June 2022 Issue:

• Senate Pension Committee Acts on SECURE 2.0
• Senate Finance Committee Closes in on New Retirement Savings Package
• Biden Vows Inflation Fight Is His Highest Priority
• Congress Seeks Path Forward to Extend Enhanced ACA Subsidies
• Treasury Secretary Testifies in Favor of Biden FY 2023 Budget Proposal
• New Crypto Bill Introduced
• The Issue of Whether Cryptocurrency Investments Can Be Included in Employer-Sponsored Retirement Plans Heats Up
• Social Security/Medicare Trustees Report Minimal Improvement in Trust Funds
• Senate Fails to Confirm Gomez as EBSA Head
• Centers for Medicare & Medicaid Services Releases FAQ Guidance

Senate Pension Committee Acts on SECURE 2.0

On June 14, the Senate Health, Education, Labor and Pensions (HELP) Committee marked up its version of SECURE 2.0, the generation-two retirement savings legislation. The Committee approved the bill by a voice vote. The HELP Committee bill (RISE and SHINE Act) likely will be combined with a Finance Committee bill (still in development) prior to a vote by the full Senate. The Finance Committee hopes to be ready to act on its package by the end of June.

This ERISA-focused bill is named the RISE and SHINE Act (the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act). The Finance Committee package will focus primarily on tax provisions applicable to retirement savings. 

The RISE and SHINE Act includes:

• A set of provisions setting up a “Rainy Day Savings Fund”—under this program, taxpayers could defer up to 20 percent of their tax refunds into a Treasury-established “Rainy Day Fund” that would earn tax-free interest. The Treasury Department would write regulations implementing the program which would allow taxpayers to withdraw, prior to retirement, the amount deferred (amount deposited—up to 20 percent of their tax refund) plus the interest it earned. The rules for the tax treatment of these withdrawals will likely be in the Finance Committee version of SECURE 2.0. NAIFA supports these provisions and has written to the proposal’s sponsors, Sens. Todd Young (R-IN) and Cory Booker (D-NJ) to express this support.
• A rule that would require that every three years automatic enrollment plans automatically enroll their workers who initially opted out of participation in the plan unless the workers renew their decision to opt-out.
• A provision that would allow non-governmental 403(b) plans to participate in multiple employer plans.
• A provision that would allow plan participants who are leaving their current employment to keep their retirement savings of $7,000 or more (up from $5,000 under current law) in the employer’s plan. 
• A provision that would make long-term part-time workers (those who work at least 500 hours/year) eligible to participate in their employers’ retirement savings plans after two years (down from current law’s three years) of qualifying service.
• The bill would extend to 2031 authority to use excess pension funds to provide retiree health benefits – current authority expires in 2025.
• The bill includes mandates for a variety of studies on notice and disclosure rules by the Department of Labor (DOL), Treasury, and the Pension Benefits Guaranty Corporation (PBGC). It also would require the agencies to develop model plan language on a variety of issues (e.g., for 403(b) plan participation in multiple employer plans).
• Consolidation of required notice and disclosure rules—The bill would allow employers to consolidate notice and disclosure requirements, subject to specific rules on what consolidated notice/disclosures must contain and how often they must be provided.
• Creation of a “lost-and-found” searchable database that would allow individuals to find retirement savings funds left behind at previous employers.

Also in the bill are rules on how to get back defined benefit plan overpayments, and cash balance plan benefit calculations, including interest rates.

The House of Representatives passed its version of SECURE 2.0 (the Securing a Strong Retirement Act, H.R.2954) this past March. H.R.2954 combines a Ways & Means Committee tax package with an Education and Labor Committee ERISA-focused bill. Once the Senate passes its version of the bill, it will be ready for a House-Senate conference (perhaps an informal one) to resolve differences between the two bills. 

Prospects: SECURE 2.0 (by whatever name it ultimately gets) is bipartisan and supported by a wide margin of both House and Senate lawmakers. It is expected to pass, although probably not as a standalone bill. It is more likely to be attached to another piece of legislation, probably the year-end government funding bill, Hill staffers say. The year-end government funding bill is not expected to get a Congressional vote until after the November mid-term elections.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

Senate Finance Committee Closes in on New Retirement Savings Package

The Senate Finance Committee’s portion of SECURE 2.0, the generation two retirement savings bill, is expected to be released prior to the end of June. This larger chunk of SECURE 2.0 will deal with tax code retirement provisions, and then will be combined with the Senate Health, Education, Labor, and Pensions (HELP) Committee’s RISE and SHINE bill to become the retirement savings package on which the Senate will vote later this year. The HELP Committee approved its RISE and SHINE Act on June 14.

Finance Committee staffers say that they are still awaiting revenue estimates (the package will have to be revenue-neutral, and so scores on both revenue-losing and revenue-gaining provisions are required) on many of the more than 100 provisions that are still currently in the mix for inclusion in the package.

Among the Finance Committee provisions that may (or may not) make it into the bill on which the Senate will vote is a NAIFA-proposed provision that would allow individuals subject to required minimum distribution (RMD) rules to aggregate their RMD obligations when they have more than one retirement savings account, and pay the aggregated RMD obligation total out of the account(s) of their choice. (Currently, such aggregation is permitted among multiple IRAs, or among multiple 403(b) accounts, but not among a combination of IRAs, 403(b)s, and 401(k) accounts, nor among multiple 401(k) accounts). 

Another provision still in play is a proposal to allow individuals to use, pre-retirement, up to $2,500 of their retirement savings to purchase qualified long-term care insurance (LTCi). There is an issue still being resolved over what constitutes “qualified” LTCi. The issue involves life insurance policies that have LTC riders on them, where those riders comply with qualified LTCi consumer protection rules, but still cannot qualify under LTCi rules as “qualified” because of the life policy’s dividend payments. 

Prospects: Neither the RMD aggregation proposal nor the qualified LTCi proposal is as yet included in the Finance Committee package. Both provisions are plagued by revenue scoring considerations that have not yet been resolved. Nor are either of these proposals in the House-passed version of SECURE 2.0.  

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at JFitzgerald@naifa.org.

Biden Vows Inflation Fight Is His Highest Priority

On May 31, President Biden called fighting inflation his highest priority and said one of three key ways to do that is to reduce the federal deficit. Deficit reduction, he said, would include “making common-sense reforms to the tax code.”

The “common-sense reforms to the tax code” include, the President said, ending “the outrageous unfairness in the tax code that allows a billionaire to pay lower rates than a teacher or a firefighter.” He also called for more funding for enforcement by the Internal Revenue Service (IRS), and for international tax reforms.

The focus on deficit reduction to fight inflation—which recent polls show is American voters’ number one concern currently—would be but one of three key elements to his plan to control inflation. The other two were to “get out of the way” to let the Fed fight inflation with rate increases; and to lower household costs by enacting social investment proposals like the education, childcare, and affordable housing provisions in his Build Back Better plan, and to fix “broken supply chains, improve infrastructure and crack down on fees that foreign ocean freight companies charge to move products.”

The federal deficit is already shrinking—the Congressional Budget Office (CBO) projected last month that this year’s deficit would be $1 trillion, $1.8 trillion lower than last year’s deficit. The better deficit number has been attributed to more robust than expected taxes paid, and to the end of many of the pandemic-related spending programs enacted by Congress over the past two years.

Prospects: Sweeping legislation, like the moribund Build Back Better plan, is unlikely in this election year. However, tax-the-rich (and big corporation) proposals may find some support as inflation rages on. We will keep you posted.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at JFitzgerald@naifa.org.

Congress Seeks Path Forward to Extend Enhanced ACA Subsidies

There is growing concern among lawmakers from both parties, but especially Democrats, about the looming expiration of the enhanced Affordable Care Act (ACA) premium subsidies enacted in last year’s American Rescue Act. Experts are predicting big premium hikes payable by individuals who qualify for the subsidies – new premiums, without the enhanced subsidies, could be as much as 50 percent higher than they are now, prior to the expiration of the enhanced subsidies, they say.

The issue is particularly sensitive in the House and Senate Democratic caucuses but is also of concern to some Republicans. Currently, there is an effort underway to make the enhanced subsidies permanent in a new reconciliation bill agreement being negotiated by Senate Majority Leader Sen. Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV), a key vote whose opposition to the House-passed Build Back Better reconciliation bill doomed that bill last year.

Under current law, the bigger tax credits available to individuals whose employers do not offer them affordable qualified health coverage expire at the end of 2022. Experts say that the enhanced subsidies triggered an increase of 2.5 million in enrollments in Exchange-based ACA health insurance. They also say that some 13 million, mostly low-income Americans, will see premium spikes that could be as high as hundreds of dollars per month if the enhanced tax credits are not extended. 

The Exchanges will notify their insureds of price hikes right around the November mid-term elections, although the premium increases won’t take effect until next year. And the price hikes will come at a time of raging inflation when everyday Americans are already reeling from higher gas, grocery, and other necessities-of-life prices. These factors are adding to lawmakers’ anxiety about finding a way to extend the ACA premium tax credits.

Prospects: Solving this problem may be enough of a concern to allow Democrats to reach an agreement on a much smaller reconciliation bill. The smaller bill, if it comes together, is likely to include the extension of enhanced ACA tax credits, authority for the federal government to negotiate the price of prescription drugs, some clean energy provisions, and some tax increases—likely primarily applicable to big corporations but also possibly impacting very wealthy individuals. Hill folks think an agreement has to come together by the end of June or early July for it to have any chance for enactment. 

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

Treasury Secretary Testifies in Favor of Biden FY 2023 Budget Proposal

Treasury Secretary Janet Yellen testified before the House and Senate tax-writing committees (on June 7 at Senate Finance and June 8 at House Ways & Means), in favor of the Biden fiscal year (FY) 2023 budget proposal. Yellen noted that the budget as proposed would help fight inflation and would help families cover rising costs. She also said the budget proposal’s tax provisions would make sure wealthy individuals and big corporations pay “their fair share” in taxes.

Yellen also called for tax increases to reduce the deficit, which she said would help in the fight against inflation. When questioned specifically about grantor trust rules in the context of the Ways and Means Oversight Subcommittee Chair’s letter concerning the Treasury’s current authority to regulate these trusts, the Treasury Secretary said that the agency believes it already has authority to address certain problems surrounding the use of grantor trusts to avoid taxes. She told Members of Congress who questioned her on this subject that she expected the Treasury to release guidance on the use of grantor trusts “very soon.”  Tighter grantor trust rules are also the subject of a Biden budget provision that was not included in the House-passed Build Back Better bill (H.R.5376), although a similar provision was approved by the Ways and Means Committee in its version of the bill.

Prospects: There is no appetite among House or Senate Republicans to raise taxes, even if a tax increase might help fight inflation. There are also a number of Democrats who are uncomfortable with raising taxes—even if only on the very wealthy or on big corporations—ahead of the November mid-term elections. However, inflation is causing a lot of unhappiness among lawmakers’ constituents, and so a debate over the potential for “taxes on the rich” (or on corporations) helping to control inflation is expected. But prospects for enactment of an actual tax-increasing law appear relatively low at this point.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

New Crypto Bill Introduced

A bipartisan Senate cryptocurrency bill, introduced on June 7 by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY), would clarify the rules governing cryptocurrency investments. This bill continues the heightening debate over the proper rules to govern these complex, volatile, and relatively new investments.

The “Responsible Financial Innovation Act,” which was received favorably by private sector interests, would:

• Require entities that issue stablecoins to maintain 100 percent reserves and to disclose publicly the assets that back their token.
• Give more regulatory authority over cryptocurrency that is categorized as a commodity to the Commodity Futures Trading Commission (CFTC).
• Mandate a study of the opportunities and risks of investing retirement savings in digital assets.
• Require the Treasury Department to develop guidance on how and when stablecoin issuers must comply with sanctions.
• Direct that three agencies (Federal Energy Regulatory Commission (FERC), Securities and Exchange Commission (SEC), and CFTC) analyze and report on energy consumption in the digital asset marketplace—the study and analysis must include the amount of stablecoins used for activities such as mining.
• Create an advisory committee, with both private and public sector members, to advise Congress and the agencies on keeping up with changes in the cryptocurrency industry.

The bill also clarifies tax rules governing cryptocurrency, including a rule that cryptocurrency rewards—created through staking and mining—would be taxed when these rewards are sold rather than when they are created. The bill also includes a de minimis exemption for small transactions and a definition of broker for purposes of tax information reporting. Under the bill, a broker subject to tax information reporting would be “any person who (for consideration) stands ready in the ordinary course of a trade or business to effect sales of digital assets at the direction of their customers.” The bill also requires Treasury to issue guidance within a year on when events involving cryptocurrency trigger tax liability. These events include forks (protocol changes within a cryptocurrency network) and airdrops of cryptocurrency units to individuals.

Prospects: Generally, industry stakeholders welcomed the Lummis-Gillibrand bill, but concede it is unlikely to be enacted into law this year. However, it adds to the growing debate over how and when to regulate cryptocurrency. This legislation could form the basis for Congressional action in the next year or two.

NAIFA Staff Contacts: Michael Hedge – Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

The Issue of Whether Cryptocurrency Investments Can Be Included in Employer-Sponsored Retirement Plans Heats Up

Last April, the Department of Labor (DOL) issued a strongly-worded caution to plan fiduciaries about the potential for including cryptocurrency investments in employer-sponsored retirement plans. Cryptocurrency marketers are fighting back. 

A San Francisco plan provider, ForUsAll Inc., has sued DOL, saying DOL was acting beyond its authority with its warning against the inclusion of cryptocurrency investments in retirement plans, which ForUsAll said was tantamount to a regulation. The lawsuit claims that DOL threatened “an investigative program” aimed at plan sponsors that offer digital assets through their plans’ menu of investment choices, or through a plan’s self-directed brokerage account.

The lawsuit, filed in U.S. District Court in Washington, DC, claims the DOL warning on cryptocurrency violates the Administrative Procedure Act (APA) by “arbitrarily and capriciously issuing what amounts to a ban on cryptocurrency investments without conducting a formal notice-and-comment rulemaking process.” ForUsAll wants the court to enjoin DOL from enforcing the cryptocurrency warning, and to vacate it. ForUsAll is also calling on the DOL to withdraw its warning on cryptocurrency.

DOL called cryptocurrency investments “inherently risky” due to their volatility and said that cryptocurrency investments are difficult to accurately value. In its warning, the agency said it would find it difficult to conclude that a fiduciary could, within the bounds of fiduciary duty, include cryptocurrency investments in a retirement plan.  Treasury Secretary Yellen has also opined in a recent interview that cryptocurrency assets in retirement plans were “very risky” for average savers. She suggested that Congress might want to consider legislating in this area.

Prospects: Predicting the outcome of a lawsuit is difficult, but the pendency of this lawsuit is an indication that cryptocurrency purveyors stand ready to defend their products, even in the retirement savings plan space. Plus, some Members of Congress are interested in cryptocurrency issues. It is an issue that seems to be heating up, although it hasn’t yet reached “critical mass” in terms of proposals that must be dealt with.

NAIFA Staff Contacts: Michael Hedge – Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

Social Security/Medicare Trustees Report Minimal Improvement in Trust Funds

The annual trustees report on the financial state of the Social Security and Medicare trust funds came out on June 2. The report found the trust funds have an extra year or two before trust income becomes insufficient to pay full benefits. 

Highlights of the 2022 trustees’ report include:

• Both the Social Security and Medicare trust funds face long-term financing shortfalls under current law.
• The Old-Age, Survivors, and Disability Income (OASDI) programs will be able to pay scheduled benefits in full until 2034 (one year later than last year’s projections)—the report also states that if the fund is not replenished, current tax contributions will allow payment of 77 percent to 80 percent of benefits after 2034.
• The disability income (DI) trust fund alone has enough in it to pay benefits through the 75-year projection period.
• The Health Insurance (HI) (Medicare/hospitalization) trust fund can pay scheduled benefits until 2028—two years later than projected last year. If the HI fund is not replenished, continuing tax contributions will allow payment of 90 percent of scheduled benefits after 2028.
• The Supplementary Medical Insurance (SMI) trust fund is "adequately financed into the indefinite future" because current law allows benefits to be paid from general revenues. But, the report continues, due to general revenue authority and "rapid growth of costs," the SMI program "will place steadily increasing demands on both taxpayers and beneficiaries."

Prospects: There are some in Congress who warn that action to improve the trust funds’ solvency must be taken now, or the programs risk harsher, more painful corrective action later when insolvency comes closer. House Ways and Means Social Security Subcommittee Chair John Larson (D-CT) is among those who have been advocating for a mark-up of his bill, H.R. 5723, which has more than 200 cosponsors.  However, most Washington insiders believe that the trust funds will have to get much closer to insolvency before Congress takes on the politically sensitive issues surrounding Social Security and Medicare trust fund solvency.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

Senate Fails to Confirm Gomez as EBSA Head

On June 8, the Senate failed to approve the nomination of Lisa Gomez as the head of the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA). EBSA has jurisdiction over ERISA retirement savings issues. All Republican Senators voted against the Gomez nomination, and Vice President Harris was unavailable to break the tie. 

It had been expected that Gomez would win at least one and possibly two Republican votes, but in the end, all 50 of the Senate’s Republicans voted against the Gomez nomination. Gomez has strong ties to organized labor and is viewed as “too liberal” by many Republicans.  In addition, specific fears about the possibility of the Biden Labor Department re-proposing the “fiduciary only” rule under Gomez’s watch reportedly led to some Republican opposition.

When it became clear that Gomez would not get more than 50 votes, Majority Leader Sen. Chuck Schumer (D-NY) switched his vote to enable him to bring up the nomination again at a future date. Vice President Harris was in California, hosting a “Summit of the Americas.” She was expected to be back in Washington soon after the Summit concluded on June 10.

Prospects: Senate leadership plans to bring up the nomination again, although a date for that has not yet been set. It is expected to succeed, assuming all Senate Democrats (and the two independents who vote with them) are present to vote. 

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at JFitzgerald@naifa.org.

Centers for Medicare & Medicaid Services Releases FAQ Guidance

On June 7, the Centers for Medicare & Medicaid Services (CMS) posted Frequently Asked Questions (FAQs) regarding compensation paid by issuers to agents and brokers who assist consumers with enrollment during a Special Enrollment Period (SEP) or during Open Enrollment Periods (OEPs). The White House continues to prioritize affordable health care coverage and recognizes that agents and brokers play a vital role in helping consumers enroll in coverage that best fits their needs and budget.

CMS has become aware that some issuers in the individual market have reduced or eliminated commissions and other forms of compensation to agents and brokers for enrollments during an SEP. These issuers commonly use agents and brokers as part of their marketing and sales distribution channels. According to CMS, arrangements that pay reduced, or no commissions and other forms of compensation to agents and brokers who assist consumers with enrollment in individual market coverage during a SEP and pay higher amounts for OEP enrollments for the same benefit year violate the guaranteed availability provisions of the Affordable Care Act.

You can read the full FAQs released by CMS here: CMS FAQ Guidance

Prospects: Previously, in a 2016 FAQ, CMS stated that payment of agent/broker commissions or other forms of compensation is a marketing practice covered by existing regulations. Specifically, the 2016 FAQ explained that compensation arrangements structured to discourage agents and brokers from marketing to and enrolling consumers with significant health needs constituted a discriminatory marketing practice prohibited by existing regulations. This new guidance further affirms that regulation moving forward. 

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.