11/6/2014

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Washington Update:

2014 Midterms

Brian GraffExecutive Director, ASPPA

Jim DornanPolitical Director, ASPPA

2014 Election Overview

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House Leadership

• 114th Republican Majority: 243-176 (16 Races Outstanding)

• 113th Republican Majority: 233-199 (3 Vacancies: Cantor,

Andrews, Watt)

• Republicans retain control of the House and growing their

majority to its largest level in nearly 100 years.

• Republicans gained a net 13 seats in the House, with more

pick-ups possibly on the way, as 16 races remain uncalled.

The GOP currently controls 243 seats in the House,

compared to 176 for the Democrats.

House Leadership

• Speaker Boehner remains Speaker

• Rep. Kevin McCarthy remains Leader

• Rep. Steve Scalise remains Majority Whip

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• House Ways and Means – Paul Ryan

• House Education and Workforce – John Kline

• House Financial Services – Jeb Hensarling (although

he is expected to be challenged.)

House Committee Chairs

Senate• Republicans regained control of the Senate for the first time since 2006.

• 114th Republican Majority: 52-43 (2 Independents: King, Sanders) (3 Races

Outstanding: Alaska, Louisiana, Virginia)

• 113th Democratic Majority: 53-45-2 (2 Independents: King, Sanders):

• GOP wrestled control of Senate seats from the Democrats in Arkansas,

Colorado, Iowa, Montana, North Carolina, South Dakota and West

Virginia. Republicans also maintained control in Georgia and Kentucky,

giving them at least a seven-seat advantage in the upper chamber.

• Senate races in Alaska and Virginia are still too close to call, while

Democrats held Michigan, New Hampshire, and the other seats they had up.

• LA SEN: Sen. Mary Landrieu (D) and Rep. Bill Cassidy (R) are headed for

a Dec. 6 runoff election.

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• Senator Mitch McConnell, Majority Leader

• Senator John Cornyn, Majority Whip

• The Senate will see a major reshuffling of power and

legislative agendas with current Democratic committee

chairmen becoming ranking members and current

Republican ranking members becoming chairmen. By

and large, the Senate follows seniority rules for

chairmanships. Because of outstanding elections in

Louisiana and Virginia, we do not expect committee

ratios to be decided for some time.

Senate Leadership

Senate Committee Chairs

• Senate HELP (Health, Education, Labor, and

Pension) – Senator Lamar Alexander

• Senate Finance Committee – Senator Orrin Hatch

• Senate Banking Committee – Senator Mike Crapo

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Looking Forward.

Senate Seats up in 2016

Vox.com – November, 6, 2015

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Governors Races

• GOP won Democratic-held seats in Arkansas,

Illinois, Maryland and Massachusetts

• Democrats picked up a seat in Pennsylvania

• Contests in Alaska are still too close to call

What Election Results

Mean for Us

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Tax Reform

• Tax Reform high on the GOP Congressional agenda

• Very LIMITED window of time to pass reform: It would

have to be done in early 2015, before the 2016 Election

year and presidential campaigning starts

• Many GOP legislators, both conservative and moderate

are calling for it

• But tax reform means different things to different

people

Tax Reform: House

• Paul Ryan, Chair Ways and Means (Committee of jurisdiction for

federal tax reform) has already been preparing way for tax reform in

2015 with a focus on:

• Lowering the baseline for tax revenues

• Implementing dynamic scoring for tax legislation.

• “Typically tax reform in history has been led by presidents, ’86 is a

perfect example,” he said, referring to the 1986 tax overhaul

achieved by President Reagan and a Democratic-led House. “That

won’t be the case this time if we get it in the next two years.” “It will

have to be led by Congress, and we’ll see what we can get.”

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Tax Reform: House

• Other House GOP and Leadership ready for

federal tax reform

• Speaker Boehner listed tax reform as top

legislative priority for 2015

Tax Reform: Senate

• ...We’re going to want to see what kind of things we might

be able to agree on with the President…I’ll give you a

couple of examples where there may be areas of

agreement: comprehensive tax reform and trade

agreements.”

Senator Mitch McConnell, November 3, 2014

• “The president has indicated he’s interested in doing tax

reform — we all know that having the highest corporate tax

rate in the industrialized world is a job killer. He’s

interested in that issue and we are too.”

Senator Mitch McConnell yesterday at a news conference in Kentucky

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Tax Reform: Senate

• Senator Orrin Hatch on his work for federal tax reform

has sponsored S. 1270, the SAFE Retirement Act of

2014, Title II of which adopts ASPPA proposals

• In September 2014: “One of the major goals of

comprehensive reform should be to fundamentally

change this system and anything we do in the interim

should move us further down that path.”

Other Leaders on Tax Reform

• Sen. Rob Portman called on Congress to pass comprehensive tax reform to boost the

economy. “Our onerous and outdated tax code continues to force businesses to leave the

U.S., taking American jobs with them. We can and must reform our tax code again so that

we keep businesses and jobs here at home and provide relief to all Americans.” He also

said: “We can’t wait for the next president. We can’t wait for the next Congress. We need

to act and act now.”

• Sen. Rand Paul: Tax reform should lead GOP’s 2015 priorities in a Republican-led

Senate. “We could have a boom like we haven't seen in years," Paul said on CBS's Face

the Nation this week that he would urge Sen. Mitch McConnell to take up tax reform in

January. "The longer you wait after an election, the less your mandate is. And it takes a

while for things to work," he said.

• Chairman Darrell Issa: “America’s tax code is broken. The federal tax system is too

intrusive, complicated and sometimes counterproductive. We must work to simplify it to

reduce the tax burden, ease the cost of compliance, and create a more competitive tax

structure so that our small businesses can invest and hire again.”

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Voters Support Tax Reform

• Republican polling firm Public Opinion Strategies is out with a poll this week showing that Americans can agree on tax reform: The tax code is a mess and needs fixing and both parties should work together to get it done.

• Among the findings:

• 95 percent said Republicans and Democrats need to work together to update the tax code.

• 93 percent said the tax code needs to be updated to help families and businesses.Republicans and Democrats alike agree that simplifying the tax code would spur economic growth.

Vehicle for 2015 Tax Reform

• Bipartisan bill that the President would sign or

• GOP goes in %100 on a bill and force President

Obama to veto

• Reconciliation

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Threats and Opportunities from Tax Reform

• Double taxation on retirement savings:

Small business owners could pay a new 10% surtax on all contributions made to a qualified retirement plan today, then pay tax again at the full ordinary income tax rate when they retire.

• Freeze contribution limits at the current rate (not even allowing indexing for inflation) for 10 years, until 2023

Tax Reform Threats: Camp’s Draft

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• The problem with these tax reform proposals is that they are now a “marker” for future tax or spending proposals, as they have been scored by the Joint Committee on Taxation to give back over $63 billion to the Treasury, if enacted.

• They also completely ignore the fact that retirement contributions are already taxed–deferred, and subject to ordinary income tax when they are withdrawn after retirement.

Tax Reform Threats: Camp’s Draft

Opportunities for Tax Reform

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Hatch SAFE Retirement Act• S1270

• Title I – Public plan reforms

• Structure for purchase of individual annuity contracts to replace traditional DB plans

• Title II – Private plan reforms

• Title III – Fiduciary rule jurisdiction

• Give IRS jurisdiction over investment advice related to IRAs

SAFE Retirement Act

1) “Starter 401k” safe harbor

• Elective deferrals only

• $8,000 limit (plus catch up)

• No other qualified plan during the plan year of

initial adoption.

• Mandatory auto enrollment of between 3%-

15%.

• No Form 5500 required.

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SAFE Retirement Act

2) Multiple employer plans

• Open MEPS permitted

• “One bad apple” rule eliminated for MEPS with

commonality or open MEPS with a “designated

plan provider” who

• registers with the IRS and consents to IRS

audits; and

• is designated under the plan as the person

responsible to perform the necessary

administrative duties (as determined by IRS

regulations)

SAFE Retirement Act

3) E-delivery default permitted for all required

disclosures

4) More effective benchmarking of TDFs

• DOL to permit the use of a “blended” benchmark

for DIAs that use a “mix of asset classes” in

comparative investment chart.

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SAFE Retirement Act

5) “Secure Deferral Arrangement” - 401(k) automatic

enrollment safe harbor alternative.

• Auto enroll at 6%-10%, rise to at least 8% in the

second year and at least 10% thereafter.

• NHCE matching contributions equal to 50% on the first

2% of pay plus 30% match on deferrals between 2%

and 10% of pay (for a maximum of 3.4%).

• Exempt from top-heavy and ADP/ACP testing.

• Tax credit equal to 10% of the NHCEs’ contributions,

to a max of $10,000 per year for the first 3 years.

2015 Legislative Landscape

• Due to the looming presidential election in 2016, the window for

impactful legislation during the upcoming Congress is incredibly small.

• But there will be legislative vehicles that could be used to enact

pension reform, in the absence of comprehensive tax reform.

• The expiration of the multi-employer pension funding rules could

provide an opportunity to enact broader pension reforms.

• Renewing the over 100 various expired tax provisions in the tax code,

dubbed “tax extenders”, could be another opportunity to make

retirement policy changes.

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Definition of Fiduciary

“…workers contemplating

investing through an IRA

(401k) should be able to

trust their advisers and

rely on the impartiality of

their investment advice.”

- Phyllis Borzi

Phyllis Borzi, Department of Labor

Assistant Secretary for Employee Benefits Security

Definition of Fiduciary - Where Things Stand

• In May 2014, the Department of Labor updated its regulatory agenda to postpone the

expected release of its fiduciary rule re-proposal from August 2014 to January 2015.

• In the past few months, White House staff have led an outreach effort to meet with all

the stakeholders impacted by the proposal as the Obama Administration tries to

figure out what to do in this area, if anything.

• During these meetings with industry, the Obama Administration has indicated that a

rule is “not imminent” and that they are working to get more information from industry

in order to develop appropriate “prohibited transaction exemptions” (PTEs).

• The Obama Administration remains concerned about rollover advice and any re-

proposed will likely focus on that issue.

• Should the Obama Administration proceed with a re-proposal that industry opposes

there are opportunities to prevent the implementation of the rule through the

appropriations process in a Republican controlled Congress.

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The Impact of the Election on

State Initiatives

The Impact of the Election on State Initiatives

• There have been shifts in executive power in three key states that have or are

considering state-run retirement plans: Illinois, Maryland and Massachusetts.

• In Illinois, the Republican challenger ousted the Democratic incumbent for

Governor. This will likely deter the Illinois State House from considering State

Senator Biss’s bill, the Illinois Secure Choice Savings Program Act, in the current

legislative session, which ends this year.

• In Maryland, the Republican challenger ousted the Democratic incumbent for

Governor. The current Governor signed an executive order that created a

Maryland Retirement Security Task Force. That task force will now expire at the

end of the current Governor’s term early next year.

• Massachusetts enacted legislation in 2012 that created a state-run defined

contribution plan for small non-profit employers. The plan is currently awaiting

approval from the IRS and is not yet in operation.

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