December 2, 2024 • 45 mins
Oh, what an election it was. It determined not only the presidency but control of both houses of Congress. Now that it’s settled, people rightly wonder what it means for retirement planning and saving policy.
“It was kind of a big deal,” American Retirement Association CEO Brian Graff understatedly said. “And given the fact that it’s a big deal. We need a big deal to help us sort out what happened and what it means.”
That “big deal” is none other than Preston Rutledge, former head of the Employee Benefits Security Administration (EBSA). The Founder and Principal of Rutledge Policy Group joined Graff to discuss the fate of the fiduciary rule, Social Security’s future, and much, much more.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
My suspicion is most of the folks coming in in the
new administration are going tobe fairly confident that the
court is going to toss the ruleout, especially because now it's
going to be reviewed in apost-Chevron environment.
Speaker 2 (00:15):
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
(00:35):
secure retirement for millionsof Americans, you're in the
right place.
Welcome to DC Pension Geeks.
Speaker 3 (00:41):
Welcome everybody to another episode of DC Pension
Geeks.
Welcome everybody to anotherepisode of DC Pension Geeks.
Since we last spoke or I guesssince the last time you heard
from me we had an election, andnot just any election, but a
presidential election, adetermination of who would
control the House ofRepresentatives and the Senate
(01:05):
Kind of a big deal.
And given the fact that it's abig deal, we kind of need a big
deal to help us sort out whathappened and what it means for
retirement, the retirement planuniverse.
So that big deal that I'mtalking about is Preston, none
other than the Honorable PrestonRutledge, former Assistant
(01:27):
Secretary for Labor for theEmployee Benefit Security
Administration.
Many of you know him in thatcapacity.
He's spoken at many, manyindustry conferences, but also,
as I think I pointed out lasttime that he was on this podcast
he also served for many yearsas the benefits counsel and,
(01:55):
among other responsibilities,for the Senate Finance Committee
Republican staff staff.
So Preston is uniquelyqualified to talk about what the
impact of this election isgoing to have, both from a
legislative standpoint but asalso a regulatory standpoint.
(02:16):
So, preston, thank you forspending some time with us today
.
Speaker 1 (02:22):
Well, thank you for inviting me, Brian.
I'm pleased to be here, and Ithink another reason you might
have wanted me on thisparticular podcast was when I
worked on the Senate FinanceCommittee.
We passed the 2017 Tax Cuts andJobs Act.
Speaker 3 (02:38):
That's right, you were a witness.
Speaker 1 (02:40):
Those expiring provisions are the ones that are
front and center, starting 2025.
Those expiring provisions arethe ones that are front and
center, starting 2025.
Speaker 3 (02:45):
Yes, you were a witness to the last time
Republicans were able to employreconciliation in 2017.
So let's start with that.
Can you explain to everyone asbest as someone can, because
it's pretty arcaneparliamentarian stuff?
(03:06):
Um, what does it mean for whenone party controls congress?
Uh, how does it impact thelegislative process and, in
particular, uh, tax legislation?
Speaker 1 (03:17):
well, when, all when, the same party controls house,
senate and the presidency.
It means that if you, if you,can pass a bill through
reconciliation, you know thepresident will sign it.
So it's a live exercise.
What is reconciliation?
Normally, as we know, in theHouse it just takes a majority
(03:37):
to pass a bill on any topic ofany kind.
In the Senate, it requires,when it comes to legislation, it
(04:07):
still requires a 60-votesupermajority.
There's a filibuster.
You cannot pass legislationunless you can get either 51
votes.
Speaker 3 (04:10):
Well, in the case of the presidency being the same
party, it would be 50 votes andthe vice president to break the
tie.
Speaker 1 (04:13):
But there's only one, only a couple of.
Speaker 3 (04:14):
I think you meant to say 60 votes.
What?
Speaker 1 (04:15):
did I say 50.
I'm sorry about that.
Yes, 50 plus the vice presidentto break the tie is the bare
minimum you can use to passlegislation or anything else to
get the you know, get aconfirmation for a cabinet
position or anything.
The relevance of that isthere's a procedure called
budget reconciliation and, yes,it's very arcane.
It's been around for a fewdecades now, and what it allows
(04:38):
the Congress to do is have thebudget committee give
instructions to the variouscommittees, like the Senate
Finance Committee that says youknow, you can spend up to X
without paying for it.
So in 2017, the committee hadthe authority to go to spend up
to $1.5 trillion to reduce taxes.
(05:00):
An interesting quiz, though,that people forget that there's
four things you can do inreconciliation you can raise
taxes, you can lower taxes.
You can raise, you can increasespending, you can decrease
spending.
That's pretty much it.
You can't do things like raisethe minimum wage or, you know,
(05:22):
start a new, you know a newdepartment or something, or or
change the fiduciary rule.
Change the fiduciary rule, andso that's what you're allowed to
do, and because there's been acouple of cycles now when, when
there's been reconciliation,it's kind of been focused on tax
(05:43):
only when there's beenreconciliation it's kind of been
focused on tax only, somepeople may have forgotten that.
Another way, another thing youcan do in reconciliation is
raise spending and reducespending, and this
administration may be kind ofuniquely interested in reducing
federal spending and looking forways to do that in
reconciliation.
And the reason it takes allthree bodies is it has to pass
(06:03):
the House, it has to pass theSenate and it has to be signed
by the president, and that onlyhappens when it's all Republican
.
That's how it was in 2017 withRepublicans, that's how it was
in 2021 with Democrats.
The American Rescue Plan and infact, I think the wasn't the
Inflation Reduction Act also areconciliation bill.
The Democrats did too.
They did Because you're allowedto do one every fiscal year and
(06:26):
you get two fiscal years perCongress, and that applies to
this Congress.
This Congress will do areconciliation bill very soon,
next year, focused mostly on tax, but when that's all done, they
actually will be able to doanother reconciliation bill, if
they want to, during the 119thCongress before it expires.
There's one really importantthing you cannot do in
(06:50):
reconciliation.
It will absolutely bring thebill down, destroy the bill, and
that is Social Security.
You cannot touch SocialSecurity and that includes the
Social Security payroll taxes,it doesn't matter.
You can't touch Social Securityin reconciliation.
Speaker 3 (07:06):
So let's step back a second, because this is
complicated and you don't learnabout this stuff on Schoolhouse
Rock, although they should havehad the filibuster song.
That would have been awesome.
So just again to reiterate whatPreston was saying normal order
legislation in the Senatesubject to a filibuster.
To clear the filibuster andbring the bill to final vote,
(07:32):
you need 60 votes.
Then, once you've cleared thefilibuster, it's a straight 51
majority to pass legislation.
The problem typically in theSenate, which is designed to
slow things down by the peoplethat created our constitution,
(07:53):
is that it's often very hard toget past the filibuster, because
very rarely does one party havemore than 60 votes, does one
party have more than 60 votes inthe Senate, and that's
certainly not the case in thisinstance.
So reconciliation is one ofthose rare exceptions to the
(08:15):
filibuster rule.
Nominations for Supreme Courtjustices is another rare
exception to the filibuster rule.
Okay, so now that we clarifiedthat, you mentioned something
that's very important, because alot of people don't realize
that reconciliation is atwo-part process.
The first part is you set thetargets and it's not a very long
(08:40):
bill in terms of pages.
It's like a little Excelspreadsheet written into
legislative text and basicallywhat it says, preston is.
Here's the amount of money netthat we're letting you spend on
tax legislation, net being ifyou can contribute to the
(09:05):
deficit this much, you can do itvia a combination of raising
taxes and lowering taxes, butthe net has to be no more than a
particular number.
Is that accurate?
Speaker 1 (09:21):
Correct, and this bill, this instruction, these
targets, so to speak, are issuedby the budget committees, not
the tax writing committees orthe or the appropriations
committees.
It's so for a very short time.
At the beginning of this year,the chairman of the two budget
committees are going to be very,very well-known people.
Speaker 3 (09:40):
Right, and you know, of course this is a very highly
negotiated process between bothhouses of Congress and the White
House is going to be veryinvolved because this is going
to, you know, this is the keysto everything else that you're
going to eventually do.
So last, typically, when we'vedone this over the last several
(10:06):
decades at least, most of thefocus has been on that net
number and essentially we'vedone deficit spending through
the tax code pretty repeatedly,in that they are actually
talking about offsetting taxlegislation with spending
(10:30):
reductions.
Speaker 1 (10:32):
I think that'll be in the mix.
There's one other thing that'sunique they're thinking of
offsetting by raising tariffs.
Tariffs are a tax.
Now, normally, you know, thepresident of the United States
has the unilateral authority toimpose tariffs.
Tariffs are a tax.
Now, normally, you know, thepresident of the United States
has the unilateral authority toimpose tariffs.
And if the president does itlike they normally would, that
wouldn't count quote unquote forCongress's legislation, because
(10:56):
that's like something thepresident can just do.
But if Congress Congress hasthe power to enact a tariff into
legislation and if they decideto do that, they could get
credit for whatever the JointCommittee on Taxation concludes
is the amount of tax to beraised by that tariff over a
(11:16):
10-year period.
That is something I've neverseen in my career, but it can
happen and it might this time.
Speaker 3 (11:24):
Now that's a good point to raise.
Only because there's a processunder the Budget Act, there's
things that are allowed to be inreconciliation and things that
are not, and you mentioned thosebefore.
It's not.
(11:45):
You know, like most laws,there's some detail, but it's
not a lot of detail.
So there's been a lot of yearsand years and years of
interpretations about whatconstitutes something that
affects revenue and what doesn't.
Right and, by the way, thetariff question isn't absolutely
crystal clear because of thefact that the president has the
(12:09):
authority on their on his own,the.
There's a person and her name isElizabeth McGovern and she's
both of us know her and she's abrilliant lawyer of us know her
and she's a brilliant lawyer andshe is the parliamentarian been
in that role for a long timeand she is the judge, in effect,
(12:30):
of what the parliamentarian ofthe Senate.
Speaker 1 (12:33):
The House has their own parliamentarian, but the
parliamentarian of the Senate iswhere the action is, because of
parliamentarian's ability todecide.
Even if you're, even if youpresent an amendment, even if
you include a provision thatamends the internal revenue code
, it's not automatically, itcan't.
(12:53):
It'll start in the bill, but achallenge can be made in front
of the parliamentarian and willbe made by the opposing party.
If it looks like it's more of apolicy shift party, if it looks
like it's more of a policyshift than a revenue raiser or a
revenue expenditure and that isnot a bright line that is a
parliamentarian decision and youmentioned decades of precedent.
(13:15):
They try to follow theirprecedent.
The basic question that has tobe asked and answered is is the
provision predominantlybudgetary or a policy?
If it's budgetary, you can doit, meaning increase or decrease
taxes.
If it's primarily policy, youwon't be able to do it.
And one of the biggestindicators of whether it's
(13:36):
primarily budgetary is what doesJCT?
How do they score it?
Do they say it raises $500gazillion?
Well, that's almost certainlygoing to be budgetary, but if it
raises only a really smallamount, it might look like more
of a policy shift without muchof a tax effect, and she might
wash that out.
Speaker 3 (13:54):
And so, behind the scenes, this is a big part of
the process and a big deal.
It's a big part of the process,a big deal, because these bills
will have hundreds ofprovisions in them and, if I
recall correctly, part of yourresponsibility at the Finance
Committee was to be the advocatefor these in front of the
(14:18):
parliamentarian for manyprovisions.
Is that right?
Speaker 1 (14:22):
That's right and the way that works.
Again, it's all behind thescenes with staff, but think of
a think of a court of appealswith five judges, a chief judge
that's.
That's Elizabeth, elizabeth.
Speaker 3 (14:38):
McGovern.
Elizabeth the definitely notElizabeth Warren.
Speaker 1 (14:54):
Right, I started to Sorry about that.
Mcdonough, not McGovern, thankyou.
And she has four otherDefinitely not Elizabeth Warren
on one side and all the Democratstaffers on the other.
Everybody that's there that'sknowledgeable about a particular
provision and we have a hearingabout it.
I mean, there's even a nicknamefor it.
It's like it's called abirdbath named after Senator
Robert Byrd, who drafted all ofthese things, and he said you
(15:15):
can put it in, but it can betaken out if it doesn't meet
these conditions, meaning themostly budgetary, not mostly
policy.
And so you have these debatesand you go toe-to-toe with one
of your colleagues on thefinance committee on the other
side With me.
It was almost always Mike Evans, who's now left the Hill and
(15:35):
has gone to K&L Gates.
He's a master parliamentarianadvocate.
He and I went toe-to-toe in2017, probably 25 times on
different over a course of weeks.
We get this thing done and thenthe parliamentarian will say
thank you for your input.
Very much like when you'resubmitting briefs and oral
arguments to a judge.
Parliamentarian goes back andthen A few days, maybe a day
(15:58):
later, maybe two days laterusually isn't very long An email
gets sent out to the staffdirectors of the two committees
and it says here are thedecisions.
This stays in, this goes out, itjust goes down.
It gives a little bit ofexplanation, but not a ton, and
you figure out.
And that's when you learnwhether you've won or lost.
I almost didn't want to go here, but I'll tell you.
(16:22):
The rules are so strict that ifone side wanted to be petty
about it and I say that becausewe and the Republican staff have
a table of contents, because atable of contents doesn't affect
the budget, and she sits thereand I know she thinks it's
(16:54):
nonsense, but she has to agreebecause it's correct and she
says you're right, table ofcontents comes out.
If you've ever wondered whythere's no table of contents in
these massive tax bills, it'skind of sad.
I kind of wish people could growup just a little bit.
I mean, for example, or thetitle of the bill, or the title
(17:17):
of the bill so, uh, so steppingback from you know, and that
stuff and that's kind of the youknow important behind the
scenes stuff that's going tohappen, this process.
Speaker 3 (17:29):
What really is going to matter here is this what's
that, that top line?
What's that top line, that netnumber, correct?
Uh, because the bigger that netnumber is or you know, it
really obviously will depend onthe degree to which their
spending reductions are actuallyreal and meaningful and are
(17:52):
helping to reduce the cost ofthe bill embedded in there.
That's going to be money thatthey have to raise by increasing
taxes to offset how muchthey're going to be spending on
taxes.
Speaker 1 (18:10):
Correct.
Speaker 3 (18:14):
And that's where obviously the concerns for us
lie, because the more that theyhave to raise from the tax code,
the higher the risk to theretirement system, because
historically, for better orworse, we have been used as a
piggy bank to pay for otherstuff, the most recent example
(18:35):
being the Rothification proposalin 2016?
.
Speaker 1 (18:42):
Let me say that, and just to illustrate, we've read a
lot about how merely extendingthe TCJA individual provisions
will be some $4.5 trillion, $4.6.
Yeah, and set aside the otherproposals which will cost money.
We know the president's talkedabout no tax on tips, no tax on
(19:03):
overtime.
Speaker 2 (19:04):
No tax on social security benefits.
Speaker 1 (19:06):
Yes that, but that's raising.
I'm sorry, you're right thatcutting those.
So even I think there's acouple more in there that were
very popular and I do believehe's serious.
Those will have to be stackedup too.
So let's just say, let's say,the whole world really was just
the 4.6 trillion.
If the budget committee gavethe same instruction as they did
(19:27):
in 2017, that was a $1.5trillion instruction you would
need to raise.
My math is quick here 3.1trillion.
Speaker 3 (19:37):
That's correct.
Speaker 1 (19:38):
Yes, but let's.
So maybe it's going to be morethis time It'll be, maybe it'll
be 2.6 instruction and you haveto raise 2 trillion still a lot
of money.
Speaker 3 (19:46):
Well, but remember now this time some of that 2
trillion may come from spendingreductions.
Speaker 1 (19:53):
Correct, correct, correct, but setting that.
Speaker 3 (19:56):
This weekend, the department of the currently
pretend Department ofGovernmental Efficiency.
I say pretend, I don't want tooffend anybody, but it doesn't
exist yet.
It's a concept that onlyCongress can create a department
.
But they have this list of out,squeeze and leave alone, I
(20:17):
think, of the three categories,and there's a whole bunch of
departments that are out,including not only the
Department of Education but theVEX.
I guess you can't say tweetanymore, whatever they call.
A message on X had theDepartment of Labor going out.
So you know, I don't thinkpeople, at least like me, I
(20:41):
don't think you either thinkthat's not very realistic.
But you know who knows whatthey'll be able to come up with
in terms of spending reductions,but I doubt it's going to be
$4.6 trillion.
Speaker 1 (20:56):
Yes, no-transcript that.
(21:29):
And he wrote something to theeffect of I'm not sure we need
this department and I want thenext administration to take a
second look at this and see ifwe really need it.
I thought, imagine, Well, thatdidn't happen.
A hundred plus years later,yeah, If President Taft was
(21:51):
right, who knows, maybe I'veexited on to something.
Sorry I joke, but who knows, itmight not be.
Speaker 3 (22:00):
Bottom line is there will be some spending reductions
.
How much is obviouslyspeculative at this point.
So whatever that net number is,if it's bigger then obviously
they have to raise less in tax.
Speaker 1 (22:19):
So, to help keep the podcast from going totally off
the rails, let's just maybe weshould confine the rest of the
time to talking about the corepiece of okay, they're going to
rate, they want to reduce taxes,so which taxes are possibly on
the chopping block to be raised?
And we are worried in theretirement industry that we look
like a piggy bank and we haveto be vigilant.
Uh, I'd like to give you acouple of observations of mine
(22:41):
that go back to 2016, the yearbefore the 2017 bill, secure Act
, which passed the Senate in2016.
People think of the Secure Actas passing in 2019.
Well, it did, but under anearlier name and virtually
indistinguishable from the finalbill passed out of the Senate
(23:04):
in 2016,.
It had some pay-fors to pay forSECURE, to pay for the SECURE
Act, and there was a bit of awhopper in there.
It was called the Stretch IRAand it raised $15.7 billion.
Now, that's serious money for atax reform bill that pay for
was laying around and available.
When we worked on the 2017 taxbill, there wasn't even a hint
(23:30):
that we were going to touch that.
We knew that was for the SECUREAct.
We knew that retirementlegislation was bipartisan.
It traveled on its own path andeven though that money was
there for the taking, there wasnever even a hint.
Now there was one thing thathappened that I think you
referred to in a moment ago In2016,.
Sort of out of the blue came aproposal to turn all defined
(23:51):
contribution deferrals into Roth, the Rothification of
everything.
That blew up in faces in a waythat I still feel like the idea
of all roth is is pretty muchdead.
There's been more roth umtweaks.
There have been more rothrazors.
In fact, there was a reallylarge one in for secure 2.0, but
(24:14):
I feel like it's more of likeroth around the edges, not so
much going core Roth.
Speaker 3 (24:25):
Another thing that gives me some.
Well.
When you say Roth around theedges, do you think the backdoor
Roth remember the backdoor Rothproposal that was in Build Back
Better.
Do you think Republicans mightgrab that?
Speaker 1 (24:37):
You know that's a possibility, but let me tell you
the thing that was, I thought,misguided about putting those
sorts of things into Build BackBetter.
Build Back Better was theDemocrats the.
Democrat only bill and when youput a retirement provision in
one of those, it kind of getsI'll call it tainted.
I mean the Republicans think,well heck, you know you
(25:00):
shouldn't do that to us andwe're not going to let that
happen.
And they have long memories.
I was a little worried.
Remember Build Back Better tookplace in the summer of was it
2021 and 2022?
I'm trying to remember theexact year now, but the Secure
2.0 had already been marked upin the Ways and Means Committee.
The Secure 2.0 was much largerin terms of provisions than even
(25:26):
secure and there were somewhopper Roth pay-fors in there
which I thought sort of suckedup the oxygen for the future.
One was the all Roth forcatch-ups, for catch-up
contributions for folks makingmore than $145,000.
That raised $22 billion.
And then the matching Roth,where an employer makes a match,
(25:48):
it's the employer's, theemployer option.
They can make the employermatch Roth.
That raised $12 billion.
I mean we're looking at $34billion, $34.6 billion in
raisers that were already hadbeen marked up and approved by
the Ways and Means Committee anda bipartisan markup of Secure
2.0.
That was sitting there and itand despite the, the, the,
(26:12):
despite the Build Back Betterpressure and the pressure on
Build Back Better to pass it onthe Democrats and despite the
fact that they did put someother provisions from the
retirement world into Build BackBetter, they never touched the
Secure 2.0 or even tried totouch those Secure 2.0 razors
and use it for anything otherthan Secure 2.0.
Speaker 3 (26:31):
I think you're raising a really important point
because we I know you and I fora very long time, others who've
been working in this area for along time have really striven
to keep retirement policybipartisan, bipartisan, yes, and
you know, and, and frankly,we've been pretty darn
successful at keeping it thatway for probably since the mid
(26:54):
1990s and which is a long time,as my kids say.
So I think that has that helpsour cause now, because there's a
little bit of an aura aroundretirement stuff that and both
(27:15):
sides sort of like, oh, I'm notsupposed to do that, because
this is supposed to be the onebipartisan thing that I actually
work on which helps us.
As you're kind of alluding toit, it's almost like you call it
a taint, but the fact that if Iwould go down this road it
would poison this bipartisanatmosphere, again being the one
(27:39):
subject area in the tax worldthat people seem to manage to
keep bipartisan.
So I think one of the reasonsit's important because I think
some of our listeners shouldknow this but they don't we've
already started working onSecure 3.0.
And it's already being done ona bipartisan basis with both
sides sort of continue this aurathat, hey, you're not supposed
(28:23):
to do retirement stuff.
That's supposed to be for thebipartisan bill.
Speaker 1 (28:30):
I think that's true and, if history holds, that's
how it will occur.
I mean, we have to stayvigilant.
Obviously I'm positive that theSenate staff on the Finance
Committee and the Ways and Meansthey've got all these.
They know about these billsthat are designed to go into
(28:52):
Secure 3.0, whenever that is,and it won't be until after tax
reform.
But they know those provisionsare there.
They have a collection ofpay-fors, some of which have
been around sitting on shelveseven since I was there, that
have never been used.
They know about those.
I know they're holding them forSecure 3.0.
That's what they want to doright now.
Speaker 3 (29:16):
Is it?
Speaker 2 (29:16):
possible.
Speaker 3 (29:18):
But let me just interject about the vigilance
part, because I agree with you.
Committee staff are great.
You were one of them, I was oneof them, we're great, but we
only have so much power.
And ultimately, the thing abouttaxageddon or taxarmageddon,
whatever they're calling thisthing.
(29:39):
You're not allowed to call ittax reform, by the way, when
you've got the entire tax codein play, principles are involved
, the actual members, andthey're making choices between
what's the state's tax exclusiongoing to look like, what's the
top individual rate going to be,what's the top corporate rate
going to be, what aboutinternational tax changes?
(30:03):
What about small business taxincentives?
Blah, blah, blah.
And all of these things havehuge constituencies behind us,
and so at some point, push comesto the shove, committee staff
can say whatever they want.
If they need money, they'regoing to be looking everywhere
for money, and that's where therisk for us is.
Speaker 1 (30:24):
And let me put it this way, you're right, and
that's where the vigilance comesin.
I feel comfortable.
The staff is on our side onthis.
However, if there comes a pointwhen the representatives and
the senators change their minds,they're the ones who have the
election certificates and theyand the staffers will have no
(30:44):
choice but to cough up therazors, open up the drawers,
pull out the razors.
You know, they it.
They are not the ultimatedecision makers, and they know
it.
It isn't.
They really do know.
When I was a staffer, we knewthe boss was the senator, it was
Senator Hatch.
It wasn't, it wasn't our staffdirector at the end of the day,
or it certainly wasn't ourselves, but we had everything ready
(31:05):
and we, uh, we, we, we, we triedto keep and we were successful
for all the years I was there inkeeping um, um.
There's probably only oneexample, the one that comes to
mind most frequently, of aretirement space razor that has
been used outside of a pureretirement bill, and it's that
funky, odd razor involvingdefined benefit plans called
(31:28):
pension smoothing.
They used a little bit of thepension smoothing in the
American Rescue Plan.
Didn't raise any eyebrows,defined benefit plan stuff, for
some reason.
Yeah, well, a lot of that isbecause the industry it's very
time sensitive and the industrywants it yeah, yeah, if the, if
the economy is in such a statewith interest rates and whatever
(31:49):
, that that defined benefitfunding is in a crisis, that
kind of overcomes everything andthat's how we got actually
that's how we got pensionsmoothing in the first place.
It was it.
It was added to the to thehighway bill called Map 21 and
Map 20, map 2012.
It was it was the summer of2012 that we created pension
(32:09):
smoothing when I was there, andthat was to actually to help pay
for the highway bill.
I think I even joked on apresentation recently at the
ERISA 50th anniversary.
I said we used we use pinch andsmoothing to smooth over,
smooth over, smooth over thepotholes all over the country
with the highway bill.
So that was different.
That seems to have gotten itsown, its own little yeah.
Speaker 3 (32:32):
I think, I think the risk is on things.
So people, I mean, are theygoing to get rid of the 401k?
No, um, you know, 401ks arevery popular, as we'd like to
say, the only code section theAmerican people actually know.
Um, but again, if push comes toshove, I think the risks are
(32:55):
maybe a little bit more rougharound the edges, as you
describe it.
Maybe, um, freezing the COLAlimit for a few years, maybe the
comp limit, haircuts?
Speaker 1 (33:07):
Now haircuts can add up.
Speaker 3 (33:09):
Haircuts can add up to harm.
I don't want to minimize that,and so that's where I think the
vigilance is going to beparticularly important.
Speaker 1 (33:19):
And the knock-on risk beyond that is, if they do get
used in 2025, then they're notavailable to help us pass CQ 3.0
.
That's right.
Speaker 3 (33:30):
All right, let's switch gears.
It's going to keep us superbusy, obviously, but down the
street Department of Labor, notvery far down the street,
assuming that it's still inplace.
The questions come up whathappens to the regulatory agenda
(33:53):
there?
And let's start with the everfamous soap opera long,
longstanding drama, regulatorydrama, the fiduciary rule.
Speaker 1 (34:07):
I believe the fiduciary rule will be ignored
for the time being because it'stied up in court.
There's been a stay, the ruleshave been stayed.
The other one, I think, is theESG rule is also being reviewed
in court.
I would anticipate thedepartment will have other
(34:29):
things on their mind that theyneed to do through regulatory
action and they'll wait and seehow the fiduciary rule turns out
in court.
In fact, my suspicion is mostof the folks coming in in the
new administration are going tobe fairly confident that the
court is going to toss the ruleout, especially because now it's
(34:51):
going to be reviewed in a postChevron environment.
Speaker 3 (34:55):
Much like what happened the first time around.
When the Trump administrationcame in, they didn't defend the
rule anymore and the courtvacated it.
Speaker 1 (35:04):
Right, and I was there when the ruling came down
in March of 2018.
The ruling came down, butthere's a couple of other things
.
First off, at a global level,the first thing that will
absolutely happen because ithappens every time will be a
directive that, whatever rulingprojects you're working on, put
a freeze on them until we getpeople in there to look them
(35:25):
over and decide whether we wantto proceed or not.
So that would be something inthe pre-rule stage.
That would be something in theproposed rule stage that's out
for comment.
They're not going to let youfinalize a rule that, even if
it's out for comment, they'regoing to the comment period will
probably, but the commentperiod can come to a close.
They're not going to let youfinalize.
So let's.
I think there's two examplesfor me that stick out of things
(35:49):
that will not happen, and it'snot a massively long list.
One is it's in the pre-rulestage.
One was got a lot of attentionthis year earlier was something
called pension risk transfer.
Congress in Secure 2.0 told theagency to revisit it.
They thought maybe the 1995guidance that governs that area
(36:10):
is out of date.
The DOL decided they studied it.
They decided they weren't goingto change anything for now, but
they were going to still keeplooking at the issues that need
to be addressed and then thelong list of issues in their
report.
Basically they they probably atsome point would um, if it was
a second Biden administration,um, or a Harris administration,
(36:31):
they probably would have comeback to that and decided to redo
it, I would think, update it.
I think that's that's probablydead.
I don't see this administrationpulling up PRT the other one
that's in process and I think wemay see a notice of proposed
rulemaking before January 20.
It's kind of in the weeds.
It was mentioned at your recentconference in Orlando called
(36:55):
sort of reworking, the 5,500,the quote improvement and I know
that it's probably puttingpeople to sleep to mention the
5,500, but there's a schedule inthere called Schedule H, where
you have to list the plan'sinvestments and they want to
take that Schedule H and make itmuch more detailed, much more
(37:18):
drilled down, much more.
You know where they want theinvestment information to be
much more mindable and much moredetailed.
It's kind of viewed as well.
First off it's going to mean alot more detailed information
going into the hands of thegovernment and that makes people
nervous right out of the box,right out of the box.
(37:41):
It's also there's a suspicionthat it might be a stealth
attack on plans that invest inprivate equity and private
credit.
My sense is that willautomatically get stopped at the
NPRM stage if the NPRM ispublished until it's reviewed,
and my suspicion is, if it'sallowed to go forward, it will
go forward.
Probably in a less intrusivefashion, would be my suspicion.
(38:04):
Those are two that come to mindand that's not a long list.
There's another thing thathappens with, by the way, on the
health side and I know this isall about pensions, but employee
benefits securityadministration spends at least
half of its time on health.
I think the things they'reworking on in health are a lot
more likely to be continued atsome point by the administration
(38:25):
the things involving mentalhealth, parity, price
transparency, health, you know,health, provider, doctor charges
, hospital charges, pricetransparency, um, um, the, um,
um, the, the, the process bywhich doctors can challenge how
much they're, they're, they'rereimbursed by by providers and
(38:46):
hospitals.
I think there's a lot of, a lotof um, sensitive, a lot of um,
uh, a lot of agreement in thatarea.
One of the biggest things theyworked on when I was there was
trying to make um, medical costsand surgery prices more
transparent.
So those might stay.
And there's one that an old rule, an old nugget, that they might
actually revive.
It's known as the AssociationHealth Plan rule.
(39:08):
It was passed and it wasenacted in 2018.
It was struck down by thecourts in early 2019.
But in the District of ColumbiaDistrict Court, the District of
Columbia Circuit heard oralarguments on why that was a bad
decision.
The Justice Department wantedthe judge to be reversed.
(39:28):
I think the AG from New Yorkwas in favor of striking it down
but the DC Circuit sat on thatcase and never decided it.
(39:49):
And then, and then, when theBiden administration came in
newly in 2021, they asked thecourt to just put a pause, not
to decide it, that they weregoing to revisit it.
And what they did was theyultimately they being the DOL
published the original rule, theold rule, again.
So we're striking it.
We're just going to go back tothe old rules.
So that's sitting there and Idon't believe anybody in a new
Trump administration is going tofeel like that decision to
strike that AHP rule was correct.
(40:10):
And there was after that anassociation retirement plan rule
based on the same logic.
That was not even challenged,much less vacated.
So we might see that one comeback and it fits perfectly with
the goals of this administrationcoming in to give smaller
(40:30):
businesses more options to findACA-compliant health plans at
lower prices by banding togetherin larger groups.
But that's way too far in theweeds.
Speaker 3 (40:39):
There's another, by the way.
One more thing, preston, though, that you didn't mention there
is a provision in Secure 2.0 onelectronic disclosure.
Well, that was a rule thatright.
Speaker 1 (40:51):
In the last administration we got the
retirement regulations done.
The last one we got done wasthe electronic delivery.
And then Secure 2.0 carved thatback a bit statutorily and said
you had to put out at least youhad to deliver at least one
401k statement per year in paper.
Speaker 3 (41:11):
But also that would have opened I think there was
some.
They did an RFI at thedepartment that would suggest
that they were going to revisitthe rule.
That's probably not going tohappen now, right.
Speaker 1 (41:23):
I think that would not happen now.
I agree.
But to roll back the one paperstatement, if you think it's
that big of a deal that wouldtake legislation, I'm not sure
that's a big enough issue to getmembers of Congress you know
legislating.
Speaker 3 (41:38):
No, they passed on a bipartisan basis.
Yeah, it did, it did.
Speaker 1 (41:43):
Then don't forget our old nugget, the Congressional
Review Act During the first fewmonths of the Congress.
This is another obscure lawthat is designed to stop
Congress from I'm sorry, fromstopping an outgoing
administration from promulgatinga so-called midnight regulation
(42:03):
right before they leave theoffice, and it gives Congress
the authority and it doesn'trequire and the filibuster here
again doesn't apply.
Congress can pass what's calleda resolution of disapproval of
a regulation that's enacted toolate in the previous Congress,
and if the president signs it,that regulation is not only
wiped off the books, the agencyis banned from ever writing a
(42:28):
substantially similar regulation.
Now, we to this day don't knowwhat substantially similar means
, but it was used once by thefirst Bush administration.
It was used, I think, 14 timesin 2017.
And I was involved in two ofthose involving EBSA regulations
that were passed late.
In fact, one of them passed onJanuary 16 of 2021, right before
(42:51):
the inauguration Will.
Are there any regulations fromthe DOL that are going to be
finalized late enough in thispresidential term to be eligible
for CRA?
I'll be honest, I'm not surethere are.
They seem to have gotten theirregulations done earlier this
(43:12):
time.
Yes, there are a couple thatare very controversial, but
they're only going to be able togo back so far, maybe six
months or so, and I think prettymuch DOL got their regulations
done.
I think April was one of theones I saw that came out.
That was rather controversial.
I don't think they're going tobe able to reach all the way
back to April of 2024 to pulldown a reg.
Speaker 3 (43:36):
Well, people are describing this as a change
election, and our world hasdefinitely changed in a pretty
significant way.
So, preston, we could probablytalk for hours.
This is just sort of the highlevel highlights discussion.
Really appreciate your timespending with us today to give
(43:58):
folks a taste of what's to come.
Speaker 1 (44:00):
And I would like to compliment our audience, because
you must be pension geeks tofeel like this is a high level
discussion.
Let's be very knowledgeable,because most people would have
no idea what we're talking about.
Yeah, didn't let it, brian,come on.
Speaker 3 (44:15):
This is the pension geeks podcast.
So, yes, there is aprerequisite of knowledge that's
required to listen, or at leastthere should be.
All right, my friend.
Thank you again, preston, andthanks to everybody listening.
You'll be hearing more from ussoon.
Speaker 1 (44:30):
Thank you.
My suspicion is most of the folks coming in in the
new administration are going tobe fairly confident that the
court is going to toss the ruleout, especially because now it's
going to be reviewed in apost-Chevron environment.
Speaker 2 (00:15):
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
(00:35):
secure retirement for millionsof Americans, you're in the
right place.
Welcome to DC Pension Geeks.
Speaker 3 (00:41):
Welcome everybody to another episode of DC Pension
Geeks.
Welcome everybody to anotherepisode of DC Pension Geeks.
Since we last spoke or I guesssince the last time you heard
from me we had an election, andnot just any election, but a
presidential election, adetermination of who would
control the House ofRepresentatives and the Senate
(01:05):
Kind of a big deal.
And given the fact that it's abig deal, we kind of need a big
deal to help us sort out whathappened and what it means for
retirement, the retirement planuniverse.
So that big deal that I'mtalking about is Preston, none
other than the Honorable PrestonRutledge, former Assistant
(01:27):
Secretary for Labor for theEmployee Benefit Security
Administration.
Many of you know him in thatcapacity.
He's spoken at many, manyindustry conferences, but also,
as I think I pointed out lasttime that he was on this podcast
he also served for many yearsas the benefits counsel and,
(01:55):
among other responsibilities,for the Senate Finance Committee
Republican staff staff.
So Preston is uniquelyqualified to talk about what the
impact of this election isgoing to have, both from a
legislative standpoint but asalso a regulatory standpoint.
(02:16):
So, preston, thank you forspending some time with us today
.
Speaker 1 (02:22):
Well, thank you for inviting me, Brian.
I'm pleased to be here, and Ithink another reason you might
have wanted me on thisparticular podcast was when I
worked on the Senate FinanceCommittee.
We passed the 2017 Tax Cuts andJobs Act.
Speaker 3 (02:38):
That's right, you were a witness.
Speaker 1 (02:40):
Those expiring provisions are the ones that are
front and center, starting 2025.
Those expiring provisions arethe ones that are front and
center, starting 2025.
Speaker 3 (02:45):
Yes, you were a witness to the last time
Republicans were able to employreconciliation in 2017.
So let's start with that.
Can you explain to everyone asbest as someone can, because
it's pretty arcaneparliamentarian stuff?
(03:06):
Um, what does it mean for whenone party controls congress?
Uh, how does it impact thelegislative process and, in
particular, uh, tax legislation?
Speaker 1 (03:17):
well, when, all when, the same party controls house,
senate and the presidency.
It means that if you, if you,can pass a bill through
reconciliation, you know thepresident will sign it.
So it's a live exercise.
What is reconciliation?
Normally, as we know, in theHouse it just takes a majority
(03:37):
to pass a bill on any topic ofany kind.
In the Senate, it requires,when it comes to legislation, it
(04:07):
still requires a 60-votesupermajority.
There's a filibuster.
You cannot pass legislationunless you can get either 51
votes.
Speaker 3 (04:10):
Well, in the case of the presidency being the same
party, it would be 50 votes andthe vice president to break the
tie.
Speaker 1 (04:13):
But there's only one, only a couple of.
Speaker 3 (04:14):
I think you meant to say 60 votes.
What?
Speaker 1 (04:15):
did I say 50.
I'm sorry about that.
Yes, 50 plus the vice presidentto break the tie is the bare
minimum you can use to passlegislation or anything else to
get the you know, get aconfirmation for a cabinet
position or anything.
The relevance of that isthere's a procedure called
budget reconciliation and, yes,it's very arcane.
It's been around for a fewdecades now, and what it allows
(04:38):
the Congress to do is have thebudget committee give
instructions to the variouscommittees, like the Senate
Finance Committee that says youknow, you can spend up to X
without paying for it.
So in 2017, the committee hadthe authority to go to spend up
to $1.5 trillion to reduce taxes.
(05:00):
An interesting quiz, though,that people forget that there's
four things you can do inreconciliation you can raise
taxes, you can lower taxes.
You can raise, you can increasespending, you can decrease
spending.
That's pretty much it.
You can't do things like raisethe minimum wage or, you know,
(05:22):
start a new, you know a newdepartment or something, or or
change the fiduciary rule.
Change the fiduciary rule, andso that's what you're allowed to
do, and because there's been acouple of cycles now when, when
there's been reconciliation,it's kind of been focused on tax
(05:43):
only when there's beenreconciliation it's kind of been
focused on tax only, somepeople may have forgotten that.
Another way, another thing youcan do in reconciliation is
raise spending and reducespending, and this
administration may be kind ofuniquely interested in reducing
federal spending and looking forways to do that in
reconciliation.
And the reason it takes allthree bodies is it has to pass
(06:03):
the House, it has to pass theSenate and it has to be signed
by the president, and that onlyhappens when it's all Republican
.
That's how it was in 2017 withRepublicans, that's how it was
in 2021 with Democrats.
The American Rescue Plan and infact, I think the wasn't the
Inflation Reduction Act also areconciliation bill.
The Democrats did too.
They did Because you're allowedto do one every fiscal year and
(06:26):
you get two fiscal years perCongress, and that applies to
this Congress.
This Congress will do areconciliation bill very soon,
next year, focused mostly on tax, but when that's all done, they
actually will be able to doanother reconciliation bill, if
they want to, during the 119thCongress before it expires.
There's one really importantthing you cannot do in
(06:50):
reconciliation.
It will absolutely bring thebill down, destroy the bill, and
that is Social Security.
You cannot touch SocialSecurity and that includes the
Social Security payroll taxes,it doesn't matter.
You can't touch Social Securityin reconciliation.
Speaker 3 (07:06):
So let's step back a second, because this is
complicated and you don't learnabout this stuff on Schoolhouse
Rock, although they should havehad the filibuster song.
That would have been awesome.
So just again to reiterate whatPreston was saying normal order
legislation in the Senatesubject to a filibuster.
To clear the filibuster andbring the bill to final vote,
(07:32):
you need 60 votes.
Then, once you've cleared thefilibuster, it's a straight 51
majority to pass legislation.
The problem typically in theSenate, which is designed to
slow things down by the peoplethat created our constitution,
(07:53):
is that it's often very hard toget past the filibuster, because
very rarely does one party havemore than 60 votes, does one
party have more than 60 votes inthe Senate, and that's
certainly not the case in thisinstance.
So reconciliation is one ofthose rare exceptions to the
(08:15):
filibuster rule.
Nominations for Supreme Courtjustices is another rare
exception to the filibuster rule.
Okay, so now that we clarifiedthat, you mentioned something
that's very important, because alot of people don't realize
that reconciliation is atwo-part process.
The first part is you set thetargets and it's not a very long
(08:40):
bill in terms of pages.
It's like a little Excelspreadsheet written into
legislative text and basicallywhat it says, preston is.
Here's the amount of money netthat we're letting you spend on
tax legislation, net being ifyou can contribute to the
(09:05):
deficit this much, you can do itvia a combination of raising
taxes and lowering taxes, butthe net has to be no more than a
particular number.
Is that accurate?
Speaker 1 (09:21):
Correct, and this bill, this instruction, these
targets, so to speak, are issuedby the budget committees, not
the tax writing committees orthe or the appropriations
committees.
It's so for a very short time.
At the beginning of this year,the chairman of the two budget
committees are going to be very,very well-known people.
Speaker 3 (09:40):
Right, and you know, of course this is a very highly
negotiated process between bothhouses of Congress and the White
House is going to be veryinvolved because this is going
to, you know, this is the keysto everything else that you're
going to eventually do.
So last, typically, when we'vedone this over the last several
(10:06):
decades at least, most of thefocus has been on that net
number and essentially we'vedone deficit spending through
the tax code pretty repeatedly,in that they are actually
talking about offsetting taxlegislation with spending
(10:30):
reductions.
Speaker 1 (10:32):
I think that'll be in the mix.
There's one other thing that'sunique they're thinking of
offsetting by raising tariffs.
Tariffs are a tax.
Now, normally, you know, thepresident of the United States
has the unilateral authority toimpose tariffs.
Tariffs are a tax.
Now, normally, you know, thepresident of the United States
has the unilateral authority toimpose tariffs.
And if the president does itlike they normally would, that
wouldn't count quote unquote forCongress's legislation, because
(10:56):
that's like something thepresident can just do.
But if Congress Congress hasthe power to enact a tariff into
legislation and if they decideto do that, they could get
credit for whatever the JointCommittee on Taxation concludes
is the amount of tax to beraised by that tariff over a
(11:16):
10-year period.
That is something I've neverseen in my career, but it can
happen and it might this time.
Speaker 3 (11:24):
Now that's a good point to raise.
Only because there's a processunder the Budget Act, there's
things that are allowed to be inreconciliation and things that
are not, and you mentioned thosebefore.
It's not.
(11:45):
You know, like most laws,there's some detail, but it's
not a lot of detail.
So there's been a lot of yearsand years and years of
interpretations about whatconstitutes something that
affects revenue and what doesn't.
Right and, by the way, thetariff question isn't absolutely
crystal clear because of thefact that the president has the
(12:09):
authority on their on his own,the.
There's a person and her name isElizabeth McGovern and she's
both of us know her and she's abrilliant lawyer of us know her
and she's a brilliant lawyer andshe is the parliamentarian been
in that role for a long timeand she is the judge, in effect,
(12:30):
of what the parliamentarian ofthe Senate.
Speaker 1 (12:33):
The House has their own parliamentarian, but the
parliamentarian of the Senate iswhere the action is, because of
parliamentarian's ability todecide.
Even if you're, even if youpresent an amendment, even if
you include a provision thatamends the internal revenue code
, it's not automatically, itcan't.
(12:53):
It'll start in the bill, but achallenge can be made in front
of the parliamentarian and willbe made by the opposing party.
If it looks like it's more of apolicy shift party, if it looks
like it's more of a policyshift than a revenue raiser or a
revenue expenditure and that isnot a bright line that is a
parliamentarian decision and youmentioned decades of precedent.
(13:15):
They try to follow theirprecedent.
The basic question that has tobe asked and answered is is the
provision predominantlybudgetary or a policy?
If it's budgetary, you can doit, meaning increase or decrease
taxes.
If it's primarily policy, youwon't be able to do it.
And one of the biggestindicators of whether it's
(13:36):
primarily budgetary is what doesJCT?
How do they score it?
Do they say it raises $500gazillion?
Well, that's almost certainlygoing to be budgetary, but if it
raises only a really smallamount, it might look like more
of a policy shift without muchof a tax effect, and she might
wash that out.
Speaker 3 (13:54):
And so, behind the scenes, this is a big part of
the process and a big deal.
It's a big part of the process,a big deal, because these bills
will have hundreds ofprovisions in them and, if I
recall correctly, part of yourresponsibility at the Finance
Committee was to be the advocatefor these in front of the
(14:18):
parliamentarian for manyprovisions.
Is that right?
Speaker 1 (14:22):
That's right and the way that works.
Again, it's all behind thescenes with staff, but think of
a think of a court of appealswith five judges, a chief judge
that's.
That's Elizabeth, elizabeth.
Speaker 3 (14:38):
McGovern.
Elizabeth the definitely notElizabeth Warren.
Speaker 1 (14:54):
Right, I started to Sorry about that.
Mcdonough, not McGovern, thankyou.
And she has four otherDefinitely not Elizabeth Warren
on one side and all the Democratstaffers on the other.
Everybody that's there that'sknowledgeable about a particular
provision and we have a hearingabout it.
I mean, there's even a nicknamefor it.
It's like it's called abirdbath named after Senator
Robert Byrd, who drafted all ofthese things, and he said you
(15:15):
can put it in, but it can betaken out if it doesn't meet
these conditions, meaning themostly budgetary, not mostly
policy.
And so you have these debatesand you go toe-to-toe with one
of your colleagues on thefinance committee on the other
side With me.
It was almost always Mike Evans, who's now left the Hill and
(15:35):
has gone to K&L Gates.
He's a master parliamentarianadvocate.
He and I went toe-to-toe in2017, probably 25 times on
different over a course of weeks.
We get this thing done and thenthe parliamentarian will say
thank you for your input.
Very much like when you'resubmitting briefs and oral
arguments to a judge.
Parliamentarian goes back andthen A few days, maybe a day
(15:58):
later, maybe two days laterusually isn't very long An email
gets sent out to the staffdirectors of the two committees
and it says here are thedecisions.
This stays in, this goes out, itjust goes down.
It gives a little bit ofexplanation, but not a ton, and
you figure out.
And that's when you learnwhether you've won or lost.
I almost didn't want to go here, but I'll tell you.
(16:22):
The rules are so strict that ifone side wanted to be petty
about it and I say that becausewe and the Republican staff have
a table of contents, because atable of contents doesn't affect
the budget, and she sits thereand I know she thinks it's
(16:54):
nonsense, but she has to agreebecause it's correct and she
says you're right, table ofcontents comes out.
If you've ever wondered whythere's no table of contents in
these massive tax bills, it'skind of sad.
I kind of wish people could growup just a little bit.
I mean, for example, or thetitle of the bill, or the title
(17:17):
of the bill so, uh, so steppingback from you know, and that
stuff and that's kind of the youknow important behind the
scenes stuff that's going tohappen, this process.
Speaker 3 (17:29):
What really is going to matter here is this what's
that, that top line?
What's that top line, that netnumber, correct?
Uh, because the bigger that netnumber is or you know, it
really obviously will depend onthe degree to which their
spending reductions are actuallyreal and meaningful and are
(17:52):
helping to reduce the cost ofthe bill embedded in there.
That's going to be money thatthey have to raise by increasing
taxes to offset how muchthey're going to be spending on
taxes.
Speaker 1 (18:10):
Correct.
Speaker 3 (18:14):
And that's where obviously the concerns for us
lie, because the more that theyhave to raise from the tax code,
the higher the risk to theretirement system, because
historically, for better orworse, we have been used as a
piggy bank to pay for otherstuff, the most recent example
(18:35):
being the Rothification proposalin 2016?
.
Speaker 1 (18:42):
Let me say that, and just to illustrate, we've read a
lot about how merely extendingthe TCJA individual provisions
will be some $4.5 trillion, $4.6.
Yeah, and set aside the otherproposals which will cost money.
We know the president's talkedabout no tax on tips, no tax on
(19:03):
overtime.
Speaker 2 (19:04):
No tax on social security benefits.
Speaker 1 (19:06):
Yes that, but that's raising.
I'm sorry, you're right thatcutting those.
So even I think there's acouple more in there that were
very popular and I do believehe's serious.
Those will have to be stackedup too.
So let's just say, let's say,the whole world really was just
the 4.6 trillion.
If the budget committee gavethe same instruction as they did
(19:27):
in 2017, that was a $1.5trillion instruction you would
need to raise.
My math is quick here 3.1trillion.
Speaker 3 (19:37):
That's correct.
Speaker 1 (19:38):
Yes, but let's.
So maybe it's going to be morethis time It'll be, maybe it'll
be 2.6 instruction and you haveto raise 2 trillion still a lot
of money.
Speaker 3 (19:46):
Well, but remember now this time some of that 2
trillion may come from spendingreductions.
Speaker 1 (19:53):
Correct, correct, correct, but setting that.
Speaker 3 (19:56):
This weekend, the department of the currently
pretend Department ofGovernmental Efficiency.
I say pretend, I don't want tooffend anybody, but it doesn't
exist yet.
It's a concept that onlyCongress can create a department
.
But they have this list of out,squeeze and leave alone, I
(20:17):
think, of the three categories,and there's a whole bunch of
departments that are out,including not only the
Department of Education but theVEX.
I guess you can't say tweetanymore, whatever they call.
A message on X had theDepartment of Labor going out.
So you know, I don't thinkpeople, at least like me, I
(20:41):
don't think you either thinkthat's not very realistic.
But you know who knows whatthey'll be able to come up with
in terms of spending reductions,but I doubt it's going to be
$4.6 trillion.
Speaker 1 (20:56):
Yes, no-transcript that.
(21:29):
And he wrote something to theeffect of I'm not sure we need
this department and I want thenext administration to take a
second look at this and see ifwe really need it.
I thought, imagine, Well, thatdidn't happen.
A hundred plus years later,yeah, If President Taft was
(21:51):
right, who knows, maybe I'veexited on to something.
Sorry I joke, but who knows, itmight not be.
Speaker 3 (22:00):
Bottom line is there will be some spending reductions
.
How much is obviouslyspeculative at this point.
So whatever that net number is,if it's bigger then obviously
they have to raise less in tax.
Speaker 1 (22:19):
So, to help keep the podcast from going totally off
the rails, let's just maybe weshould confine the rest of the
time to talking about the corepiece of okay, they're going to
rate, they want to reduce taxes,so which taxes are possibly on
the chopping block to be raised?
And we are worried in theretirement industry that we look
like a piggy bank and we haveto be vigilant.
Uh, I'd like to give you acouple of observations of mine
(22:41):
that go back to 2016, the yearbefore the 2017 bill, secure Act
, which passed the Senate in2016.
People think of the Secure Actas passing in 2019.
Well, it did, but under anearlier name and virtually
indistinguishable from the finalbill passed out of the Senate
(23:04):
in 2016,.
It had some pay-fors to pay forSECURE, to pay for the SECURE
Act, and there was a bit of awhopper in there.
It was called the Stretch IRAand it raised $15.7 billion.
Now, that's serious money for atax reform bill that pay for
was laying around and available.
When we worked on the 2017 taxbill, there wasn't even a hint
(23:30):
that we were going to touch that.
We knew that was for the SECUREAct.
We knew that retirementlegislation was bipartisan.
It traveled on its own path andeven though that money was
there for the taking, there wasnever even a hint.
Now there was one thing thathappened that I think you
referred to in a moment ago In2016,.
Sort of out of the blue came aproposal to turn all defined
(23:51):
contribution deferrals into Roth, the Rothification of
everything.
That blew up in faces in a waythat I still feel like the idea
of all roth is is pretty muchdead.
There's been more roth umtweaks.
There have been more rothrazors.
In fact, there was a reallylarge one in for secure 2.0, but
(24:14):
I feel like it's more of likeroth around the edges, not so
much going core Roth.
Speaker 3 (24:25):
Another thing that gives me some.
Well.
When you say Roth around theedges, do you think the backdoor
Roth remember the backdoor Rothproposal that was in Build Back
Better.
Do you think Republicans mightgrab that?
Speaker 1 (24:37):
You know that's a possibility, but let me tell you
the thing that was, I thought,misguided about putting those
sorts of things into Build BackBetter.
Build Back Better was theDemocrats the.
Democrat only bill and when youput a retirement provision in
one of those, it kind of getsI'll call it tainted.
I mean the Republicans think,well heck, you know you
(25:00):
shouldn't do that to us andwe're not going to let that
happen.
And they have long memories.
I was a little worried.
Remember Build Back Better tookplace in the summer of was it
2021 and 2022?
I'm trying to remember theexact year now, but the Secure
2.0 had already been marked upin the Ways and Means Committee.
The Secure 2.0 was much largerin terms of provisions than even
(25:26):
secure and there were somewhopper Roth pay-fors in there
which I thought sort of suckedup the oxygen for the future.
One was the all Roth forcatch-ups, for catch-up
contributions for folks makingmore than $145,000.
That raised $22 billion.
And then the matching Roth,where an employer makes a match,
(25:48):
it's the employer's, theemployer option.
They can make the employermatch Roth.
That raised $12 billion.
I mean we're looking at $34billion, $34.6 billion in
raisers that were already hadbeen marked up and approved by
the Ways and Means Committee anda bipartisan markup of Secure
2.0.
That was sitting there and itand despite the, the, the,
(26:12):
despite the Build Back Betterpressure and the pressure on
Build Back Better to pass it onthe Democrats and despite the
fact that they did put someother provisions from the
retirement world into Build BackBetter, they never touched the
Secure 2.0 or even tried totouch those Secure 2.0 razors
and use it for anything otherthan Secure 2.0.
Speaker 3 (26:31):
I think you're raising a really important point
because we I know you and I fora very long time, others who've
been working in this area for along time have really striven
to keep retirement policybipartisan, bipartisan, yes, and
you know, and, and frankly,we've been pretty darn
successful at keeping it thatway for probably since the mid
(26:54):
1990s and which is a long time,as my kids say.
So I think that has that helpsour cause now, because there's a
little bit of an aura aroundretirement stuff that and both
(27:15):
sides sort of like, oh, I'm notsupposed to do that, because
this is supposed to be the onebipartisan thing that I actually
work on which helps us.
As you're kind of alluding toit, it's almost like you call it
a taint, but the fact that if Iwould go down this road it
would poison this bipartisanatmosphere, again being the one
(27:39):
subject area in the tax worldthat people seem to manage to
keep bipartisan.
So I think one of the reasonsit's important because I think
some of our listeners shouldknow this but they don't we've
already started working onSecure 3.0.
And it's already being done ona bipartisan basis with both
sides sort of continue this aurathat, hey, you're not supposed
(28:23):
to do retirement stuff.
That's supposed to be for thebipartisan bill.
Speaker 1 (28:30):
I think that's true and, if history holds, that's
how it will occur.
I mean, we have to stayvigilant.
Obviously I'm positive that theSenate staff on the Finance
Committee and the Ways and Meansthey've got all these.
They know about these billsthat are designed to go into
(28:52):
Secure 3.0, whenever that is,and it won't be until after tax
reform.
But they know those provisionsare there.
They have a collection ofpay-fors, some of which have
been around sitting on shelveseven since I was there, that
have never been used.
They know about those.
I know they're holding them forSecure 3.0.
That's what they want to doright now.
Speaker 3 (29:16):
Is it?
Speaker 2 (29:16):
possible.
Speaker 3 (29:18):
But let me just interject about the vigilance
part, because I agree with you.
Committee staff are great.
You were one of them, I was oneof them, we're great, but we
only have so much power.
And ultimately, the thing abouttaxageddon or taxarmageddon,
whatever they're calling thisthing.
(29:39):
You're not allowed to call ittax reform, by the way, when
you've got the entire tax codein play, principles are involved
, the actual members, andthey're making choices between
what's the state's tax exclusiongoing to look like, what's the
top individual rate going to be,what's the top corporate rate
going to be, what aboutinternational tax changes?
(30:03):
What about small business taxincentives?
Blah, blah, blah.
And all of these things havehuge constituencies behind us,
and so at some point, push comesto the shove, committee staff
can say whatever they want.
If they need money, they'regoing to be looking everywhere
for money, and that's where therisk for us is.
Speaker 1 (30:24):
And let me put it this way, you're right, and
that's where the vigilance comesin.
I feel comfortable.
The staff is on our side onthis.
However, if there comes a pointwhen the representatives and
the senators change their minds,they're the ones who have the
election certificates and theyand the staffers will have no
(30:44):
choice but to cough up therazors, open up the drawers,
pull out the razors.
You know, they it.
They are not the ultimatedecision makers, and they know
it.
It isn't.
They really do know.
When I was a staffer, we knewthe boss was the senator, it was
Senator Hatch.
It wasn't, it wasn't our staffdirector at the end of the day,
or it certainly wasn't ourselves, but we had everything ready
(31:05):
and we, uh, we, we, we, we triedto keep and we were successful
for all the years I was there inkeeping um, um.
There's probably only oneexample, the one that comes to
mind most frequently, of aretirement space razor that has
been used outside of a pureretirement bill, and it's that
funky, odd razor involvingdefined benefit plans called
(31:28):
pension smoothing.
They used a little bit of thepension smoothing in the
American Rescue Plan.
Didn't raise any eyebrows,defined benefit plan stuff, for
some reason.
Yeah, well, a lot of that isbecause the industry it's very
time sensitive and the industrywants it yeah, yeah, if the, if
the economy is in such a statewith interest rates and whatever
(31:49):
, that that defined benefitfunding is in a crisis, that
kind of overcomes everything andthat's how we got actually
that's how we got pensionsmoothing in the first place.
It was it.
It was added to the to thehighway bill called Map 21 and
Map 20, map 2012.
It was it was the summer of2012 that we created pension
(32:09):
smoothing when I was there, andthat was to actually to help pay
for the highway bill.
I think I even joked on apresentation recently at the
ERISA 50th anniversary.
I said we used we use pinch andsmoothing to smooth over,
smooth over, smooth over thepotholes all over the country
with the highway bill.
So that was different.
That seems to have gotten itsown, its own little yeah.
Speaker 3 (32:32):
I think, I think the risk is on things.
So people, I mean, are theygoing to get rid of the 401k?
No, um, you know, 401ks arevery popular, as we'd like to
say, the only code section theAmerican people actually know.
Um, but again, if push comes toshove, I think the risks are
(32:55):
maybe a little bit more rougharound the edges, as you
describe it.
Maybe, um, freezing the COLAlimit for a few years, maybe the
comp limit, haircuts?
Speaker 1 (33:07):
Now haircuts can add up.
Speaker 3 (33:09):
Haircuts can add up to harm.
I don't want to minimize that,and so that's where I think the
vigilance is going to beparticularly important.
Speaker 1 (33:19):
And the knock-on risk beyond that is, if they do get
used in 2025, then they're notavailable to help us pass CQ 3.0
.
That's right.
Speaker 3 (33:30):
All right, let's switch gears.
It's going to keep us superbusy, obviously, but down the
street Department of Labor, notvery far down the street,
assuming that it's still inplace.
The questions come up whathappens to the regulatory agenda
(33:53):
there?
And let's start with the everfamous soap opera long,
longstanding drama, regulatorydrama, the fiduciary rule.
Speaker 1 (34:07):
I believe the fiduciary rule will be ignored
for the time being because it'stied up in court.
There's been a stay, the ruleshave been stayed.
The other one, I think, is theESG rule is also being reviewed
in court.
I would anticipate thedepartment will have other
(34:29):
things on their mind that theyneed to do through regulatory
action and they'll wait and seehow the fiduciary rule turns out
in court.
In fact, my suspicion is mostof the folks coming in in the
new administration are going tobe fairly confident that the
court is going to toss the ruleout, especially because now it's
(34:51):
going to be reviewed in a postChevron environment.
Speaker 3 (34:55):
Much like what happened the first time around.
When the Trump administrationcame in, they didn't defend the
rule anymore and the courtvacated it.
Speaker 1 (35:04):
Right, and I was there when the ruling came down
in March of 2018.
The ruling came down, butthere's a couple of other things
.
First off, at a global level,the first thing that will
absolutely happen because ithappens every time will be a
directive that, whatever rulingprojects you're working on, put
a freeze on them until we getpeople in there to look them
(35:25):
over and decide whether we wantto proceed or not.
So that would be something inthe pre-rule stage.
That would be something in theproposed rule stage that's out
for comment.
They're not going to let youfinalize a rule that, even if
it's out for comment, they'regoing to the comment period will
probably, but the commentperiod can come to a close.
They're not going to let youfinalize.
So let's.
I think there's two examplesfor me that stick out of things
(35:49):
that will not happen, and it'snot a massively long list.
One is it's in the pre-rulestage.
One was got a lot of attentionthis year earlier was something
called pension risk transfer.
Congress in Secure 2.0 told theagency to revisit it.
They thought maybe the 1995guidance that governs that area
(36:10):
is out of date.
The DOL decided they studied it.
They decided they weren't goingto change anything for now, but
they were going to still keeplooking at the issues that need
to be addressed and then thelong list of issues in their
report.
Basically they they probably atsome point would um, if it was
a second Biden administration,um, or a Harris administration,
(36:31):
they probably would have comeback to that and decided to redo
it, I would think, update it.
I think that's that's probablydead.
I don't see this administrationpulling up PRT the other one
that's in process and I think wemay see a notice of proposed
rulemaking before January 20.
It's kind of in the weeds.
It was mentioned at your recentconference in Orlando called
(36:55):
sort of reworking, the 5,500,the quote improvement and I know
that it's probably puttingpeople to sleep to mention the
5,500, but there's a schedule inthere called Schedule H, where
you have to list the plan'sinvestments and they want to
take that Schedule H and make itmuch more detailed, much more
(37:18):
drilled down, much more.
You know where they want theinvestment information to be
much more mindable and much moredetailed.
It's kind of viewed as well.
First off it's going to mean alot more detailed information
going into the hands of thegovernment and that makes people
nervous right out of the box,right out of the box.
(37:41):
It's also there's a suspicionthat it might be a stealth
attack on plans that invest inprivate equity and private
credit.
My sense is that willautomatically get stopped at the
NPRM stage if the NPRM ispublished until it's reviewed,
and my suspicion is, if it'sallowed to go forward, it will
go forward.
Probably in a less intrusivefashion, would be my suspicion.
(38:04):
Those are two that come to mindand that's not a long list.
There's another thing thathappens with, by the way, on the
health side and I know this isall about pensions, but employee
benefits securityadministration spends at least
half of its time on health.
I think the things they'reworking on in health are a lot
more likely to be continued atsome point by the administration
(38:25):
the things involving mentalhealth, parity, price
transparency, health, you know,health, provider, doctor charges
, hospital charges, pricetransparency, um, um, the, um,
um, the, the, the process bywhich doctors can challenge how
much they're, they're, they'rereimbursed by by providers and
(38:46):
hospitals.
I think there's a lot of, a lotof um, sensitive, a lot of um,
uh, a lot of agreement in thatarea.
One of the biggest things theyworked on when I was there was
trying to make um, medical costsand surgery prices more
transparent.
So those might stay.
And there's one that an old rule, an old nugget, that they might
actually revive.
It's known as the AssociationHealth Plan rule.
(39:08):
It was passed and it wasenacted in 2018.
It was struck down by thecourts in early 2019.
But in the District of ColumbiaDistrict Court, the District of
Columbia Circuit heard oralarguments on why that was a bad
decision.
The Justice Department wantedthe judge to be reversed.
(39:28):
I think the AG from New Yorkwas in favor of striking it down
but the DC Circuit sat on thatcase and never decided it.
(39:49):
And then, and then, when theBiden administration came in
newly in 2021, they asked thecourt to just put a pause, not
to decide it, that they weregoing to revisit it.
And what they did was theyultimately they being the DOL
published the original rule, theold rule, again.
So we're striking it.
We're just going to go back tothe old rules.
So that's sitting there and Idon't believe anybody in a new
Trump administration is going tofeel like that decision to
strike that AHP rule was correct.
(40:10):
And there was after that anassociation retirement plan rule
based on the same logic.
That was not even challenged,much less vacated.
So we might see that one comeback and it fits perfectly with
the goals of this administrationcoming in to give smaller
(40:30):
businesses more options to findACA-compliant health plans at
lower prices by banding togetherin larger groups.
But that's way too far in theweeds.
Speaker 3 (40:39):
There's another, by the way.
One more thing, preston, though, that you didn't mention there
is a provision in Secure 2.0 onelectronic disclosure.
Well, that was a rule thatright.
Speaker 1 (40:51):
In the last administration we got the
retirement regulations done.
The last one we got done wasthe electronic delivery.
And then Secure 2.0 carved thatback a bit statutorily and said
you had to put out at least youhad to deliver at least one
401k statement per year in paper.
Speaker 3 (41:11):
But also that would have opened I think there was
some.
They did an RFI at thedepartment that would suggest
that they were going to revisitthe rule.
That's probably not going tohappen now, right.
Speaker 1 (41:23):
I think that would not happen now.
I agree.
But to roll back the one paperstatement, if you think it's
that big of a deal that wouldtake legislation, I'm not sure
that's a big enough issue to getmembers of Congress you know
legislating.
Speaker 3 (41:38):
No, they passed on a bipartisan basis.
Yeah, it did, it did.
Speaker 1 (41:43):
Then don't forget our old nugget, the Congressional
Review Act During the first fewmonths of the Congress.
This is another obscure lawthat is designed to stop
Congress from I'm sorry, fromstopping an outgoing
administration from promulgatinga so-called midnight regulation
(42:03):
right before they leave theoffice, and it gives Congress
the authority and it doesn'trequire and the filibuster here
again doesn't apply.
Congress can pass what's calleda resolution of disapproval of
a regulation that's enacted toolate in the previous Congress,
and if the president signs it,that regulation is not only
wiped off the books, the agencyis banned from ever writing a
(42:28):
substantially similar regulation.
Now, we to this day don't knowwhat substantially similar means
, but it was used once by thefirst Bush administration.
It was used, I think, 14 timesin 2017.
And I was involved in two ofthose involving EBSA regulations
that were passed late.
In fact, one of them passed onJanuary 16 of 2021, right before
(42:51):
the inauguration Will.
Are there any regulations fromthe DOL that are going to be
finalized late enough in thispresidential term to be eligible
for CRA?
I'll be honest, I'm not surethere are.
They seem to have gotten theirregulations done earlier this
(43:12):
time.
Yes, there are a couple thatare very controversial, but
they're only going to be able togo back so far, maybe six
months or so, and I think prettymuch DOL got their regulations
done.
I think April was one of theones I saw that came out.
That was rather controversial.
I don't think they're going tobe able to reach all the way
back to April of 2024 to pulldown a reg.
Speaker 3 (43:36):
Well, people are describing this as a change
election, and our world hasdefinitely changed in a pretty
significant way.
So, preston, we could probablytalk for hours.
This is just sort of the highlevel highlights discussion.
Really appreciate your timespending with us today to give
(43:58):
folks a taste of what's to come.
Speaker 1 (44:00):
And I would like to compliment our audience, because
you must be pension geeks tofeel like this is a high level
discussion.
Let's be very knowledgeable,because most people would have
no idea what we're talking about.
Yeah, didn't let it, brian,come on.
Speaker 3 (44:15):
This is the pension geeks podcast.
So, yes, there is aprerequisite of knowledge that's
required to listen, or at leastthere should be.
All right, my friend.
Thank you again, preston, andthanks to everybody listening.
You'll be hearing more from ussoon.
Speaker 1 (44:30):
Thank you.
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