T. Rowe Price Forum. INSIDE WASHINGTON: How 2015 Ended and What to Expect From2016. Michael Hadley Davis & Harman LLP

Transcription

1 T. Rowe Price Forum INSIDE WASHINGTON: How 2015 Ended and What to Expect From2016 Michael Hadley Davis & Harman LLP

2 2 Trust in Government Over Time

3 Can You Trust Me? 3 In May 2015, I predicted: Labor s fiduciary proposal would dominate discussions Possible thaw in partisanship could lead to compromise State efforts on coverage would continue Tax reform unlikely before 2017 Three out of four isn t too bad

4 Regulatory and Legislative Update Overview 4 How 2015 Ended The Remaining Obama Retirement Agenda Final DOL Fiduciary Rule Implications of the Election

5 5 Congress and Savings Policy

6 6 Consolidated Appropriations Act Public Law No: Kept the government open through September 30, 2016; $1.1 trillion funding bill signed into law on December 18 House (150 Rs YEA) Senate Contained $611 billion tax package (PATH Act) that made 22 tax provisions permanent, and extended others Did NOT contain: DOL rider Open MEP provisions Included significant savings and employee benefit changes The only number that really matters in the House

7 Savings and Employee Benefits Changes in PATH Act 7 Rollovers Into SIMPLE IRAs Permanency of Parity for Mass Transit Two-Year Delay in Cadillac Tax Charitable IRA Distribution Provision Made Permanent Church Plan Changes Extension of Age 50 Distribution Exception for Public Safety Workers 529 Plan and ABLE Account Improvements

8 8 House in session for six more weeks before summer recess

9 2016 Congressional Outlook 9 FY 2017 Budget Resolution status in doubt Funding Bill currently expires 9/30/16 will need to pass short-term CR or longer-term spending package Retirement Related Legislation to address Puerto Rico s debt crisis Open MEP legislation Multi-employer (Taft-Hartley) pension technical fixes Other Trans Pacific Partnership trade agreement Criminal Justice Reform Legislation to fight Obama Administration regulations (not just DOL) Supreme Court Nomination

10 10 What Remains of Obama Agenda

11 Obama Retirement Regulatory Agenda 11 MyRA Fiduciary Rule Overtime Rules State-Run Plans Legacy Proposals

12 12 MyRA opens to public Nov 2015

13 13 Fiduciary Regulation

14 [T]he final regulation continues to adhere to the North Star of an enforceable best interest standard. Thomas Perez, Secretary of Labor (April 6, 2016 letter to Congress) 14

15 Congressional Attacks 15 Defund regulation Year-end appropriations act Make SEC regulate Create new fiduciary standard by legislation Retail Investor Protection Act Affordable Retirement Advice Protection Act and SAVERS Act Overturn final regulation Congressional Review Act Give jurisdiction over IRAs back to Treasury SAFE Act

16 Congressional Actions to Prevent DOL Fiduciary Rule Sen. Hatch s SAFE Act (113th Cong.) includes transfer of jurisdiction 2. Defunding via Appropriations Process End-of-Year omnibus did NOT contain any DOL provisions 3. The Retail Investor Protection Act, H.R S Rep. Wagner s bill passed the House in October 2015 Republican only Senate Bill introduced by Sen. Roy Blunt (R-MO)

17 Congressional Actions to Prevent DOL Fiduciary Rule Bipartisan DOL Legislation Would require Congress to provide affirmative consent for the DOL s fiduciary rule to become effective. If Congress failed to approve the DOL s final rule, then the best interest standard established by the legislation would become effective. Affordable Retirement Advice Protection Act H.R Approved on party-line vote in Ed and Workforce Committee on Feb. 2 S Sen. Isakson (R-GA) introduced Republican only bill Strengthening Access to Valuable Education and Retirement Support (SAVERS) Act H.R Approved by Ways and Means Committee with 3 Dems voting yes (Neal, Larson and Thompson) S Sen. Kirk (R-IL) introduced Republican only bill

18 Sen. Johnson Finds A Flawed Process 18 The Department of Labor s Fiduciary Rule: How a Flawed Process Could Hurt Retirement Savers A Majority Staff Report of the Committee on Homeland Security and Governmental Affairs

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21 Congressional Review Act (CRA) 21 Congress is expected to use a process established by the Congressional Review Act (CRA) to seek to invalidate the final DOL regulation after it is issued. Under the CRA, Congress has the ability to reject and invalidate a final regulation. Because of the mechanics of the CRA, a successful challenge to the DOL regulation is much more likely if it can be pushed into 2017 and be received by a new President who does not support the proposal. The CRA has been used successfully only once.

22 Congressional Review Act 22 CRA introduced in House 4/19 (Rep. Phil Roe (R-TN)), passed House on 4/28 on party line vote Introduced in Senate 4/18 (Sen. Isakson (D-GA))

23 Another CRA Challenge Target? 23 DOL project to increase the salary level for non-exempt status from overtime rules Final rule sent to OMB for review March 14 Likely target of Republican Congressional Review Act challenge

24 DOL State-Run Plan Guidance 24 Proposed regulation would exempt state auto-ira programs from ERISA even if coverage is mandated Examples: California, Oregon, Illinois IRA only, no employer contributions, limited employer involvement May use service providers Implications for employers that already have plans Interpretive Bulletin addresses states that wish to offer ERISA-governed arrangements

25 Current Status of State-Run Plans 25 Mandatory Auto-IRA Voluntary Marketplace Voluntary State-Run Plan Under serious consideration

26 26 I already offer a plan. And a good one. Why does this matter to me? Do you have employees in multiple states? Is every single one of your employees covered? What happens if a state mandates its plan unless you have a certain kind of plan or benefit? Mandate unless plan has automatic enrollment Mandate unless certain kinds of investments offered Mandate unless certain level of employer contributions Mandate if plan fees exceed certain levels

27 Legacy Retirement Proposals: Fiscal Year 2017 Budget 27 $4.1 trillion budget contained a number of retirement related provisions Selection of Reoccurring Retirement Provisions: Support Open MEPs Grant Fund to Promote State-Based Retirement Plans Eligibility for Long-term Part-time Workers in Plans Cap Aggregate Value Across Retirement Plans Eliminate Stretch IRAs Establish Automatic IRA Facilitate Annuity Portability Limit Roth Conversions to Pre-tax $$ 28% Limit on Tax Expenditures

28 28 Implications of the Election

29 Casualty List: 114 th Congress 29 Running for Other Office 3 House D; 1 Senate R Running for Senate 14 House: 7 D, 7 R Retiring 22 House: 16 R, 6 D; 5 Senate: 2 R, 3D Resigned Died 3 House R (Includes Speaker Boehner) 1 House R

30 Possible Outcomes of Election 30 Republicans Control House, Split Government More of the Same! Republicans Control House, Senate, President Chaos! Democrats Control House, Senate, President 180-Degree Turn Gridlock Must Pass Only Crisis Management Build Up Desire for Legislation Tax Reform ACA Repeal Slim Majority in Senate = Potential Gridlock

31 Path to Electoral college votes in states each party has won every year since 1992: Democrats: 242 (19 states) Republicans: 102 (13 states) Source: Washington Post 5/2

32 Trump Tax Plan 32 Consolidates seven brackets into three: 10%, 20%, and 25%. Increases the standard deduction to $25,000 for single filers and $50,000 for married filers. Steepens the curve of the personal exemption phase-out and the limitation on itemized deductions. Eliminates the alternative minimum tax, the 3.8% net investment income tax, and the estate tax. Taxes carry interest as ordinary income.

33 Assumed Clinton Tax Reform Proposal 33 Creates a 4% surcharge on high-income taxpayers. Buffett Rule 30% minimum tax on taxpayers with AGI over $1 million, phase-in between $1 million and $2 million of AGI. Caps all itemized deductions at a tax value of 28%. Limits the total value of tax-deferred and tax-free retirement accounts. Taxes carry interest at ordinary income tax rates instead of capital gains and dividends tax rates. Source: Tax Foundation

34 34 Outlook Crystal Ball

35 QUESTIONS? Michael Hadley Partner Davis & Harman LLP AX-17968