“Elections have consequences.” Pundits repeat that old chestnut every time there is an election. It happens to be true, especially in this era of partisan polarization. The two major parties’ policy positions on a host of issues have moved farther and farther apart as the parties have become increasingly ideologically cohesive. A middle ground remains, but it’s occupied by only a few members of Congress in each political party whose colleagues show little interest in joining them, except in rare instances. As a result, public policy can change, sometimes dramatically, depending upon which party wins an election, including the 2020 election.
Partisanship and Bipartisanship Around Retirement Policy
Many retirement policy issues, by contrast, inspire bipartisan solutions. For example, as I predicted in an earlier Studio post, Congress enacted the SECURE Act in 2019 with overwhelming bipartisan support in both the U.S. House of Representatives and Senate. New and equally ambitious bipartisan retirement legislation is already being discussed in the Senate. And, as I explained in a Studio post earlier this year, Congress acted in a bipartisan manner to include several provisions in COVID-19 recovery legislation (i.e., the CARES Act) to help retirement savers struggling to manage during difficult economic times.
Yet, even retirement policy is not immune to partisanship. The parties’ experts and elected officials have meaningful disagreements on many retirement issues. So, while bipartisan retirement policy developments might emerge regardless of who wins the White House and controls Congress, the 2020 election also could result in one party’s agenda being enacted into law. Their agenda could affect your retirement or your retirement planning.
The 2020 presidential and U.S. Senate elections will be hotly contested. There are too many close contests in too many states to allow a confident prediction about who will control the White House and the Senate. The House of Representatives, on the other hand, is likely to remain under Democratic Party control. This means the only unlikely election outcome is Republicans returning to full control of the federal government’s elected branches. Full Democratic control or divided government are more likely.
Retirement Policies in Congress
Regardless of who wins the election, Social Security and Medicare funding will have to be addressed. The Social Security Trustees’ 2020 annual report projected the retirement fund’s reserves will be depleted in 2034 and tax revenue will be sufficient to pay only 76 percent of scheduled benefits.1 A similar 2020 report for the Medicare Trustees projected deficits in all future years until the trust fund becomes depleted in 2026.2
The parties disagree about solutions. Democrats would increase revenue by raising the cap on income that is subject to Social Security payroll taxes. They would also increase some beneficiaries’ benefits. Republicans previously favored reducing benefits or delaying the retirement age; however, their positioning has been complicated by Trump’s push to effectively repeal the payroll taxes that fund both Social Security and Medicare. In a divided government, some combination of these solutions is most likely, with the payroll tax in play only if Trump is re-elected.
Medicare funding has been bound up in Republican efforts to repeal President Obama’s Affordable Care Act, which are moot if Democrats keep control in the House. Democrats would expand the program’s coverage to younger workers (perhaps age 60 or younger), and Biden and some congressional Democrats have proposed adding a “Medicare-like public option” to the Affordable Care Act for everyone. These proposals would be funded by repealing the 2017 tax cuts for wealthy individuals and raising the top income tax rate. In a divided government, expect a short-term patch rather than a long-term solution.
Expanding employer retirement plan coverage will be an important issue if Democrats control Congress. The leading Democratic bill would require all but the smallest employers to establish 401(k) (or 403(b)) retirement plans and automatically enroll all their employees in those plans. Republicans generally dislike mandates, but elements of the financial services industry able to influence Republicans have endorsed this bill. So, it might be possible in a divided government.
Retirement Tax Subsidies – Biden has proposed shifting tax incentives for retirement savings. Rather than tax deductions for employees’ retirement savings up to a cap ($19,500 in 2020), which benefits upper-income savers, Biden would give tax credits for a percentage (possibly 25%-30%) of all retirement contributions (presumably with some cap), which favors lower- and middle-income savers. Only Democratic control would turn this proposal into law. In the past, Republicans have favored shifting to a system focused on Roth IRAs, which provide tax protection for retirement savings withdrawals, but not for contributions to retirement plans.
Multi-Employer Plans - Many unions have collectively bargained pension plans with multiple employers --- so-called “multi-employer plans.” Some plans in restructured legacy industries (e.g., trucking, mining) face tough funding problems. Congressional Republicans and Democrats agreed to save miners’ plans, but other industries are still waiting. Biden, who is very close to organized labor, has promised to take on this issue in his first two years in office.
Retirement Security and Savings Act – This omnibus bipartisan legislation is a sequel to the SECURE Act. A small sampling of its provisions includes expanding access to and incentivizing annuities and their protected lifetime income; increasing inadequate retirement savings for some, especially lower and middle-income retirement savers; and expanding coverage by providing greater incentives and protections for automatic enrollment of employees in employer plans. This bill, or portions of it, could become law regardless of the election’s outcome, but it becomes more important if Congress is divided.
Selected Presidential Policies
Presidents control the vast regulatory apparatus of the executive branch. Congress can influence regulations or block them, on occasion, but regulations are largely a presidential prerogative. When it comes to retirement policy decision-making, the Treasury Department, the Securities and Exchange Commission (SEC), and the Labor Department (DOL) matter most.
The easiest prediction is that, if President Trump is re-elected, we will see more of the same retirement regulatory policies. His primary focus has been deregulation, but his administration also proposed new DOL regulations and finalized SEC regulations that I discussed in this earlier Studio post requiring financial professionals to give only investment advice that serves the best interest of their clients. A Biden Administration would take a different approach (see below).
SECURE Act Implementation – Regardless of the election’s outcomes, DOL and Treasury will have to implement this new legislation. They have already begun, but there will be more to do in 2021. Policy outcomes likely will not differ much depending upon who occupies the White House because Congress gave reasonably clear guidance regarding what it wants these regulations to look like. But regulators have a lot of experience making big substantive rules fit in seemingly small nooks and crannies of statutory ambiguity.
Rules Governing Investment Advice – Perhaps the largest retirement policy debate of the last decade revolved around DOL’s Obama-era “fiduciary rule.” The rule imposed a fiduciary standard of care on financial professionals giving investment advice to retirement savers. It was struck down in court in 2017. The Trump SEC and DOL have, respectively, promulgated and proposed new rules that impose more lenient standards of care requiring financial professionals to give advice only in the “best interest” of investors, including retirement savers. If Trump is re-elected, these new rules will remain. If Biden wins, expect an effort at the SEC and DOL to re-impose a more demanding standard of care.
Qualified Default Investment Alternatives (QDIAs) – QDIAs are the investments employer plan sponsors establish for participants who do not make a choice about how their 401(k) plan contributions will be invested. Including annuities in QDIAs has proven to be difficult. Since almost every employer plan has a QDIA, and a sizable percentage of participants’ retirement savings flow into QDIAs, revising the QDIA regulations to widen opportunities for annuities could play an important role in giving millions more retirement savers access to protected lifetime income. There is bipartisan support for including annuities in employers’ retirement plans, although some critics dislike certain categories of annuities. DOL under either Trump or Biden would likely seek to reform the QDIA regulations. Trump’s regulations would lean toward industry interests while Biden’s regulations would favor protecting retirement savers.
Retirement Product Fees – Excessive fees associated with the distribution of retirement products, and for particular products, remain an important and contentious issue. Trump’s DOL has not made excessive fees a priority and likely would not in a second term. Biden’s DOL can be expected to act, perhaps including stepped up enforcement action, to reduce fees and make them as transparent as possible.
Policy experts and elected officials in both political parties generally agree that the American retirement system needs improvement. They agree on most of the problem’s diagnosis and some of the prescriptions, but disagree, sometimes vigorously, on many other possible solutions. Fortunately, in a democracy, voters get to choose the solutions they prefer by voting for the candidates who advocate for those solutions. That’s just as true in 2020 as it has been since the first U.S. presidential election in 1789. So, for your retirement’s sake, get out and vote.
1. Social Security Administration, A Summary Of The 2020 Annual Reports, 2020.
2. The Board of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2020 Annual Report of The Boards of Trustees of The Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2020.
Investing involves risk including possible loss of principal.
The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.