Senate Committee Changes Could Impact Retirement Industry

Midterm election results are often interpreted to mean different and contradictory things—but there appears to be some consensus in the retirement industry about the new political landscape in Washington.

More than a week out from the midterms there are a few U.S. House and Senate elections that are still too close to call. Published reports in the New York Times and other sources put the current count in the House of Representatives at 184 Democrats to 244 Republicans. In the Senate, where control shifted from blue to red, the tally is 46 Democrats to 53 Republicans. Republicans also fared well in state elections, taking an even stronger gubernatorial majority and expanding control in the nations’ state legislatures.

The Senate’s shift to Republican control is important because it brings more unity to a long-divided Congress, but the result is muted by the fact that President Obama still has two years in office, notes with Judy Miller, director of retirement policy at the American Society of Pension Professionals & Actuaries (ASPPA) and executive director of ASPPA’s College of Pension Actuaries. She tells PLANSPONSOR that the shift in Senate control is probably most important for the retirement planning industry because it implies a change in leadership for a number of key committees, through which any substantial retirement or tax reform legislation will likely move during the next two years.

“The Senate Committee on Health, Education, Labor and Pensions, or ‘HELP’ for short, is an example where the midterm election results shook things up,” Miller explains.

Until last week, Senate committees were all chaired by Democrats. In the case of the HELP committee, former chairman Tom Harkin (D-Iowa) had previously announced plans to retire, meaning he would have been replaced by Senator Patty Murray (D-Washington) had the Senate remained under Democratic control. Now Senator Lamar Alexander (R-Tennessee) is in line to become chairman of the HELP Committee at the start of the next Congress.

“Senator Alexander is much better known for his interest and focus on education issues,” Miller says. “It’s hard to know at this point exactly how this change will play out, and HELP is only one step in the process, but we feel it’s one of the more important changes that occurred in the midterms. Truly it could change how prominent retirement issues will be in the work of the HELP Committee in the next two years.”

Other industry watchers echoed that sentiment. One prominent industry advocacy organization suggested the departure of Senator Harkin will also likely mean the death of his “USA Retirement Funds Act”, a piece of legislation he had introduced several times trying to expand access to workplace retirement savings. Miller agreed with that assessment, with a few caveats.

“Did the industry lose an advocate in Harkin? He certainly paid attention to retirement planning issues, but of course there were people who had concerns with his bills and ideas in the area, so not everyone would say that his departure is a bad thing,” Miller adds. “In fact, I believe his bill as it was most recently introduced had no Republican co-sponsors, so he was still a divisive figure, even though he was interested in the retirement outlook for American workers.”

There were several Democratic co-sponsors on the most USA Retirement Funds Act bill that could take up the initiative, Miller says. These are Senators Sherrod Brown of Ohio, Tim Johnson of South Dakota, and Brian Schatz of Hawaii.

“Senator Brown, in particular, may be an important ally to the retirement industry moving forward, because he is on both the HELP and the Senate Finance committees,” Miller adds. “I have not yet heard whether he or any of the others will try to move forward on the USA Funds Act. Again, there were no Republican co-sponsors on the bill so it’s hard to see it succeeding in the near term even if it is brought up again.”

Miller says the other piece of the equation that has changed substantially is the leadership of the Senate Finance Committee.

“Senator Orrin Hatch [R-Utah], who takes over as finance chair with the new Congress, has demonstrated that he is interested in retirement issues,” Miller says. “In fact, he has a bill that would make some real changes, known as the Secure Annuities for Employee (SAFE) Retirement Act, so this will be an important one to watch.”

Miller notes that ASPPA and other industry groups are “particularly fond” of Title II in the Hatch bill, which would expand the availability of qualified retirement plans among private sector workers, especially for employees of small businesses. For example, the bill includes a new “Starter 401(k)” option to encourage businesses to establish retirement benefits, and would provide employers with additional time after the end of the year to set up a company retirement plan. The SAFE Retirement Act would also significantly reduce administrative burdens through provisions such as streamlined plan amendment and restatement processes, and by establishing rules for electronic disclosure to plan participants and beneficiaries.

Given that Hatch takes on leadership of a powerful committee at the same time a Republican majority is installed in Congress could spell success for the SAFE Retirement Act, Miller says. She was quick to add that even this result is far from certain, however.

Looking beyond individual personnel changes, Miller says the burgeoning pressure to get some type of tax reform done will be concern No. 1 as the new Congress sets up for business.

“When it comes to tax reform, we see that there is an overriding desire to pay for any tax reform, especially among the majority Republicans,” Miller says. “This leads people who otherwise might be supportive of our industry to come out with some proposals that are troubling. It’s the need to raise additional revenue that is always troubling for our industry, and given the confusion that exists in Washington around tax deferrals versus a true tax deduction, this could imply negative outcomes.

“So if you look at, for example, the 2014 Tax Reform Act (TRA) from Dave Camp [R-Michigan], chairman of the House’s Ways and Means Committee, it would raise a lot of money out of the retirement savings area,” she explains. “That’s an area where we have real concerns moving forward into 2015. We’re watching closely to see whether this proposal comes back, or any others like it.”

Less sweeping but also important are changes that occurred in the states, Miller continues. Some of the states that have had proposals to create state-run retirement benefit arrangements for private-sector employees have seen a party change in the governor’s office and in the state legislatures, she notes.

“Maryland comes to mind here, as well as Illinois,” Miller explains. “The party change may be expected to have an adverse effect on that effort, but at this point it’s still hard to predict how all of that will play out. Retirement policy is often perceived as being bipartisan, so it’s not necessarily true that a Republican governor will be less open to establishing a state-run retirement option for private workers.”