August 12, 2024 • 39 mins
The 50th anniversary of the Employee Retirement Income Security Act (ERISA) is rapidly approaching, a law that “affects real people every day,” according to Michael Kreps, a principal with Groom Law and chair of its Retirement Services Group.
Kreps, a former Senate HELP Committee retirement policy staffer, joins American Retirement Association (ARA) CEO Brian Graff to discuss recent Department of Labor (DOL) fiduciary setbacks, why it keeps happening, and the value of incremental change in regulatory policy.
They also note the coming tax policy debate in light of the expiring Tax Cuts and Jobs Act (TCJA) and what may or may not happen. It’s an important and timely conversation at a critical juncture for the retirement plan industry.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
But I think DB plan reform is definitely on the
table.
There are a number of memberswho are interested in it and
there are a lot of simple thingsthey could do.
Speaker 2 (00:09):
DC Pension Geeks brings you exclusive
conversations with topretirement policymakers and
regulators in and aroundWashington DC, hosted by Brian
Graff, an attorney, accountant,former Capitol Hill staffer and
CEO of the American RetirementAssociation.
If you're looking for aninsider's view of all the twists
and turns that Washington takeson the road to ensuring a
(00:29):
secure retirement for millionsof Americans, you're in the
right place.
Welcome to DC Pension Geeks.
Speaker 3 (00:35):
Hello everybody, brian Graff here for another
episode of DC Pension Geeks.
We're recording this in theheat of Washington DC summer, so
it's hot and sticky, but thatdoesn't stop DC pension geeks
from marching along.
(00:56):
We've still got lots to talkabout, even though Congress has
left town and we're about tohave another convention.
And we're about to have anotherconvention which is going to be
very exciting in Chicago, tosay the least.
We are very fortunate today tohave Michael Kreps, who has a
(01:16):
background on Capitol Hill andworked for the Senate HELP
Committee as a retirement policystaffer and did some other
things, I'm sure, for thecommittee too, and now is a
principal with the world-famousArisa Law firm, the Groom Law
(01:40):
Group, which I'm sure many ofyou listeners are very familiar
with.
Speaker 1 (01:44):
So, michael, thanks for joining us today.
Speaker 3 (01:49):
Thanks for having me.
It's great to be here and,Michael, we always like to start
these by finding a little bitabout you and how you.
What led you to your destiny ofbecoming a great ERISA lawyer?
Did you start out in primaryschool knowing that?
Speaker 1 (02:09):
you loved ERISA.
I was born an ERISA lawyer.
I'll die an ERISA lawyer.
Speaker 2 (02:13):
No.
Speaker 1 (02:14):
I actually started as an art history major in college
.
Oh, interesting.
They forced us to take abusiness of art class.
I guess they basically when didyou go to take a business of
art class?
Speaker 3 (02:25):
I guess they basically assumed all the art
majors.
Where did you go to college?
Speaker 1 (02:28):
University of Colorado so.
Speaker 3 (02:30):
I was out in.
Speaker 1 (02:30):
Colorado and.
Boulder and they assumedcorrectly that the art majors
couldn't balance a checkbook.
So they forced us to take aclass to learn that kind of
stuff and to budget and create abusiness plan.
You know, be kind of thebusiness side of art.
And at the end of the class myprofessor came up and said you
(02:50):
are a terrible artist.
You're a horrible artist, that'snot going to work for you, but
you're pretty good with numbersand you can make a budget.
What would you think aboutworking for me?
And so I did.
I went and I worked in Koreafor a couple of years and while
I was in Korea I decided that Iwas better at the business side
than I was on the art side.
So I I went back to law school,uh, and then kind of it was and
(03:15):
in fact, that's isn't thatwhere you met your bride right.
Yeah, exactly, I was living, uh,in a a large city from from our
perspective, called Daejeon,South Korea.
My wife's from there and we goback a couple of times a year.
Speaker 3 (03:29):
That's really wow.
That's a great story that Ididn't know about.
All right, so you went to lawschool.
Speaker 1 (03:36):
I went to law school and I didn't want to litigate.
It's unpleasant.
I think we can all agreelitigation is fairly unpleasant.
I'm more of an expand the pietype of person anyway, and so I
loved employment law at Groomand then a summer associate and
then an associate.
I went to the Hill for a fewyears, like you said, but then
(04:10):
came back to Groom when I wasdone on the Hill.
Speaker 3 (04:14):
I think everyone's story typically is stumbling
upon Arisa and then just fallingin love, madly in love falling
in love, madly in love.
Speaker 1 (04:27):
You know, it's one of those things where it actually
it affects real people every day, that you can do kind of
interesting big, big picturepolicy work that affects lots of
people.
You can solve interestingproblems both on the retirement
and healthcare side, and so it'sa good place to land.
I think it's kind of wherepeople care about public policy
and are interested in employmentlaw.
A lot of people gravitatetowards it.
Speaker 3 (04:47):
And we are, you know, encroaching rapidly the 50th
anniversary of RISA, which we'vetalked about a little bit on
this podcast with some otherguests.
So, Michael, when you were onthe Hill, what legislation did
you work on?
Speaker 1 (05:04):
I went up there to the kind of tail end of the
Affordable Care Act, but thendid Dodd-Frank.
I mean just a series of pensionreform bills, both the single
and multi-employer side, largelyon funding.
We were still adjusting to thefinancial crisis 2008-2009
(05:24):
financial crisis and so a lot ofthe work that was done was
around defined benefit fundingand, in particular,
multi-employer funding.
Speaker 3 (05:34):
But we also worked on a Didn't you also work on a
precursor to PEPS at some point?
Speaker 1 (05:40):
Yeah, we did so.
While that was happening, Iworked for a senator from Iowa
named Tom Harkin who wanted todo more big picture type stuff,
and so he put out a big billthat had at its core kind of a
version of the automatic IRAthat was kind of more robust in
a lot of respects, bunch ofsystemic reforms, and one of
(06:01):
them was the original.
The original, uh, the, whatbecame peps, um, and in fact tom
harkin named it apps with mikeenzi, if you remember, senator I
do.
Speaker 3 (06:12):
Yeah, two great guys when, uh, when, when the world
was a lot more, uh, civilizedand bipartisan for sure, sure.
For sure.
So, um, let's deal well, justrecently, uh, had a bad week, um
(06:34):
, to say the least, and you know, you've, you've on the Hill,
off the Hill, have been involvedin what I call is the soap
opera saga of DL Wells' attemptto update a rule that you know
(06:55):
was written in the regulation, Ithink, stems back to 1975,
right, I mean, which was, youknow, shortly after ERISA was
enacted.
And you know, reasonably, Imean, I don't think anyone well,
maybe I'm sure that on thissubject there are some people
that would argue it's perfectexactly the way it is, as
(07:17):
written in 1975.
But I think reasonable peoplewould agree that, given that
401k didn't exist back then, alittle bit of updating might be
necessary.
What do you think?
Where do you think DOL is goingwrong here?
Because they keep on trying andthey keep on getting batted
(07:41):
down batted down.
Speaker 1 (07:45):
We think about that a lot.
This is year 15 of the fiduciaryrule saga and I think it's
challenging, it is a sad moment,it is a soap opera, it's an
incredible story actually, andsomeone will do a doctoral
thesis at some point and tell it.
But you know, the fundamentalchallenge here is that the
Department of Labor is a is asmall regulator in the grand
(08:09):
scheme of things, you know it's.
It doesn't have the sameresources as DOJ, or even
Treasury, for that matter.
It's small and it's focused onemployment issues.
And so they've chosen to pursuea set of regulatory reforms
that are broad in scope andextremely impactful for the
financial services community,and not impactful just in
(08:31):
changing behavior, but at theirbottom line, affecting revenue,
and some people go up, somepeople go down from it, but it
has a.
Everyone would agree that itwould have a profound effect if
they could get it across thefinish line, and I just don't
think the Department of Labor iswell situated to either, you
know, in terms of its authorityor in terms of its resources, to
(08:52):
fight the type of regulatoryfight that it's bitten off, that
it's taken on.
It doesn't have the strongeststatutory authority to regulate
the financial services market.
It has some authority, but it'sfairly limited and the Fifth
Circuit showed some of thoselimits.
And the agency itself doesn'thave the resources to even
(09:14):
oversee the industry in the waythat the rule would really need
if you were going to implementit.
Speaker 3 (09:21):
And you're speaking specifically to the extension of
the rule effect to IRAs right.
Speaker 1 (09:28):
Yeah, and even just more generally I think, iras,
hsas, the extension outside ofthe traditional
employer-provided plan world.
But even in that world the ruleis attempting to regulate the
communications between financialservice professionals and their
(09:48):
clients and impose a standardof care on them, and the
Department of Labor just willhave a very tough time enforcing
those standards with such asmall staff.
It's not the SEC.
And so they've bitten off ahuge project that, if done
properly, would requiretremendous outlay of resources,
and they've done it on kind ofshaky statutory authority and
(10:12):
that kind of swing for thefences approach.
You know, if you lose in court,you've lost, and so the
alternative approach would be anincremental approach, more like
what they did with feedisclosure.
You'll remember, brian, thatwas not a simple task.
Oh no it was quitecontroversial.
Speaker 3 (10:32):
When it first I mean it was a big deal, I mean right,
and now it's sort of like, okay, you know, it is what it is.
Speaker 1 (10:39):
Because they spent years working on what was
basically a compromise packageof reforms and you know some
people love those discussions.
Speaker 3 (10:49):
So I mean, I really agree with you, because I don't
think some people think this isthe end of the story and then
you know, they're just going towave the white flag and stop.
I don't think regulators thinkthat way.
I think, rather, incrementalchange is still positive change
(11:10):
and oftentimes havingincremental change is the only
positive change you can achieve,and that certainly seems to be
the case here.
What do you think that lookslike in this case?
Speaker 1 (11:21):
Yeah, I think that DOL has issued guidance over the
years that have limited thepositions it can take, and they
could start by scaling back someof that guidance.
They've already started thatprocess.
There was an advisory opinionin 2005 that severely limited
(11:42):
their ability to overseerollover recommendations, and
they've repealed that now.
That kind of thing should havebeen the first thing they
considered, as opposed to apiece of a rulemaking right.
If I were doing this, that'scalled the Deseret Letter.
Yeah, exactly, it's called theDeseret Letter and what it
(12:05):
basically said is and folks willquibble with this summary, but
what it basically said at leastone of the positions was that
when you make a rolloverrecommendation, you're doing two
things You're telling someonethat they can take a
distribution, which is anon-fiduciary act.
You say you're allowed to takea distribution for this plan and
(12:25):
we think you should.
And then, after the moneyleaves, then you're providing
the fiduciary advice afterwardsabout where the money should go.
And they've basicallybifurcated the advice.
And its new rulemaking deal saysno, no, no, when you advise
someone on a rollover, implicitin that rollover recommendation
(12:46):
is a recommendation that youliquidate some securities or you
sell or buy an investment, andso we should treat that as
advice.
So DOL kind of fixed that pieceof it.
But they went a lot further.
They really, with the fiduciaryrule, they really tried to
broaden the scope of who is afiduciary and what types of
conduct qualifies advice, andthey swung for the fences.
(13:08):
It was a big swing and all ittook was one district court in
Texas and now they have two toput the brakes on it.
Speaker 3 (13:18):
Yeah, this is the second swing for the fences.
Right it is.
They tried the swing, the maybesomewhat bigger swing for the
fences, the first time around in2016.
And they also struck out there.
Yeah, I mean, I think the sameargument can be made for 2020-02
(13:40):
.
That was incremental changethat impacted the operation of
the fiduciary standard as itapplied to ERISA plans, as well
as interactions withparticipants and plan sponsors
ERISA plans, as well asinteractions with participants
(14:03):
and plan sponsors.
I think my own view of theincremental change is that.
I do think that, with respectto ERISA plans, the idea of
revisiting the five-part testthis probably has some merit,
but that's a much more narrowerscope approach to things than
(14:25):
you know what they tried to doAll right, let's switch gears
and talk about tax.
Whatever they're going to callthis tax debate, it's not really
tax reform.
No one's reforming anything.
It's more like either cuttingor raising taxes in various
forms.
So you were off the Hill in2016 as a lobbyist in addition
(14:53):
to being a lawyer.
A lawyer lobbyist, as we callthem in DC, and you were very
involved in a coalition that ARAwas one of the founding members
of, called Save Our Savings,which did a fantastic job in
stopping what was a pretty, youknow, aggressive proposal by
(15:15):
Ways and Means Republicans torequire all deferrals to be Roth
contributions so-calledRothification which in the end,
fortunately, was decided.
That did not move forward.
Frankly, one can point to atweet by then President Trump
(15:39):
saying that he likes 401ks and401ks are good and we're not
touching them.
I can't do a Trump impression,nor am I going to try Now.
This tax bill, the Tax Cut andJobs Act is set to expire next
year, so I think everyone agreesin this town that we're going
(15:59):
to have a tax debate and,frankly, regardless of who the
president is and regardless ofwho controls Congress because
both sides of the aisle havethings in the tax, tax exclusion
Democrats care more about thestandard deduction, the state
(16:25):
and local tax deductionprovision, and whenever there's
tax debate in this case, cbocame out with a score of $4.6
trillion to extend this withoutpaying for it and given the
state of our national debt,which is $35 trillion, I think
(16:47):
most of the signals we'regetting is that there's not a
lot of appetite to write a blankcheck.
So, michael, how do you thinkthis process is going to go?
Speaker 1 (17:00):
do you think this process is going to go?
So I think, as a preliminarymatter, it's important to remind
folks that rockification wasvery real last time.
I realize now, seven yearslater, we look back and say,
well, you know, that was kind ofthat was the right result.
(17:21):
They didn't touch theretirement system Easy peasy, we
solved it.
But it took months and monthsand months of advocacy and work
to get us to a position where wecould knock down the
Rothification arguments and getthat out of the discussion.
We could knock down theRothification arguments and get
that out of the discussion.
(17:41):
And that you mentioned, brian,that tweet by then President
Trump about the 401k system.
That also didn't happen byaccident.
That happened because we weworked for months to pitch the
morning shows that he waswatching on the idea that that
Republicans were going to quote,unquote tax your retirement and
they picked it up and hehappened to be watching and he
(18:03):
fired out the seat.
It, you know that was.
That was just kind of success.
There's some luck there, butit's some successful advocacy
and you would think that, well,okay, congress learned its
lesson.
It's not going to go back tothat.
They took a beating on thepolitics last time.
They tried but they reallyhaven't.
Both parties will say that theysupport the private retirement
system and I believe them whenthey say that.
(18:24):
But then when they need moneyand they're scrounging for
change in the couch cushions topay for a priority, they have to
make some tough choices andwe're going to be faced with a
lot of really tough choices nextyear.
If they're going to pay forsome of these extensions and you
look at where they go for thatrevenue, there aren't that many
places.
And even in the Secure 2.0 Act,which I think the industry
(18:47):
largely supported had a lot ofgood stuff.
I mean, they paid for part ofthat bill with Rothification of
catch-up contributions.
Now it was for a limited subsetof people, the highly competent
employees but it was still acamel's nose to some extent and
they learned the lesson that theindustry can live with some
Rothification.
(19:07):
That was the lesson that atleast some people took.
They will say the right things.
Right now, politicians will saywe won't touch your 401k, we
won't mess with the retirementsystem, because that's what they
need to do from a politicalmatter at this point in time.
But when it comes time tomaking very tough choices about
how we tax families.
What kind of relief we providefrom higher tax rates.
(19:31):
You know, salt, even child taxcredits, child tax credit.
Yeah, everything's on the tableand we just need to be ready to
mount a vigorous defense.
Speaker 3 (19:44):
And everything is literally everything is on.
The entire tax code is reallykind of up for grabs here.
And you know, although we carevery much about the retirement
system, although we care verymuch about the retirement system
(20:14):
, there are groups representingevery constituency, every
business interest, all over theplace, that have their special
pet tax provisions.
And so you know, they're allgearing up and getting ready.
Gearing up and getting ready, Imean, the entire town here is
essentially prepping for, youknow, this epic tax battle that
seems to happen every 10 years.
Speaker 1 (20:30):
And you know, I would expect, michael, I mean I think
you're thinking about rebootingthe coalition.
Is that right?
No-transcript.
Speaker 3 (21:03):
Yeah, and I think you were really instrumental in
making it a coalition that wasnot just retirement industry
groups and companies, but alsogroups that represented minority
voices, groups that represented, you know, minority voices,
represented voices of seniors,women's groups that I think were
(21:26):
critical in getting the Hill tolisten to us.
Speaker 1 (21:37):
Yeah, at the end of the day the retirement system is
set up.
You know the way we'veconstructed it is to try and get
working people.
Give them the opportunity tosave Very rich people have
opportunities to save on theirown Very, very low income.
People have other mechanismsfor governmental support.
But that broad swath ofAmericans that are just working
middle class normal jobs,raising families, those are the
(21:59):
people that are benefited by theexisting system and it takes a
little bit of work to remindlawmakers of that.
Speaker 3 (22:06):
Do you think that there's been a ton of recent
criticism in the media, drivenby some academics, in particular
Teresa Guiloducci from the NewSchool, attacking the system as
not benefiting middle class butrather just only benefiting the
(22:29):
wealthy?
We dispute the data that sherelies on in that regard, but,
putting that aside, do you thinkthat's created more of a
climate where the system couldbe at risk in tax reform?
Speaker 1 (22:45):
What I think it's done is break up the consensus
on the left about the retirementsystem political consensus, not
the policy consensus.
So the political consensus formany years has been, at least
for Democrats, that theretirement system is fine.
You know it's chugging along.
(23:05):
We'll protect people's definedbenefit plans where we have to
make funding rule changes.
But you know, as a generalmatter, normal citizens aren't
upset about 401ks.
They like their 401ks, in fact,and there's no reason to make
changes.
And any changes we make willupset people and the industry
(23:26):
has done a good job oforganizing and reinforcing that
message.
I think what the challenges tothe 401k system really what they
highlight for members is thatthere is an emerging or maybe
it's always been there and it'sjust getting a little louder
portion of the Democratscoalition or at least the kind
(23:49):
of left leaning coalition thathas serious problems with the
401k system and serious concernsand and this is the first time
a lot of members are hearingthat right.
In the past they've just heardfrom industry, from people like
the 401ks.
Now they're hearing some voicessaying, no, you progressives,
this is, this isn't somethingyou should support, and those
(24:11):
studies.
Speaker 3 (24:12):
And what's the Sorry, Michael?
What's the primary reasons thatthey're citing for why
progressives are saying youshouldn't support this?
Speaker 1 (24:23):
Yeah, I think one it's the tax incentive they view
as being upside down.
I think one it's the taxincentive they view as being
upside down that lower incomepeople, the bottom half, don't
pay income taxes anyway.
They're largely exempt from orlargely insulated from income
tax liability, and so the taxincentive for 401k savings
(24:45):
doesn't directly benefit forthem.
They're not getting a hugebenefit from it.
I think what gets lost there,of course, is that we have a
voluntary system and we've setit up so that there's a tax
incentive for those it mattersto, and in particular, a lot of
the decision makers, and thenwe've set up a series of
(25:07):
non-discrimination rules thathelp push that benefit down.
Speaker 3 (25:21):
And auto-enrollment helps there right, which is why
we give it some specialtreatment, because it broadens,
not upside down at all, it'sright side up when you
incorporate the employercontributions that are that need
to be given to the workers tosatisfy those non-discrimination
rules which typically they lookat when they're analyzing the
incentives, there's definitelysome softening in terms of you
(25:48):
know, if we're talking aboutconcerns around the tax
incentives, if you're talkingabout that in the context of a
larger tax debate, that presentsa risk.
Right, right, absolutely SocialSecurity.
You worked for a senator who Iwould say, over the history of
(26:17):
Social Security, probably thebiggest proponents, fans of the
system, defenders of the systemand Tom.
Harkin and Tom Harkin, and wenow are less or, depending on
you know how you read the report.
Let's say it's within 10 yearsto what could be a disaster for
(26:46):
the system, where there'd beautomatic cuts to the tune of 20
to 25% and, unlike in 1983, andI've gone back and actually
read some of the history behindthat process that was really a
temporary problem at the timebecause of inflation, whereas
this is a permanent problem.
This isn't a current economicsituation that's causing a
(27:12):
shortfall, but rather the mathis simple there are just not
enough workers relative to thenumber of retirees, and people
are living longer and thereforecollecting benefits longer.
So there are a lot of solutionsthat some people have put out
there, but what do you thinkit's going to take for
(27:38):
policymakers to really start theprocess of addressing what is a
huge issue for this country,that probably the most
successful program in history interms of taking people out of
poverty?
Speaker 1 (27:57):
Yeah, it is a.
It's been a remarkablysuccessful program overall, and
I think the American people arelargely strongly in favor of
Social Security.
Right, so if the polling showsthat 80 plus percent support
Social Security?
Even people who are generallygovernment skeptical are pretty
pro Social Security, includingmany members of my family, and
so you know I think there'sstrong support for it.
(28:19):
So then the obvious question iswell, we can all see that there
is an issue coming down thepike.
Why can't we address it?
And we can't address it becausethere's just a lack of will to
do so that politically it isdifficult because we have to
make tough choices.
Speaker 3 (28:34):
I mean this is just math, brian, as you know.
I mean there's some policyissues here, but they're not
that complicated.
This is much more of apolitical issue than it is a
policy issue.
Speaker 1 (28:45):
That's exactly right, and so Democrats, I just don't
think, are all that comfortablewith the idea of reducing
benefits, and, to date,republicans haven't been
comfortable with raising revenueto support the benefit levels
where they are now.
So we've been at an impasse.
I'm not sure what it takes,other than a crisis, an actual
crisis happening tomorrow, toforce lawmakers to address it.
(29:10):
But this isn't.
Social Security, is not unique,right.
We have similar fundingchallenges with Medicare as well
, and other areas of the federalgovernment.
Speaker 3 (29:17):
Yeah, but the numbers here are astronomical.
And the difference in Medicareokay is that Medicare, there
won't be automatic cuts to thebenefits.
We're just going to have to.
We're going to automaticallydraw out of general revenues.
Here there'll be, you know, a20, 25% haircut for seniors who
you know, a third of whomcollect social security.
(29:40):
That's essentially all of theirincome.
And you know it would be a Imean, it would be a disaster.
And assuming you thinkpolitically, it would be a
disaster.
And assuming you thinkpolitically it would be a
disaster that they can't solve,they won't allow to happen.
Let's assume that I could justlet it expire, right?
You're talking about a cost atthat point that's estimated
(30:04):
currently about $400 billiondollars a year.
That's a huge number it is.
Speaker 1 (30:14):
It is a huge, it is a huge number.
It is a very, very large number.
Uh, and it's a they don't well,let's put it this way they.
There are a number of solutionsfor it and you see a lot of
solutions on the table.
We've had some folks put somesolutions on the table that were
basically benefit cuts, andwe've had some revenue raisers
(30:35):
and, in particular, someproposals to raise taxes on
upper-income people.
There's also been someproposals to rob Peter to pay
Paul.
Speaker 3 (30:48):
Oh, the magic coin proposal.
Speaker 1 (30:50):
Yeah, exactly, basically eliminate or reduce
the tax incentive for retirementsavings and then use that
revenue to to pay for it.
Well, the magic coin one is isa separate and unique proposal,
but the one that to reduce oreliminate the tax incentive for
private sector retirementsavings and use that revenue
(31:12):
then to pay for Social Security.
And there's been somebipartisan support for that, at
least outside of Congress, ofcourse that.
Speaker 3 (31:22):
Yeah, that would just fix Social Security while
destroying the retirementsavings of the middle class.
Speaker 1 (31:27):
It would, and you're using funny money, right.
Right, you know, brian, the wayCongress scores retirement
savings is based on kind of a10-year projection which doesn't
take into consideration that alot of the money will come out
of the system and be taxed, andso you're not really raising the
revenue you think you'reraising anyway.
(31:47):
100% correct.
Speaker 3 (31:52):
Yeah, no, it's a.
I mean, I think this, I thinkit's probably one of the biggest
concerns from you know, agovernment policy standpoint is
the.
It's really a process, it's apolitical process problem that
is precluding a discussion aboutshoring up the funding for what
(32:17):
is, I'd say quite clearly, thenumber one most important
government program.
Speaker 1 (32:25):
It highlights some of the failings of our political
system more generally.
No-transcript.
Speaker 3 (32:54):
Yeah, it's pretty scary stuff and you know,
importantly, Social Security isfoundational to our entire
system.
I mean, it works hand in handwith the private system hand in
hand with the private system andyou know, for lower income,
people does a fairly decent jobof producing replacement rates,
(33:20):
and so you know you need both401ks and the social security
system working together, Right.
So, defined benefit plans therewas a hearing by Senator
Sanders committee, the helpcommittee that you were
associated with previously.
Democrats control the Senate,so he was the.
He's the chairman, and they'revery interested in trying to
(33:45):
revive defined benefit plans.
As I know, you probably talkedto the committee and the
committee staff about this, aswe have.
What's your take on thatexercise?
Do you think it's just a fool'serrand or do you think there's
something to this?
Speaker 1 (34:01):
I don't think it's a fool's errand.
I think that in their currentiteration, db plans have not
fared well with large employers.
The employers that have them,they run them well.
I think they're well-managed,they're well-funded systemically
.
At this point there's a lot ofthings that are happening right,
but what's obviously a problemis that most of them are closed,
(34:23):
at least in the private sector,and that we don't see a lot of
companies starting new plansoutside of kind of the smaller
small market.
Um, that is a an issue that wecreated through public policy.
We made choices that made itmore difficult, more costly,
(34:43):
more burdensome, morechallenging for employers to
manage the plans, both in termsof the risk but also just their
investment risk and themortality risk, normal pension
risk, but also just theirgeneral liability with respect
to the pension and how theycarry it on their books.
Those are all affirmativepolicy choices we made and they
didn't have to be made that way.
(35:04):
Other countries didn't makethem in the same way and we
could make choices to dosomething different.
I don't think it's a fool'serrand at all to think about
options for reinvigorating theDB system.
There are some simple things wecan do.
There's some more complexsystemic reforms we could take
on, but it's worth at least adiscussion with it.
(35:26):
And, brian, you may remember,we tried, congress tried with
the Pension Protection Act ofthe DBK, if you remember.
And I remember that's a.
that's a good example whereCongress did some heavy lifting
to come up with kind of a middleof the road solution that used
(35:47):
a DB component and a DCcomponent, only to have the
regulators never implement it,and that's been a problem across
the board.
We need kind of more strategeryaround our defined benefit plan
policy.
Speaker 3 (36:04):
Well, I also think that, although DBK is kind of a
was inventive and there'sactually some talk about kind of
doing a version of that withcash balance plans where the
match a 401k match would go intoa cash balance plan, maybe in
secure 3.0.
The fundamental problems withDB plans that you were raising
(36:31):
in the conversation just aminute ago were really never
addressed in the PensionProtection Act benefit plans.
Concerns that employers haveabout premiums to the PBGC even
(36:53):
though you know we've done somecuts to premiums, sometimes
we've increased premiums.
Concerns about, you know, thefunding rules.
Although we've attempted to dosome things to make them better,
there's still fundamentalchallenges that I think you're
(37:14):
right need to be addressed if wereally want to reform the
system in a real way.
Do you think that Secure 3.0might take a stronger crack at
that?
Speaker 1 (37:27):
I think it might.
There's a lot of legislativefatigue around retirement.
We've had a number of bills inquick succession, right, we had
Secure 1.0 in 2019.
We had Secure 2.0 in 2022.
And then we had the ARPA, theAmerican Rescue Plan Act, and a
couple other bills in there thathad funding rule changes and
(37:49):
other systemic reforms, and sowe've just had a lot of
legislation on retirement in apretty short amount of time.
It's going to take a while forthe Hill to cobble together all
the good ideas.
But, I think DB plan reform isdefinitely on the table.
There are a number of memberswho are interested in it and
there are a lot of simple thingsthey could do.
(38:10):
Reducing single employer PBGCpremiums is an easy fix.
Those could come downsignificantly without hurting
PBGC in any way, shape or form.
Speaker 3 (38:22):
Michael, thank you so much for your time today.
There's a lot going on in the.
You know, when you stumbledacross ERISA and decided that
you wanted to focus on this area, I don't think any one of us
who stumbled across ERISA couldpossibly imagine how dynamic the
(38:44):
subject is.
Speaker 1 (38:46):
Yeah, it's an incredible area.
I encourage younger people toget involved in it.
It's probably one of the moreinteresting places you can work
and affect real policy change.
Thanks, Michael.
Thanks for having me.
I appreciate it.
Thank you.
But I think DB plan reform is definitely on the
table.
There are a number of memberswho are interested in it and
there are a lot of simple thingsthey could do.
Speaker 2 (00:09):
DC Pension Geeks brings you exclusive
conversations with topretirement policymakers and
regulators in and aroundWashington DC, hosted by Brian
Graff, an attorney, accountant,former Capitol Hill staffer and
CEO of the American RetirementAssociation.
If you're looking for aninsider's view of all the twists
and turns that Washington takeson the road to ensuring a
(00:29):
secure retirement for millionsof Americans, you're in the
right place.
Welcome to DC Pension Geeks.
Speaker 3 (00:35):
Hello everybody, brian Graff here for another
episode of DC Pension Geeks.
We're recording this in theheat of Washington DC summer, so
it's hot and sticky, but thatdoesn't stop DC pension geeks
from marching along.
(00:56):
We've still got lots to talkabout, even though Congress has
left town and we're about tohave another convention.
And we're about to have anotherconvention which is going to be
very exciting in Chicago, tosay the least.
We are very fortunate today tohave Michael Kreps, who has a
(01:16):
background on Capitol Hill andworked for the Senate HELP
Committee as a retirement policystaffer and did some other
things, I'm sure, for thecommittee too, and now is a
principal with the world-famousArisa Law firm, the Groom Law
(01:40):
Group, which I'm sure many ofyou listeners are very familiar
with.
Speaker 1 (01:44):
So, michael, thanks for joining us today.
Speaker 3 (01:49):
Thanks for having me.
It's great to be here and,Michael, we always like to start
these by finding a little bitabout you and how you.
What led you to your destiny ofbecoming a great ERISA lawyer?
Did you start out in primaryschool knowing that?
Speaker 1 (02:09):
you loved ERISA.
I was born an ERISA lawyer.
I'll die an ERISA lawyer.
Speaker 2 (02:13):
No.
Speaker 1 (02:14):
I actually started as an art history major in college
.
Oh, interesting.
They forced us to take abusiness of art class.
I guess they basically when didyou go to take a business of
art class?
Speaker 3 (02:25):
I guess they basically assumed all the art
majors.
Where did you go to college?
Speaker 1 (02:28):
University of Colorado so.
Speaker 3 (02:30):
I was out in.
Speaker 1 (02:30):
Colorado and.
Boulder and they assumedcorrectly that the art majors
couldn't balance a checkbook.
So they forced us to take aclass to learn that kind of
stuff and to budget and create abusiness plan.
You know, be kind of thebusiness side of art.
And at the end of the class myprofessor came up and said you
(02:50):
are a terrible artist.
You're a horrible artist, that'snot going to work for you, but
you're pretty good with numbersand you can make a budget.
What would you think aboutworking for me?
And so I did.
I went and I worked in Koreafor a couple of years and while
I was in Korea I decided that Iwas better at the business side
than I was on the art side.
So I I went back to law school,uh, and then kind of it was and
(03:15):
in fact, that's isn't thatwhere you met your bride right.
Yeah, exactly, I was living, uh,in a a large city from from our
perspective, called Daejeon,South Korea.
My wife's from there and we goback a couple of times a year.
Speaker 3 (03:29):
That's really wow.
That's a great story that Ididn't know about.
All right, so you went to lawschool.
Speaker 1 (03:36):
I went to law school and I didn't want to litigate.
It's unpleasant.
I think we can all agreelitigation is fairly unpleasant.
I'm more of an expand the pietype of person anyway, and so I
loved employment law at Groomand then a summer associate and
then an associate.
I went to the Hill for a fewyears, like you said, but then
(04:10):
came back to Groom when I wasdone on the Hill.
Speaker 3 (04:14):
I think everyone's story typically is stumbling
upon Arisa and then just fallingin love, madly in love falling
in love, madly in love.
Speaker 1 (04:27):
You know, it's one of those things where it actually
it affects real people every day, that you can do kind of
interesting big, big picturepolicy work that affects lots of
people.
You can solve interestingproblems both on the retirement
and healthcare side, and so it'sa good place to land.
I think it's kind of wherepeople care about public policy
and are interested in employmentlaw.
A lot of people gravitatetowards it.
Speaker 3 (04:47):
And we are, you know, encroaching rapidly the 50th
anniversary of RISA, which we'vetalked about a little bit on
this podcast with some otherguests.
So, Michael, when you were onthe Hill, what legislation did
you work on?
Speaker 1 (05:04):
I went up there to the kind of tail end of the
Affordable Care Act, but thendid Dodd-Frank.
I mean just a series of pensionreform bills, both the single
and multi-employer side, largelyon funding.
We were still adjusting to thefinancial crisis 2008-2009
(05:24):
financial crisis and so a lot ofthe work that was done was
around defined benefit fundingand, in particular,
multi-employer funding.
Speaker 3 (05:34):
But we also worked on a Didn't you also work on a
precursor to PEPS at some point?
Speaker 1 (05:40):
Yeah, we did so.
While that was happening, Iworked for a senator from Iowa
named Tom Harkin who wanted todo more big picture type stuff,
and so he put out a big billthat had at its core kind of a
version of the automatic IRAthat was kind of more robust in
a lot of respects, bunch ofsystemic reforms, and one of
(06:01):
them was the original.
The original, uh, the, whatbecame peps, um, and in fact tom
harkin named it apps with mikeenzi, if you remember, senator I
do.
Speaker 3 (06:12):
Yeah, two great guys when, uh, when, when the world
was a lot more, uh, civilizedand bipartisan for sure, sure.
For sure.
So, um, let's deal well, justrecently, uh, had a bad week, um
(06:34):
, to say the least, and you know, you've, you've on the Hill,
off the Hill, have been involvedin what I call is the soap
opera saga of DL Wells' attemptto update a rule that you know
(06:55):
was written in the regulation, Ithink, stems back to 1975,
right, I mean, which was, youknow, shortly after ERISA was
enacted.
And you know, reasonably, Imean, I don't think anyone well,
maybe I'm sure that on thissubject there are some people
that would argue it's perfectexactly the way it is, as
(07:17):
written in 1975.
But I think reasonable peoplewould agree that, given that
401k didn't exist back then, alittle bit of updating might be
necessary.
What do you think?
Where do you think DOL is goingwrong here?
Because they keep on trying andthey keep on getting batted
(07:41):
down batted down.
Speaker 1 (07:45):
We think about that a lot.
This is year 15 of the fiduciaryrule saga and I think it's
challenging, it is a sad moment,it is a soap opera, it's an
incredible story actually, andsomeone will do a doctoral
thesis at some point and tell it.
But you know, the fundamentalchallenge here is that the
Department of Labor is a is asmall regulator in the grand
(08:09):
scheme of things, you know it's.
It doesn't have the sameresources as DOJ, or even
Treasury, for that matter.
It's small and it's focused onemployment issues.
And so they've chosen to pursuea set of regulatory reforms
that are broad in scope andextremely impactful for the
financial services community,and not impactful just in
(08:31):
changing behavior, but at theirbottom line, affecting revenue,
and some people go up, somepeople go down from it, but it
has a.
Everyone would agree that itwould have a profound effect if
they could get it across thefinish line, and I just don't
think the Department of Labor iswell situated to either, you
know, in terms of its authorityor in terms of its resources, to
(08:52):
fight the type of regulatoryfight that it's bitten off, that
it's taken on.
It doesn't have the strongeststatutory authority to regulate
the financial services market.
It has some authority, but it'sfairly limited and the Fifth
Circuit showed some of thoselimits.
And the agency itself doesn'thave the resources to even
(09:14):
oversee the industry in the waythat the rule would really need
if you were going to implementit.
Speaker 3 (09:21):
And you're speaking specifically to the extension of
the rule effect to IRAs right.
Speaker 1 (09:28):
Yeah, and even just more generally I think, iras,
hsas, the extension outside ofthe traditional
employer-provided plan world.
But even in that world the ruleis attempting to regulate the
communications between financialservice professionals and their
(09:48):
clients and impose a standardof care on them, and the
Department of Labor just willhave a very tough time enforcing
those standards with such asmall staff.
It's not the SEC.
And so they've bitten off ahuge project that, if done
properly, would requiretremendous outlay of resources,
and they've done it on kind ofshaky statutory authority and
(10:12):
that kind of swing for thefences approach.
You know, if you lose in court,you've lost, and so the
alternative approach would be anincremental approach, more like
what they did with feedisclosure.
You'll remember, brian, thatwas not a simple task.
Oh no it was quitecontroversial.
Speaker 3 (10:32):
When it first I mean it was a big deal, I mean right,
and now it's sort of like, okay, you know, it is what it is.
Speaker 1 (10:39):
Because they spent years working on what was
basically a compromise packageof reforms and you know some
people love those discussions.
Speaker 3 (10:49):
So I mean, I really agree with you, because I don't
think some people think this isthe end of the story and then
you know, they're just going towave the white flag and stop.
I don't think regulators thinkthat way.
I think, rather, incrementalchange is still positive change
(11:10):
and oftentimes havingincremental change is the only
positive change you can achieve,and that certainly seems to be
the case here.
What do you think that lookslike in this case?
Speaker 1 (11:21):
Yeah, I think that DOL has issued guidance over the
years that have limited thepositions it can take, and they
could start by scaling back someof that guidance.
They've already started thatprocess.
There was an advisory opinionin 2005 that severely limited
(11:42):
their ability to overseerollover recommendations, and
they've repealed that now.
That kind of thing should havebeen the first thing they
considered, as opposed to apiece of a rulemaking right.
If I were doing this, that'scalled the Deseret Letter.
Yeah, exactly, it's called theDeseret Letter and what it
(12:05):
basically said is and folks willquibble with this summary, but
what it basically said at leastone of the positions was that
when you make a rolloverrecommendation, you're doing two
things You're telling someonethat they can take a
distribution, which is anon-fiduciary act.
You say you're allowed to takea distribution for this plan and
(12:25):
we think you should.
And then, after the moneyleaves, then you're providing
the fiduciary advice afterwardsabout where the money should go.
And they've basicallybifurcated the advice.
And its new rulemaking deal saysno, no, no, when you advise
someone on a rollover, implicitin that rollover recommendation
(12:46):
is a recommendation that youliquidate some securities or you
sell or buy an investment, andso we should treat that as
advice.
So DOL kind of fixed that pieceof it.
But they went a lot further.
They really, with the fiduciaryrule, they really tried to
broaden the scope of who is afiduciary and what types of
conduct qualifies advice, andthey swung for the fences.
(13:08):
It was a big swing and all ittook was one district court in
Texas and now they have two toput the brakes on it.
Speaker 3 (13:18):
Yeah, this is the second swing for the fences.
Right it is.
They tried the swing, the maybesomewhat bigger swing for the
fences, the first time around in2016.
And they also struck out there.
Yeah, I mean, I think the sameargument can be made for 2020-02
(13:40):
.
That was incremental changethat impacted the operation of
the fiduciary standard as itapplied to ERISA plans, as well
as interactions withparticipants and plan sponsors
ERISA plans, as well asinteractions with participants
(14:03):
and plan sponsors.
I think my own view of theincremental change is that.
I do think that, with respectto ERISA plans, the idea of
revisiting the five-part testthis probably has some merit,
but that's a much more narrowerscope approach to things than
(14:25):
you know what they tried to doAll right, let's switch gears
and talk about tax.
Whatever they're going to callthis tax debate, it's not really
tax reform.
No one's reforming anything.
It's more like either cuttingor raising taxes in various
forms.
So you were off the Hill in2016 as a lobbyist in addition
(14:53):
to being a lawyer.
A lawyer lobbyist, as we callthem in DC, and you were very
involved in a coalition that ARAwas one of the founding members
of, called Save Our Savings,which did a fantastic job in
stopping what was a pretty, youknow, aggressive proposal by
(15:15):
Ways and Means Republicans torequire all deferrals to be Roth
contributions so-calledRothification which in the end,
fortunately, was decided.
That did not move forward.
Frankly, one can point to atweet by then President Trump
(15:39):
saying that he likes 401ks and401ks are good and we're not
touching them.
I can't do a Trump impression,nor am I going to try Now.
This tax bill, the Tax Cut andJobs Act is set to expire next
year, so I think everyone agreesin this town that we're going
(15:59):
to have a tax debate and,frankly, regardless of who the
president is and regardless ofwho controls Congress because
both sides of the aisle havethings in the tax, tax exclusion
Democrats care more about thestandard deduction, the state
(16:25):
and local tax deductionprovision, and whenever there's
tax debate in this case, cbocame out with a score of $4.6
trillion to extend this withoutpaying for it and given the
state of our national debt,which is $35 trillion, I think
(16:47):
most of the signals we'regetting is that there's not a
lot of appetite to write a blankcheck.
So, michael, how do you thinkthis process is going to go?
Speaker 1 (17:00):
do you think this process is going to go?
So I think, as a preliminarymatter, it's important to remind
folks that rockification wasvery real last time.
I realize now, seven yearslater, we look back and say,
well, you know, that was kind ofthat was the right result.
(17:21):
They didn't touch theretirement system Easy peasy, we
solved it.
But it took months and monthsand months of advocacy and work
to get us to a position where wecould knock down the
Rothification arguments and getthat out of the discussion.
We could knock down theRothification arguments and get
that out of the discussion.
(17:41):
And that you mentioned, brian,that tweet by then President
Trump about the 401k system.
That also didn't happen byaccident.
That happened because we weworked for months to pitch the
morning shows that he waswatching on the idea that that
Republicans were going to quote,unquote tax your retirement and
they picked it up and hehappened to be watching and he
(18:03):
fired out the seat.
It, you know that was.
That was just kind of success.
There's some luck there, butit's some successful advocacy
and you would think that, well,okay, congress learned its
lesson.
It's not going to go back tothat.
They took a beating on thepolitics last time.
They tried but they reallyhaven't.
Both parties will say that theysupport the private retirement
system and I believe them whenthey say that.
(18:24):
But then when they need moneyand they're scrounging for
change in the couch cushions topay for a priority, they have to
make some tough choices andwe're going to be faced with a
lot of really tough choices nextyear.
If they're going to pay forsome of these extensions and you
look at where they go for thatrevenue, there aren't that many
places.
And even in the Secure 2.0 Act,which I think the industry
(18:47):
largely supported had a lot ofgood stuff.
I mean, they paid for part ofthat bill with Rothification of
catch-up contributions.
Now it was for a limited subsetof people, the highly competent
employees but it was still acamel's nose to some extent and
they learned the lesson that theindustry can live with some
Rothification.
(19:07):
That was the lesson that atleast some people took.
They will say the right things.
Right now, politicians will saywe won't touch your 401k, we
won't mess with the retirementsystem, because that's what they
need to do from a politicalmatter at this point in time.
But when it comes time tomaking very tough choices about
how we tax families.
What kind of relief we providefrom higher tax rates.
(19:31):
You know, salt, even child taxcredits, child tax credit.
Yeah, everything's on the tableand we just need to be ready to
mount a vigorous defense.
Speaker 3 (19:44):
And everything is literally everything is on.
The entire tax code is reallykind of up for grabs here.
And you know, although we carevery much about the retirement
system, although we care verymuch about the retirement system
(20:14):
, there are groups representingevery constituency, every
business interest, all over theplace, that have their special
pet tax provisions.
And so you know, they're allgearing up and getting ready.
Gearing up and getting ready, Imean, the entire town here is
essentially prepping for, youknow, this epic tax battle that
seems to happen every 10 years.
Speaker 1 (20:30):
And you know, I would expect, michael, I mean I think
you're thinking about rebootingthe coalition.
Is that right?
No-transcript.
Speaker 3 (21:03):
Yeah, and I think you were really instrumental in
making it a coalition that wasnot just retirement industry
groups and companies, but alsogroups that represented minority
voices, groups that represented, you know, minority voices,
represented voices of seniors,women's groups that I think were
(21:26):
critical in getting the Hill tolisten to us.
Speaker 1 (21:37):
Yeah, at the end of the day the retirement system is
set up.
You know the way we'veconstructed it is to try and get
working people.
Give them the opportunity tosave Very rich people have
opportunities to save on theirown Very, very low income.
People have other mechanismsfor governmental support.
But that broad swath ofAmericans that are just working
middle class normal jobs,raising families, those are the
(21:59):
people that are benefited by theexisting system and it takes a
little bit of work to remindlawmakers of that.
Speaker 3 (22:06):
Do you think that there's been a ton of recent
criticism in the media, drivenby some academics, in particular
Teresa Guiloducci from the NewSchool, attacking the system as
not benefiting middle class butrather just only benefiting the
(22:29):
wealthy?
We dispute the data that sherelies on in that regard, but,
putting that aside, do you thinkthat's created more of a
climate where the system couldbe at risk in tax reform?
Speaker 1 (22:45):
What I think it's done is break up the consensus
on the left about the retirementsystem political consensus, not
the policy consensus.
So the political consensus formany years has been, at least
for Democrats, that theretirement system is fine.
You know it's chugging along.
(23:05):
We'll protect people's definedbenefit plans where we have to
make funding rule changes.
But you know, as a generalmatter, normal citizens aren't
upset about 401ks.
They like their 401ks, in fact,and there's no reason to make
changes.
And any changes we make willupset people and the industry
(23:26):
has done a good job oforganizing and reinforcing that
message.
I think what the challenges tothe 401k system really what they
highlight for members is thatthere is an emerging or maybe
it's always been there and it'sjust getting a little louder
portion of the Democratscoalition or at least the kind
(23:49):
of left leaning coalition thathas serious problems with the
401k system and serious concernsand and this is the first time
a lot of members are hearingthat right.
In the past they've just heardfrom industry, from people like
the 401ks.
Now they're hearing some voicessaying, no, you progressives,
this is, this isn't somethingyou should support, and those
(24:11):
studies.
Speaker 3 (24:12):
And what's the Sorry, Michael?
What's the primary reasons thatthey're citing for why
progressives are saying youshouldn't support this?
Speaker 1 (24:23):
Yeah, I think one it's the tax incentive they view
as being upside down.
I think one it's the taxincentive they view as being
upside down that lower incomepeople, the bottom half, don't
pay income taxes anyway.
They're largely exempt from orlargely insulated from income
tax liability, and so the taxincentive for 401k savings
(24:45):
doesn't directly benefit forthem.
They're not getting a hugebenefit from it.
I think what gets lost there,of course, is that we have a
voluntary system and we've setit up so that there's a tax
incentive for those it mattersto, and in particular, a lot of
the decision makers, and thenwe've set up a series of
(25:07):
non-discrimination rules thathelp push that benefit down.
Speaker 3 (25:21):
And auto-enrollment helps there right, which is why
we give it some specialtreatment, because it broadens,
not upside down at all, it'sright side up when you
incorporate the employercontributions that are that need
to be given to the workers tosatisfy those non-discrimination
rules which typically they lookat when they're analyzing the
incentives, there's definitelysome softening in terms of you
(25:48):
know, if we're talking aboutconcerns around the tax
incentives, if you're talkingabout that in the context of a
larger tax debate, that presentsa risk.
Right, right, absolutely SocialSecurity.
You worked for a senator who Iwould say, over the history of
(26:17):
Social Security, probably thebiggest proponents, fans of the
system, defenders of the systemand Tom.
Harkin and Tom Harkin, and wenow are less or, depending on
you know how you read the report.
Let's say it's within 10 yearsto what could be a disaster for
(26:46):
the system, where there'd beautomatic cuts to the tune of 20
to 25% and, unlike in 1983, andI've gone back and actually
read some of the history behindthat process that was really a
temporary problem at the timebecause of inflation, whereas
this is a permanent problem.
This isn't a current economicsituation that's causing a
(27:12):
shortfall, but rather the mathis simple there are just not
enough workers relative to thenumber of retirees, and people
are living longer and thereforecollecting benefits longer.
So there are a lot of solutionsthat some people have put out
there, but what do you thinkit's going to take for
(27:38):
policymakers to really start theprocess of addressing what is a
huge issue for this country,that probably the most
successful program in history interms of taking people out of
poverty?
Speaker 1 (27:57):
Yeah, it is a.
It's been a remarkablysuccessful program overall, and
I think the American people arelargely strongly in favor of
Social Security.
Right, so if the polling showsthat 80 plus percent support
Social Security?
Even people who are generallygovernment skeptical are pretty
pro Social Security, includingmany members of my family, and
so you know I think there'sstrong support for it.
(28:19):
So then the obvious question iswell, we can all see that there
is an issue coming down thepike.
Why can't we address it?
And we can't address it becausethere's just a lack of will to
do so that politically it isdifficult because we have to
make tough choices.
Speaker 3 (28:34):
I mean this is just math, brian, as you know.
I mean there's some policyissues here, but they're not
that complicated.
This is much more of apolitical issue than it is a
policy issue.
Speaker 1 (28:45):
That's exactly right, and so Democrats, I just don't
think, are all that comfortablewith the idea of reducing
benefits, and, to date,republicans haven't been
comfortable with raising revenueto support the benefit levels
where they are now.
So we've been at an impasse.
I'm not sure what it takes,other than a crisis, an actual
crisis happening tomorrow, toforce lawmakers to address it.
(29:10):
But this isn't.
Social Security, is not unique,right.
We have similar fundingchallenges with Medicare as well
, and other areas of the federalgovernment.
Speaker 3 (29:17):
Yeah, but the numbers here are astronomical.
And the difference in Medicareokay is that Medicare, there
won't be automatic cuts to thebenefits.
We're just going to have to.
We're going to automaticallydraw out of general revenues.
Here there'll be, you know, a20, 25% haircut for seniors who
you know, a third of whomcollect social security.
(29:40):
That's essentially all of theirincome.
And you know it would be a Imean, it would be a disaster.
And assuming you thinkpolitically, it would be a
disaster.
And assuming you thinkpolitically it would be a
disaster that they can't solve,they won't allow to happen.
Let's assume that I could justlet it expire, right?
You're talking about a cost atthat point that's estimated
(30:04):
currently about $400 billiondollars a year.
That's a huge number it is.
Speaker 1 (30:14):
It is a huge, it is a huge number.
It is a very, very large number.
Uh, and it's a they don't well,let's put it this way they.
There are a number of solutionsfor it and you see a lot of
solutions on the table.
We've had some folks put somesolutions on the table that were
basically benefit cuts, andwe've had some revenue raisers
(30:35):
and, in particular, someproposals to raise taxes on
upper-income people.
There's also been someproposals to rob Peter to pay
Paul.
Speaker 3 (30:48):
Oh, the magic coin proposal.
Speaker 1 (30:50):
Yeah, exactly, basically eliminate or reduce
the tax incentive for retirementsavings and then use that
revenue to to pay for it.
Well, the magic coin one is isa separate and unique proposal,
but the one that to reduce oreliminate the tax incentive for
private sector retirementsavings and use that revenue
(31:12):
then to pay for Social Security.
And there's been somebipartisan support for that, at
least outside of Congress, ofcourse that.
Speaker 3 (31:22):
Yeah, that would just fix Social Security while
destroying the retirementsavings of the middle class.
Speaker 1 (31:27):
It would, and you're using funny money, right.
Right, you know, brian, the wayCongress scores retirement
savings is based on kind of a10-year projection which doesn't
take into consideration that alot of the money will come out
of the system and be taxed, andso you're not really raising the
revenue you think you'reraising anyway.
(31:47):
100% correct.
Speaker 3 (31:52):
Yeah, no, it's a.
I mean, I think this, I thinkit's probably one of the biggest
concerns from you know, agovernment policy standpoint is
the.
It's really a process, it's apolitical process problem that
is precluding a discussion aboutshoring up the funding for what
(32:17):
is, I'd say quite clearly, thenumber one most important
government program.
Speaker 1 (32:25):
It highlights some of the failings of our political
system more generally.
No-transcript.
Speaker 3 (32:54):
Yeah, it's pretty scary stuff and you know,
importantly, Social Security isfoundational to our entire
system.
I mean, it works hand in handwith the private system hand in
hand with the private system andyou know, for lower income,
people does a fairly decent jobof producing replacement rates,
(33:20):
and so you know you need both401ks and the social security
system working together, Right.
So, defined benefit plans therewas a hearing by Senator
Sanders committee, the helpcommittee that you were
associated with previously.
Democrats control the Senate,so he was the.
He's the chairman, and they'revery interested in trying to
(33:45):
revive defined benefit plans.
As I know, you probably talkedto the committee and the
committee staff about this, aswe have.
What's your take on thatexercise?
Do you think it's just a fool'serrand or do you think there's
something to this?
Speaker 1 (34:01):
I don't think it's a fool's errand.
I think that in their currentiteration, db plans have not
fared well with large employers.
The employers that have them,they run them well.
I think they're well-managed,they're well-funded systemically
.
At this point there's a lot ofthings that are happening right,
but what's obviously a problemis that most of them are closed,
(34:23):
at least in the private sector,and that we don't see a lot of
companies starting new plansoutside of kind of the smaller
small market.
Um, that is a an issue that wecreated through public policy.
We made choices that made itmore difficult, more costly,
(34:43):
more burdensome, morechallenging for employers to
manage the plans, both in termsof the risk but also just their
investment risk and themortality risk, normal pension
risk, but also just theirgeneral liability with respect
to the pension and how theycarry it on their books.
Those are all affirmativepolicy choices we made and they
didn't have to be made that way.
(35:04):
Other countries didn't makethem in the same way and we
could make choices to dosomething different.
I don't think it's a fool'serrand at all to think about
options for reinvigorating theDB system.
There are some simple things wecan do.
There's some more complexsystemic reforms we could take
on, but it's worth at least adiscussion with it.
(35:26):
And, brian, you may remember,we tried, congress tried with
the Pension Protection Act ofthe DBK, if you remember.
And I remember that's a.
that's a good example whereCongress did some heavy lifting
to come up with kind of a middleof the road solution that used
(35:47):
a DB component and a DCcomponent, only to have the
regulators never implement it,and that's been a problem across
the board.
We need kind of more strategeryaround our defined benefit plan
policy.
Speaker 3 (36:04):
Well, I also think that, although DBK is kind of a
was inventive and there'sactually some talk about kind of
doing a version of that withcash balance plans where the
match a 401k match would go intoa cash balance plan, maybe in
secure 3.0.
The fundamental problems withDB plans that you were raising
(36:31):
in the conversation just aminute ago were really never
addressed in the PensionProtection Act benefit plans.
Concerns that employers haveabout premiums to the PBGC even
(36:53):
though you know we've done somecuts to premiums, sometimes
we've increased premiums.
Concerns about, you know, thefunding rules.
Although we've attempted to dosome things to make them better,
there's still fundamentalchallenges that I think you're
(37:14):
right need to be addressed if wereally want to reform the
system in a real way.
Do you think that Secure 3.0might take a stronger crack at
that?
Speaker 1 (37:27):
I think it might.
There's a lot of legislativefatigue around retirement.
We've had a number of bills inquick succession, right, we had
Secure 1.0 in 2019.
We had Secure 2.0 in 2022.
And then we had the ARPA, theAmerican Rescue Plan Act, and a
couple other bills in there thathad funding rule changes and
(37:49):
other systemic reforms, and sowe've just had a lot of
legislation on retirement in apretty short amount of time.
It's going to take a while forthe Hill to cobble together all
the good ideas.
But, I think DB plan reform isdefinitely on the table.
There are a number of memberswho are interested in it and
there are a lot of simple thingsthey could do.
(38:10):
Reducing single employer PBGCpremiums is an easy fix.
Those could come downsignificantly without hurting
PBGC in any way, shape or form.
Speaker 3 (38:22):
Michael, thank you so much for your time today.
There's a lot going on in the.
You know, when you stumbledacross ERISA and decided that
you wanted to focus on this area, I don't think any one of us
who stumbled across ERISA couldpossibly imagine how dynamic the
(38:44):
subject is.
Speaker 1 (38:46):
Yeah, it's an incredible area.
I encourage younger people toget involved in it.
It's probably one of the moreinteresting places you can work
and affect real policy change.
Thanks, Michael.
Thanks for having me.
I appreciate it.
Thank you.
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