With the House of Representatives reviewing a second attempt by the Trump administration to push health care reform, points made during a Morningstar Investment Conference session discussing developments on policies beyond the fiduciary rule highlight key areas to watch, whether it passes or not.
Aron Szapiro, director of policy research at Morningstar, began the session by discussing four policy buckets that could affect investment managers and their clients:
Expanded retirement coverage,
Defined contribution plans to be more like defined benefit plans,
Increased transparency of fees and revenue sharing, and
Changed government incentives, such as taxes.
Currently, several states are hoping to launch retirement savings plans to automatically enroll people in state-run IRAs. Illinois and Connecticut are two of these states.
“It’s been sold as 401(k)s for everyone, but it’s not,” Szapiro said. Instead, if an employer didn’t have a retirement plan, it could automatically enroll employees without any coverage in a state-run IRA. He said the Department of Labor put forth regulation proposals last summer that the employer would not have liability under the Employee Retirement Income Security Act, which he said would be “most likely voted down in the Senate before May 10.”
Despite that, states already in the process may still go ahead and “see what happens in court.” But, he adds, “It definitely will chill other state efforts if they don’t have clarity of regulation.” He said one obvious problem of these state plans is some people automatically enrolled might be above the income limit of Roth IRAs.
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Another congressional idea is to make it easier to form multiple-employer plans, that is, several businesses would ban together under a retirement plan, which gives them more leverage to deal for participants. Still, he doesn’t see this plan inspiring small businesses, which already have a difficult time offering plans, adopting this idea.
The second bucket, making defined contribution plans look more like defined benefit plans, is also in limbo. The House of Representatives tried to pass a bill last December but failed. The bill would have a) made it easier for sponsors to offer annuities, b) provided lifetime forecasts, giving more authority to the Labor Department, and c) redefined the policy problem with small plans. For example, Szapiro says, it’s been difficult for small plans to comply with ERISA, despite congressional efforts to help, so this was a way to professionalize plans.