A new Congress typically offers hope that constructive retirement-related bills will be submitted (or resubmitted) in the new year. But if the new 113th Congress is anything like its predecessor, partisan disputes may limit its ability to pass new legislation. Bills for the new year will be introduced beginning when Congress convenes in January 2013.
This edition of Legislative Insights will recap the pension-related legislation passed by the 112th Congress and review the status and prospects of legislative and regulatory issues that shared the spotlight during 2012.
Legislative Recap for 2012
American Taxpayer Relief Act. In addition to extending tax rate cuts for families earning less than $450,000 ($400,000 — for single taxpayers) as part of the deal avoiding the "fiscal cliff," there are two retirement savings provisions in this act:
- Expansion of in-plan Roth conversions. Prior to passage of this act, 401(k) plan participants could roll their money into a Roth 401(k) plan only when they terminated employment, retired or reached age 59½. Under the act, workers with 401(k), 403(b) and similar defined contribution plans would be able to convert to a Roth 401(k) designated in their plan at any time. The change would raise revenue because people who do such conversions must pay income tax up front. This was included as a way to help pay for a two-month delay in about $110 billion of domestic spending cuts otherwise slated to go into effect on Jan. 1.
- Extension of IRA charitable rollovers. The $100,000 IRA charitable rollover provision is being extended through 2013. A special rule will permit a rollover during January 2013 to be treated as a 2012 rollover.
Moving Ahead for Progress in the 21st Century Act (MAP-21) [Public Law No. 112-14].1 The pension-funding provisions of this highway bill expanded the period used for determining interest rates for calculating pension liabilities. In today's low interest rate environment, the immediate effect of the change will be to raise interest rates for funding purposes, thereby lowering the minimum required pension contribution.
Upcoming in 2013
Deficit reduction. With bipartisan support for tax reform to help reduce the federal budget deficit, deductions for retirement savings are being targeted for possible reduction or elimination. The retirement industry, however, contends that the amount of "lost" government revenue from these deductions isn't actually lost because the money is taxed when distributed. Eliminating or reducing current incentives for retirement savings would likely result in lower savings levels.
Fee disclosure. New plan sponsor and participant fee disclosure regulations went into effect in 2012. We may see more protest from employees in 2013 as they become increasingly aware of the fees they're paying for their retirement plans. The Department of Labor (DOL) is expected to ramp up its capabilities to enforce fee disclosure regulations in 2013.
Target date funds. The proposed rules from both the Securities and Exchange Commission (SEC) and the DOL originally issued in 2010 provide for an explanation of the funds' asset allocation and inclusion of a chart or graph detailing how the asset allocation would change over time. Finalized rules from the DOL could arrive in 2013.
Longevity/annuity contracts. We may see proposed Internal Revenue Service regulations concerning longevity/annuity contracts finalized in 2013.
Automatic payroll deduction IRAs. Bills proposing automatic enrollment IRAs for companies that have 10 or more employees but don't sponsor a qualified retirement plan may be revived in 2013.
Lifetime income options in defined contribution plans [such as 401(k)s]. DOL guidance on benefit statements expected early in 2013 will likely include sample lifetime income illustrations.
Uniform fiduciary standard. The Dodd-Frank financial reform law gave the SEC authority to set a universal fiduciary-duty standard for investment advisors and broker-dealers who provide personalized investment advice about securities to retail customers. We may see a draft rule from the SEC in 2013.
Fiduciary definition. In October 2010, the DOL issued a proposed rule to more broadly define the circumstances under which a person who provides investment advice is considered a fiduciary under ERISA. This controversial regulation was withdrawn in September 2011. The reproposed DOL fiduciary definition will probably be issued within the first several months of 2013.
Social Security. While Social Security remains a controversial target for trimming costs, legislators may compromise on either increasing the retirement age to delay benefits or modifying cost-of-living adjustments to reduce benefits as part of a package deal to raise revenue.