It is going to be a busy fall for legislators and regulators dealing with retirement policy.
Congress is to consider separate bills that reform the finances of both Social Security and struggling pension plans. Another bill that expands retirement saving options also will be on the legislative docket. Meanwhile, several states and professional groups will be working to toughen ethical standards for financial advisers.
Here’s a roundup of the central issues likely to make headlines during what remains of 2019.
Restoring Social Security’s Health
In the Democratic-controlled House of Representatives, a bill that would restore Social Security’s financial solvency is likely to advance.
The proposed legislation addresses a looming shortfall that will force sharp future benefit cuts unless Congress takes action. The Social Security actuaries project that the program’s combined retirement and disability trust funds will be depleted in 2035, with payroll taxes coming in at that time sufficient to pay only 80 percent of promised benefits.
The legislation, the Social Security 2100 Act, is sponsored by Representative John B. Larson, Democrat of Connecticut, the chairman of the subcommittee on Social Security of the House Ways and Means Committee. His bill would restore the program’s financial solvency for the next 75 years.
It proposes an across-the-board benefit increase equal to about 2 percent of the average benefit (about $30 per month), and it would shift to a more generous annual cost-of-living adjustment formula more sensitive to medical inflation and other costs disproportionately affecting older adults. The bill would also increase the special minimum benefit paid to low-income retirees.
Mr. Larson proposes paying for the higher benefits by increasing payroll tax rates by 0.1 percentage point annually through 2043, reaching 14.8 percent for that year and later, split between workers and employers. Workers now pay 6.2 percent of earnings, and employers pay a matching amount this year, up to $132,900, where the tax is capped (the cap is adjusted annually to reflect wage inflation). Under Mr. Larson’s bill, payroll tax collection would resume for earnings over $400,000.
The Larson bill has 211 co-sponsors in the House and received a hearing by the full Ways and Means committee in July. Mr. Larson said that it “absolutely” would be put to a vote by the House this fall, and that he expected it to be approved.
“The American people support Social Security across the board, and they are exasperated that Congress has failed to fix this problem,” he said in a telephone interview. “I’m confident that the votes are there to pass it, and I feel confident that some Republicans will vote for it, too.”
Still, he conceded that prospects for the bill in the Republican-controlled Senate were dimmer.
Averting a Pension Meltdown
Lawmakers are to continue efforts to head off an insolvency crisis that could lead to sharp cuts in pension benefits for over a million workers and retirees and drain a federally sponsored insurance backup program.
About 1,400 multiemployer plans cover 10.6 million workers and retirees, according to the Pension Benefit Guaranty Corporation, the federally sponsored insurance backstop for defunct plans. Multiemployer plans are created under collective bargaining agreements and jointly funded by groups of employers in industries like construction, trucking, mining and food retailing.
Plans covering 1.3 million workers and retirees are badly underfunded. And the P.B.G.C. projects that its multiemployer insurance program will run out of money by the end of the 2025 fiscal year, absent reforms.
An earlier bill — the Multiemployer Pension Reform Act passed in 2014 — has faced strong resistance from retiree organizations, consumer groups and some labor unions because it permitted troubled plans to seek government permission to make deep benefit cuts if they could show that the reductions would prolong the life of the plan.
The benefit cut provision of the earlier plan would be repealed under legislation passed by the House in July.
The new bill — the Rehabilitation for Multiemployer Pensions Act — would instead provide low-interest loans to struggling plans, but it faces opposition in the Senate, which is working on its own version. Issues to be worked out include interest rates that plans can use to project future return on investment, any possible increases in premiums paid by pension plan sponsors to the P.B.G.C. and whether any benefit cuts to pension recipients should be allowed.
“With the election coming up in 2020, it’s doubtful that legislation will be introduced in the Senate before then,” said Gene Kalwarski, the C.E.O. of Cheiron Inc., a pension and health care actuarial consulting firm that is advising multiemployer plans, advocacy groups and lawmakers on ways to solve the problem. But, he added, “solutions become more expensive by several billion dollars for every additional year that we wait.”
Expanding Workplace Options
Legislation aimed at encouraging more employers to offer retirement savings plans is expected to reach the finish line before year’s end.
The House approved the Setting Every Community Up for Retirement Enhancement Act of 2019 in May, and it enjoys broad bipartisan support. But the bill has hit snags in the Senate.
The crucial provision of the SECURE Act expands opportunities for small employers to join multiple-employer plans, or “open MEPS.” Plans would be offered by private plan custodians; architects of the open plans think small employers will be enticed by reduced costs and streamlined paperwork, and an increased tax credit to cover setup costs. Another provision would relieve employers of potential liability if they add annuities to their plan menus — a proposal that worries consumer advocates.
“We think it has a pretty good chance of being approved sometime this year, probably attached to other legislation,” said David Certner, legislative policy director for AARP.
Regulating Advisers
New fronts are opening in the long-running battle to protect retirement savers and other investors from conflicted financial advice.
The Securities and Exchange Commission completed work this year on its so-called Regulation Best Interest, which defines standards for brokers who sell investment products and explains the duties of investment advisers who provide financial guidance. The S.E.C. regulation follows the demise of a strong conflict of interest rule promulgated by the Obama-era Department of Labor that focused on protecting retirement investors.
But critics argue that the S.E.C. regulation is too weak. As a result, some state regulators and a professional standards organization are proposing their own tougher standards.
Nevada is developing a fiduciary standard for brokers and advisers. New Jersey and Massachusetts are both considering creating their own standards.
Proponents of the S.E.C. regulation are expected to challenge the legal authority of states to take such action. “Whichever state passes a standard first will face a challenge in court,” predicted Barbara Roper, director of investor protection for the Consumer Federation of America and a leading advocate for a rigorous national fiduciary standard.
Separately, beginning on Oct. 1 all certified financial planners will be held to a fiduciary standard for all financial advice that they give to clients under a new code of ethics governing members of the Certified Financial Planner Board of Standards, a professional organization. The board will not begin taking action on violations until after June 30, when the S.E.C. rule takes effect.
The board has created a higher standard than the S.E.C.’s rule, Ms. Roper said. “It takes a tougher stand on conflicts of interest, and it requires that recommendations be made without regard to financial interests of the broker or adviser.”