Politics and policy took center stage in the opening keynote session of the NAPA 401(k) Cyber Summit on Wednesday, as Brian Graff, Esq. and Preston Rutledge sat down for a virtual discussion covering the retirement industry implications of the looming presidential election and recent proposals from the Department of Labor.
The event, moved online this year like just about every other industry conference thanks to the pandemic, runs through Friday with livestreamed keynote and breakout sessions that are also available on-demand for registrants.
Graff, CEO of the ARA, and Rutledge, former Assistant Secretary of Labor for EBSA and now Founder and Principal of Rutledge Policy Group, LLC, covered DC plan funding relief proposals; celebrated the passage of the electronic delivery disclosure rule that is estimated to save the retirement plan system $2.4 billion over 10 years; dove into the DOL’s controversial ESG and fiduciary rule proposals; and concluded by talking election politics.
“The presidential election, for us, is like the World Cup every four years. In essence it’s the political World Cup,” Graff said.
Graff said they’re watching particularly closely this year because the biggest risk to upsetting the retirement system applecart is when one party controls everything, which could happen if Joe Biden wins the White House and Democrats are able to wrest control of the Senate while keeping a majority in the House of Representatives.
With this possibility, Graff said ARA is taking a close look at Biden’s tax plan, specifically the proposal about equalizing DC Plan tax benefits.
He said the ARA is concerned that reduced tax incentives for small business owners will make them less likely to make matching and other employer contributions, or even worse, less likely to offer a plan at all.
“Our concern with this approach is it completely ignores the impacts of the non-discrimination rules,” Graff said. “If you take away the value of the tax incentive from the small business owner without addressing the non-discrimination rules, you’re going to disincentivize small business owners from having plans or make them less likely to make matching contributions.”
Rutledge said the thing that makes him think the proposal could gain traction under Democratic control is that the proposal, when “scored,” raises a lot of revenue.
“Because retirement savings reform so often raises revenue, and that can either reduce the deficit or it can pay for some other initiative, it makes it a perennially tempting area,” Rutledge said.
Graff said the ARA thinks a better way to make sure there is money going into the accounts of people in the lower tax brackets would be to boost the saver’s credit.
“The saver’s credit really doesn’t work great today. It’s too much of a cliff,” Graff said. “We would recommend expanding it and smoothing it out in a significant way where we’re adding to the incentive for lower-income folks without taking away the incentives for business owners.
While expressing concern about Biden’s potential swapping of 401k tax breaks for credits, Graff did express potential ARA support for another one of Biden’s proposals: The Automatic 401k, which would call for widespread adoption of workplace savings plans and offer tax credits to small businesses to offset much of the costs.
“The Biden Plan for Older Americans” does not go into great detail about the “automatic 401k,” but Graff said it is an idea he could see ARA getting behind as an improvement over the state-by-state approach, which he said is problematic.
“We know that the gateway to a comfortable retirement is having a plan at work, Graff said. “Those people are 12 times more likely to save when they have access to a plan through their paycheck.”
ESG a “super-hot” topic
Graff noted the subject of environmental, social and governance (ESG) investing has gotten a ton of attention this year, thanks to the proposal from the DOL.
“Frankly, as an organization we have some concerns about the proposal,” Graff said, focusing particular attention on how the proposal as written would prohibit ESG considerations with respect to any QDIA.
“It has to satisfy the ERISA standard, exclusive purpose, and financial has to be the driver. Let’s assume you do all that,” Graff said. “Why then preclude an ESG target-date fund from being a QDIA? What’s the policy justification for that?”
Rutledge said this issue is probably the single-most fascinating aspect of the whole rule, and he’ll be interested to see how it is resolved.
He speculates it is being actively debated within the DOL, and said there just seems to be a nagging concern about the fiduciary violating their duty of loyalty if they are putting their own views of what’s the most important social consideration ahead of the participant.
“This rule clearly recognizes that ESG can be financially material. In fact, that’s the kind of ESG that is allowed under this rule,” Rutledge said.
To which Graff quickly countered: “Which is why it shouldn’t be precluded from being a QDIA.”
Graff then announced NAPA is developing an ESG Certificate Program, which will be made available for free in the spring of 2021 to NAPA members. “We want to prepare you to be able to talk to investment committees and trustees about ESG options,” Graff said.
Fiduciary Rule
Regarding the DOL’s Fiduciary rule proposal, clearly intended to align with the SEC’s Reg BI, Graff said “the good news for NAPA members is it clearly allows for a 401k fiduciary advisor to work with participants on rollovers.”
But again, if Biden were to win the White House, he expects the proposed rule and Reg BI would both be likely to be revisited.
- Stay tuned to 401(k) Specialist for additional NAPA 401(k) Cyber Summit coverage