Democrats lost their so-called 60-vote “super majority” in the Senate, as well as control of the House, and in numbers that outpaced 1994’s turnaround (though that particular election also gave Republicans control of the Senate, while this time round the Democrats retained their majority).  That will certainly slow, if not stop, the pace of legislative change coming out of Washington, and—based on the employers I have spoken with (including those who were both pleased and disappointed with the election results)—that will almost certainly be a welcome respite.    

The bottom line is, the House can pass legislation, but the Senate’s not likely to go along with it—nor would any legislation that might manage to emerge from the Senate seem to have much chance of getting past the House.  And that’s without even having to contemplate the power of a Presidential veto (particularly since there are no “veto proof” majorities in sight).  It remains to be seen whether this will force the two major parties to work together, or simply deteriorate into some kind of political stand-off.   

Some are inclined to harken back to the 1994 elections as a harbinger for the next few years, recalling that after that turnabout, then-President Clinton and the Republican Congress managed to come together on several key initiatives, even as the nation entered a period of relative peace and prosperity.  However, IMHO those perspectives gloss over the fairly nasty political period that followed the 1994 elections.  It was, after all, a period that led to a number of high-profile conflicts, duelling press conferences, and that infamous (and in my estimation, overhyped) government “shut-down.”  Things finally settled down (well, except perhaps for “tiffs” like a presidential impeachment), but there was a lot of venom and acrimony in evidence for an extended period after the election.  I think it would be naïve to expect any less/better from the current players (though I’m willing to be wrong).   

In sum, I anticipate a lot of noise, a fair amount of activity, but not much forward motion in Washington for the next couple of years—though at this writing, I am not sure that a little legislative breathing room would be a bad thing.  Indeed, I have a feeling that American business might be ready to start creating some jobs in earnest, if only some of the “dust” would settle.       

However, it’s not as if the mid-term elections won’t have any impact on retirement plans.  I fully expect the debate about Social Security reform to re-emerge (the Deficit Reduction Commission is due to weigh in within the month), and changes there, though not likely in the next two years, will of necessity at some point have a ripple effect through all our retirement planning assumptions.  I wouldn’t expect to see much happen with that automatic IRA legislation, certainly not with its employer mandates intact.   

That said, our industry doesn’t need legislation to keep things stirred up.  Indeed, the regulatory change already in motion seems more than adequate to keep plan sponsors, advisers, attorneys—and journalists—plenty busy trying to sort it all out.  We’ll be kept plenty busy focusing on the best approach to disclose fees, figuring out what those disclosures mean, as well as helping participants along that path.  We’ll be pondering just exactly what a new definition of fiduciary might mean, and how it will impact our adviser relationships, while regulatory deliberations about 12(b)1 and target-date funds will also be on the radar screen – perhaps even retirement income.  

As always, we’ll worry a lot about matters in Washington; but IMHO, what happens outside of Washington is, more often than not, what really matters.