Tax Reform Efforts Persist
As noted in the second quarter legislative update, President Trump continues to press Congress to join together and pass tax reform. However, delays, distractions, and complications have considerably reduced any potential changes this year. We have seen other legislation take priority over tax reform to address the debt limit; fund the government; provide funds for disaster relief, and also to reauthorize the Federal Aviation Administration. Additionally, the U.S. budget deficit is proving to be a major obstacle to tax reform and could ultimately derail a tax reform plan. The GOP had hoped to use a budget reconciliation bill to move tax reform; however, this process is not likely to be successful, as sixty votes would be needed in the Senate to pass a tax reform package, which would require buy-in from some democrats.
In conjunctions with tax reform efforts, there is concern about a “Rothification” proposal that would result in a compulsory conversion of some and/or all traditional defined contribution plans to Roth-like plans. This would reduce and/or eliminate pre-tax benefits for 401(k) plans and IRAs. It is uncertain whether the “Rothification” proposal is still under consideration, as it could generate revenue that would help to cover a loss from lowering tax rates.
Fiduciary Rule Update
The Department of Labor’s (DOL) Fiduciary Rule went into effect on June 9, 2017. However, the DOL published a field assistance bulletin in May that stated that, until January 1, 2018, they “will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.” Then again, on August 30, 2017, the DOL announced additional non-enforcement policies of the Best Interest Contract Exemption (BICE) and Principal Transaction Exemption. In August, the DOL released a proposal to extend the Fiduciary Rule’s transition period until July 1, 2019.
State- and City-Run Mandatory IRAs Implemented
In July, despite President Trump signing a joint resolution in May that overturned the Department of Labor’s (DOL) safe harbor for state-run mandatory payroll deduction IRAs, Oregon became the first state to implement such a program. As of August, five states had enacted laws (California, Connecticut, Illinois, Maryland, and Oregon) that require certain private sector employers that do not offer a retirement plan to automatically enroll their employees into a payroll deduction IRA created by that particular state.
Along with state-run mandatory payroll deduction IRAs, some states have embraced other approaches to mandated participation in a state-facilitated plan. Note: Even if a plan sponsor offers a plan, there may be other requirements and/or deadlines that must be met, including Oregon’s November 15, 2017 registration/exemption filing deadline.
End of myRA Retirement Accounts
In July, the Department of Treasury noted that it will phase out and end the myRA retirement savings program. The myRA program is no longer accepting new enrollees and will require existing myRA account holders to move their savings into another Roth IRA available through a private provider. To date, about 20,000 Americans had made contributions since the launch of myRA in 2015.
Many Critical Posts Remain Unfilled
The Trump Administration has fallen behind in filling hundreds of ambassadors, assistant secretaries, heads of agencies, and other critical posts that require confirmation of the Senate. These vacancies are concerning because it is very unlikely they would be confirmed quickly by the Senate. The position of Assistant Secretary for Employee Benefits Security Administration (EBSA) remains vacant. This appointment is responsible for retirement, health, and other workplace benefits for American workers. Further, the failure to fill these positions may weaken Trump’s ability to deliver on the policy agenda, including the ambitious tax reform plan.
IMPORTANT DISCLOSURES: These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—Arnerich Massena cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.