Earlier this month Jeff Snyder, vice president and senior consultant at Cammack Retirement Group, winner of the 2017 PLANSPONSOR Retirement Plan Adviser Mega Team of the Year designation, sat down for an interview with Elizabeth Bell, Tax Counsel for U.S. Senator Ben Cardin (D-Maryland).
The conversation ranged over the Affordable Care Act repeal effort, tax reform and other crucial regulatory and legislative issues impacting retirement plan service providers and their clients. In the end Bell is clear that both health care and tax reform are taking up the bulk of staffers’ time these days on the Senate Finance Committee—so it seems clear that the retirement planning industry is in store for a fast-paced session over the next few months.
Political junkies will know how impressive it is that the firm was able to bring in Bell for such a frank and wide-ranging talk. As Snyder agreed in a subsequent interview with PLANSPONSOR, in modern Washington it is exceedingly rare to hear directly from such a senior staffer of such a senior Senator, responding to important industry questions in a more or less unscripted and direct manner, on camera, speaking about fraught and divisive issues that are playing out right now in Washington.
Turning to Bell’s commentary, she made the disclaimer that she was sharing her own thoughts and ideas, not the point of view of the Senator or the Finance Committee. Still, she is directly involved in the ongoing debate and has an unmatched visibility into the legislative process.
“In terms of the legislative agenda going forward, there is definitely a discussion of a pivot to tax reform,” Bell said. “This is a natural response to the big health care reform bill challenge. It was fascinating to see how even the procedural thresholds for that vote turned into a real battle.”
In the end the measure failed, but Bell remains unwilling to call the Affordable Care Act repeal effort dead—she thinks we may very well see the possibility of bipartisan developments on health care, or even a new unilateral effort by Republicans in the Senate and the House.
Snyder asked about the challenge it must be for legislative staff to pivot between such complex issues, one after the other, and Bell agreed to some extent that it is a challenge. But she also argued that the Senate Finance Committee has been viewing the health care and tax reform issues on “parallel tracks for some time now.”
“As we all saw during the debate, there were some important tax elements that would have been included in the ACA repeal bills, and both the Democratic and Republican members were not shy even then about speaking about their plans for tax reform and how those might impact the health care picture,” Bell explained. “So yes, there is a pivot on the Senate floor and in terms of what we are hearing about each day in the media, but behind the scenes there is consistent work going on with both pictures.”
What’s in store for Rothification?
Snyder moved next to ask about the potential “Rothification” of defined contribution (DC) plans and what Bell sees on this “new” subject.
“Funny enough, this is not really even a new term anymore among the Senators and staffers,” she remarked. “I believe it was first used formally in Senator Camp’s proposals that came out back in 2014. Today it is used as short-hand for a conversation that represents a growing spectrum of possibilities.”
On one hand there are Senators who are proponents of full Rothification, moving all contributions in pretty much all account types to a Roth approach. Next comes what Chairman Camp proposed in his draft legislation, which would be a 50/50 approach where one can defer retirement dollars pre-tax up to a certain limit, moving then to Roth. Finally there are those with the idea of only “Rothifying” certain accounts in a limited way, say 401(k)s versus IRAs.
As Bell tells it, some Senate members, including the one she works for, have adopted first and foremost a “do not harm attitude” when it comes to the treatment of retirement savings incentives. Many senators fall into this category, but others do feel an urgent need to accomplish significant tax reform, and they seem willing to use either retirement tax incentives or other special interests to do it.
Overall, Bell emphasized the complicated nature of this reform effort and suggested the jury is still out on exactly what might happen should partial or full Rothification be implemented.
“It depends a lot on how you actually make the move to Roth,” she said. “It depends on the scoring procedures that may be changed with the upcoming tax reform debate, as well. As many people probably know from their experience with Congress, what matters most is whether or not money is moved into the budget window. Usually this means that revenue numbers can only be viewed over a 10-year window, and this would have a material effect on the final results of any reform we might see.”
Bell explained that, “if we were to take away the tax deferral as an incentive right now but keep the incentive in the out-years, past the 10-year window, we will actually raise money within the 10-year window used to score. You can question whether this is a good way to do it, but you won’t see revenue losses inside of that window.”
She went on to make an important note about the way tax reform must move forward procedurally in the Senate session ahead. “Basically we are going to be looking at a reconciliation bill, which will bring up some fond memories for Senators Cardin and Portman, because they led a successful retirement planning reform effort through the same process back in 2001, leading to the Economic Growth and Tax Relief Reconciliation act (EGTRRA), which first introduced voluntary Roth accounts to 401(k) plans. So we are very excited to be working on this issue right now.”
Bell concluded that the reconciliation procedures, and even the prospect of moving beyond mere budget reconciliation, will in fact open up the room for true retirement reforms. It’s simply up to lawmakers to reach a bipartisan consensus on issues where many Americans on the left and the right actually have quite similar outlooks.