Regulation & Legislation
Washington watch: Legislation affecting 401(k) plans in 2023
Reagan Anderson
Senior VP, Government Relations
Jason Bortz
Senior Counsel

On December 13, Capital Group’s Reagan Anderson, senior vice president of government relations, and Jason Bortz, senior counsel, presented their overview of legislation and regulation that may affect retirement plan professionals in 2023. The annual retirement plan webinar covered such topics as the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 and the recent environmental, social and governance (ESG) investment rule from the Department of Labor (DOL).

Here are the key takeaways.

With split Congress, Democrats may rely on agencies

Following the November midterm election, Democrats will maintain a narrow lead in the Senate, and Republicans will take control of the House of Representatives in January. Because a split Congress increases the difficulty of passing legislation, Anderson explained the Democrats will likely rely on agencies to advance their agenda over the next two years.

SECURE Act 2.0 could pass by end of 2022

Both Bortz and Anderson expressed optimism about the possibility of the SECURE Act 2.0 passing before the end of 2022. This is due to broad bipartisan support of the bill, the imminent retirement of two key appropriators — particularly longtime retirement plan activist Robb Portman of Ohio — and the potential of attaching SECURE 2.0 to the pending omnibus spending bill.

“The work has been done, the bill is paid for, they’re meeting daily, [and both parties are] so committed to getting this retirement package done,” said Anderson, indicating the path should be clear for passage this session.

While it’s important to point out that nothing is yet certain, Bortz outlined key provisions he expects to see in the final package:

  • Roth 401(k) expansion. This provision would require catch-up contributions to be done on a Roth basis, which would mean that “pretty much every 401(k) in the country is going to have to have a Roth feature,” said Bortz. The package may also require the option for employer contributions to be classified as Roth.
  • Tax credit to incentivize new plan formation. This provision would increase the small-business (up to 100 employees) startup tax credit from 50% to 100% of the first three years of employer contributions.
  • Mandatory auto-enrollment and auto-escalation for startup plans. Any new plan would be required to auto-enroll employees at 3%. They would then be auto-escalated 1% annually, up to 10%. Current plans would not be subject to this mandate.
  • Emergency savings plan. Companies would be allowed to offer an emergency savings plan linked to an employee’s retirement savings plan.

DOL’s new ESG rule is not a sea change

In November 2022, the DOL issued its final rule on ESG investing. While press coverage has indicated that the DOL is now allowing Employee Retirement Income Security Act (ERISA) fiduciaries to offer ESG investments, Bortz noted the coverage has been misleading. In Bortz’s words, the guidance “is not a sea change” and does not negate the DOL’s commitment to the primacy of risk and return factors in investment decisions. Rather, the new rule allows that ESG factors may materially affect risk and return and could be considered in that light. 

According to the Employee Benefits Security Administration in “The Federal Register,” the official journal of the U.S. government, on December 1, 2022:

“The Department has a longstanding position that ERISA fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.”

Watch for crypto guidance and more to come

Finally, Bortz and Anderson shared predictions for 2023. In the wake of an eventful fourth quarter for cryptocurrency, Anderson anticipates guidance on crypto investments to be forthcoming. “It’s hard for me to imagine a scenario in which Congress does not pass some sort of regulatory framework for crypto exchanges and for that industry,” she said.

Bortz noted that the DOL could potentially reintroduce a fiduciary rule proposal. If so, he does not anticipate it will be as disruptive as the Obama-era proposal, though it may yet affect rollover recommendations.

Anderson anticipates “a lot of noise on Capitol Hill” about ESG in 2023, with the potential for hearings and “a spotlight on the asset management industry that we’ve never seen before.” This is due to activity at state levels, such as state pensions divesting from companies due to their energy policies.

For more updates about legislation and regulation affecting retirement plans, follow retirement news on Capital Ideas.

Reagan Anderson is a senior vice president of government & regulatory affairs with 23 years of investment industry experience (as of 12/31/2023). She holds a bachelor's degree in journalism from Ohio University.

Jason Bortz is a senior counsel with 26 years of industry experience (as of 12/31/2023). He holds a juris doctor degree from Cornell Law School and a bachelor’s degree in philosophy from Hamilton College.

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