Retirement legislation to cool off after SECURE 2.0

The retirement industry received some welcome news late last year when lawmakers passed another major bipartisan retirement security package, but industry sources aren't expecting 2023 to yield many more legislative victories when it comes to retirement issues.

"Everything that they could find where there was bipartisan agreement made it into this bill," said Michael P. Kreps, Washington-based principal and co-chairman of the retirement services practice at Groom Law Group, about SECURE 2.0, a retirement security bill attached to a $1.7 trillion year-end spending bill and signed into law Dec. 29.

"They didn't leave a lot on the table. People always come up with new ideas and there will be new priorities, but with a new Republican leadership in the House with their own priorities, without Chairman (Richard) Neal driving a retirement agenda, it's likely that retirement isn't a front-burner issue, at least for a while."

SECURE 2.0, which builds off the original SECURE Act that Congress passed in 2019, includes dozens of provisions, including expanding automatic enrollment for employees joining 401(k) and 403(b) plans, lowering the eligibility requirement for part-time workers to join 401(k) plans from three years of consecutive work to two, and allowing employers to make matching contributions to a 401(k) plan, 403(b) plan or SIMPLE IRA based on qualified student loan payments.

The SECURE 2.0 package was made up of three bills introduced during the last Congress, including one from Rep. Richard Neal, D-Mass., a longtime retirement security advocate and chairman of the Ways and Means Committee last Congress, and the committee's now-retired Ranking Member Kevin Brady, R-Texas.

Retirement-related bills will likely still get introduced in the new session that began Jan. 3 and continues through 2024, but the issue won't rank high on the priority list in a divided Congress, sources said.

One bill that was introduced in December and is likely to be reintroduced in this Congress would grant workers without an employer-sponsored retirement plan access to a federal program similar to the $748.1 billion Thrift Savings Plan, the retirement system for 6.7 million federal employees and members of the uniformed services.

The bipartisan Retirement Savings for Americans Act, introduced in both the House and Senate, closely follows a March 2021 paper published by the Economic Innovation Group, a bipartisan public policy organization, that argued the TSP could be a model to build wealth for low-income workers.

John Lettieri, president and CEO of the Washington-based Economic Innovation Group, said the bill's introduction late last year was more of a messaging vehicle. "This is a way of planting the marker … to generate interest and attention and to generate feedback from a variety of stakeholders," he said in December. "Think of this as a dress rehearsal for a more substantial effort in the new Congress."

Mr. Neal has his own automatic enrollment bill that could also be reintroduced at some point. Originally floated in late 2017, the Automatic Retirement Plan Act would require employers that don't offer retirement plans to automatically enroll their workers in individual retirement accounts or 401(k)-type plans. Mr. Neal attempted to include the measure in Democrats' Build Back Better Act, but it was stripped from the package during negotiations before it passed in 2021.

Bradford P. Campbell, a Washington-based partner at law firm Faegre Drinker Biddle & Reath LLP and former assistant secretary of labor for the Employee Benefits Security Administration during President George W. Bush's administration, said bills that attempt to improve the retirement system moderately have a better chance of passing in Congress.

"We're going to see a number of different bills that run the spectrum from trying to tweak the current system to those that would fundamentally change the current system," Mr. Campbell said. "I think the reality is the tweaking bills, so to speak, have a much better chance of success."

While another retirement bill passing Congress is a long shot, added oversight of the Department of Labor and Securities and Exchange Commission is not.

Republicans won control of the House in November and now have the ability to hold hearings and issue subpoenas and document requests from the Biden administration.

Rep. Patrick McHenry, R-N.C., the new chairman of the House Financial Services Committee, said in a statement last month that the committee will focus its efforts on "conducting appropriate and aggressive oversight of the Biden administration."

The SEC in particular was "not subject to particularly aggressive oversight under Chair (Maxine) Waters' (D-Calif., who previously led the committee) leadership," said Jamie D. McGinnis, Washington-based counsel in the corporate department and member of Ropes & Gray LLP's asset management group who previously worked for Mr. McHenry as senior policy adviser and lead securities counsel at the House Financial Services Committee. "I think the aggressiveness of oversight will increase significantly."

Much of the oversight at the SEC and Labor Department will focus on climate and environmental, social and governance-related issues, congressional Republicans have indicated.

Several rule-making initiatives at both agencies have drawn Republican ire in recent months.

At the Labor Department, the agency finalized a rule in November that takes effect Jan. 30 and permits retirement plan fiduciaries to consider climate change and other ESG factors when selecting investments and exercising shareholder rights. It also reverses two Trump-era rules that the Biden administration said had a chilling effect on ESG investing but maintains the department's position that fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.

Republicans last year introduced bills and joint resolutions to nullify the DOL rule.

Rep. Greg Murphy, R-N.C., who co-sponsored one such bill in October, said in a news release that the Biden administration's changes to ERISA "abandon fiduciary responsibility by allowing 'woke' ESG factors to dictate investment returns — putting Americans' retirement savings at risk."

At the SEC, the most discussed proposal is one that would require public companies to disclose a host of climate-related information in their registration statements and periodic reports. The proposal, released in March, has broad backing from institutional investors and asset managers, but will likely be challenged in court by the business community.

Under the proposal, public companies would be required to disclose the greenhouse gas emissions they generate or purchase, and the indirect emissions generated from a company's supply chain, if material, though smaller companies would be exempt from the latter requirement, referred to as Scope 3. Some stakeholders in the business community and Republicans in Washington said the proposal exceeds the SEC's authority.

Republicans in both the House and Senate introduced bills last year that would limit the SEC's ability to establish additional disclosure requirements on public companies, including the proposed Scope 3 requirements.

"For whatever reason, Republicans have decided that (opposition to ESG and climate regulation) is going to be an issue for them and they're going to make it an issue so I suspect it will be a recurring theme throughout the next few years," Mr. Kreps said.

Republicans could also introduce "policy riders" on must-pass appropriations bills this Congress to try to stop the agencies from implementing certain rules, like the SEC's climate disclosure rule and Labor Department's ESG rule, sources said.