RETIREMENT INSIGHTS

What the election means for retirement savings

Oct 21, 2020
  • BlackRock
Key points
01

Unprecedented times

The current political and public health environment creates high potential for election-related volatility.

02

Preparing for change

Informing retirement plan stakeholders about potential policy changes can help guide near-term planning.

03

Educating participants

Anticipating volatility can help participants adopt a long-term perspective and stay focused on their goals.

In an era marked by sharp political divisions, retirement policy has been a rare oasis of bipartisan legislative efforts. For example, the SECURE Act, which became law in December 2019, aimed to increase access to retirement plans and give plan participants more tools to understand and manage their retirement income.

Both parties remain committed to strengthening retirement security for Americans. However, they may take different approaches to retirement policy changes. The results of the upcoming election may shape both the approach taken in Congress and by the regulators. Here are some key areas to watch based on what the parties have said about their retirement policy preferences. Importantly, any policies that would require Congress to enact are subject to a robust legislative process and cannot be enacted unilaterally by the President.

Bipartisan legislation to expand access to retirement plans

Follow-up legislation to the SECURE Act is already in the works in Congress. A “SECURE Act 2.0” is expected to be introduced in the House Ways and Means Committee on a bipartisan basis in the near future, potentially even before the elections. The exact timing of introduction is subject to change, and the bill will need to be passed by both the House and the Senate in order to become law – a process which often takes many months. The legislation is expected to include bipartisan changes designed to increase incentives for individuals to access and participate in retirement plans. For example, the bill may include provisions to further facilitate automatic enrollment, enhance the Savers Credit, allow 403(b) plans to invest in collective investment trusts, and expand multiple employer plans to include 403(b) plans.

Trump Administration agenda

Based on the Administration’s actions to date and its stated goals, here are the likely policies that could affect retirement plans if President Trump were re-elected in November:

Through the Department of Labor (DoL):

  • Tighter restrictions on ESG investing in retirement plans governed by ERISA, which may prohibit the use of ESG funds as a qualified default investment alternative (QDIA). 1
  • New proxy voting standards that may prevent ERISA plans from voting proxies unless they meet the DoL’s standards and documentation requirements for determining that the matter has an economic impact on the plan.2

Through Congress:

  • A payroll tax cut, which would require additional action to maintain current funding levels for Social Security.3
  • Potential entitlement reform to combat national debt levels.4

Biden Administration agenda

Based on Joe Biden’s statements and the 2020 Democratic party platform, here are the likely retirement priorities for a potential Biden Administration:

Through the DoL:

  • A revised version of the Department of Labor fiduciary rule to address potential conflicts of interests for financial advisors.5
  • A renewal of the DoL’s position that ESG funds are held to the same fiduciary standard as non-ESG focused investment options and restore permissibility as a QDIA.6

Through Congress:

  • Elimination of tax-deductible retirement contributions and replacement of deductions with a 26% refundable tax credit, which aims to give low- and middle-income workers larger tax savings than they would receive from deducting contributions, while reducing the tax savings for higher-income workers.7
  • Expanded Social Security benefits funded with a payroll tax on high earners.8
  • Reforms to encourage greater access to 401(k) plans, including tax credits for small businesses that set up a plan.9

How these issues could play out in likely election scenarios

 

President Trump
Republican-led Senate
Democratic-led House
President Biden
Republican-lead Senate
Democratic-led House
President Biden
Democratic-lead Senate
Democratic-led House
  • Continued work on SECURE Act 2.0
  • Continued work on SECURE Act 2.0
  • Continued work on SECURE Act 2.0
  • Tighter restrictions on use of ESG funds in retirement plans
  • Clarification that ESG funds may be permissible QDIAs
  • Clarification that ESG funds may be permissible QDIAs
  • Support for payroll tax cut
  • Revisions to Department of Labor fiduciary rule
  • Revisions to Department of Labor fiduciary rule
  • Potential entitlement reform
  • Little movement on broader legislative plans such as expanding Social Security
  • Provisions to equalize retirement savings tax break
  • Additional reforms intended to increase access to retirement accounts
  • Expanded Social Security benefits

Takeaways

  1. Look at all factors surrounding the election
    While markets historically have been resilient through elections, a pandemic, the recession and ideological polarization increase the potential for election-related volatility this year.
  2. Help retirement plan stakeholders anticipate the potential implications
    Creating awareness of the policy changes that are likely to happen regardless of the election’s outcome can help guide near-term planning. For more uncertain topics, sharing insights on the current environment can help plans adapt more quickly to changes if they do occur.
  3. Help participants keep volatility in perspective
    When plan participants know to anticipate volatility, it’s less likely to take them by surprise. This preparation can help them adopt the long-term perspective necessary to remain focused on their broader financial goals.