In the News

Even with the passage of the first retirement security package in more than a decade shortly before the holiday recess, there is more retirement-related legislation that could get a look in 2020.

While the Setting Every Community up for Retirement Enhancement Act of 2019, referred to as the SECURE Act, signed into law Dec. 20 was a thrill for those in the retirement community, leaders in both chambers of Congress are motivated to do more.

In the House, Rep. Richard Neal, D-Mass., chairman of the Ways and Means Committee, has indicated that work on retirement security bills does not end with the SECURE Act.

"Improving Americans' retirement security remains a top priority of mine as Congress returns to Washington in 2020," Mr. Neal said in a statement to Pensions & Investments. He's working "bipartisanly on legislation that will essentially be the SECURE Act 2.0. I'm aiming to move the Automatic Retirement Plan Act and the Retirement Plan Simplification and Enhancement Act with that package."

Mr. Neal introduced the Automatic Retirement Plan Act, which would require many employers to offer a 401(k) or 403(b) plan, and the Retirement Plan Simplification and Enhancement Act, which among other provisions, would exempt retirement savings below $250,000 from complicated required minimum distribution rules and make it easier to take advantage of the saver's credit — in 2017 but has yet to do so this Congress.

Moreover, Mr. Neal said he would press his Senate colleagues to pass a multiemployer pension reform package, known as the Butch Lewis Act, which passed in the House last year and would create a federal loan program for struggling plans.

In the Senate, Rob Portman, R-Ohio, and Ben Cardin, D-Md., introduced the Retirement Security and Savings Act of 2019 in May, which features more than 50 provisions aimed at improving coverage with small employers and among part-time workers.

Passing the SECURE Act can help "pave the way for bolder reforms in legislation," Mr. Portman said in a statement Dec. 19. "I believe the Senate Finance Committee should hold hearings and a markup on (the Retirement Security and Saving Act), and I will work closely with Sen. Cardin to move it forward." Among its provisions, the bill establishes a new automatic enrollment safe harbor for employers to meet non-discrimination requirements and allows employers to make matching contributions to retirement accounts of employees paying off qualified student loan debt.

However, since 2020 is a presidential election year and an expected Senate impeachment trial will garner much attention, it will complicate lawmakers' efforts to pass more retirement legislation, sources said.

"Retirement legislation is always going to be bipartisan so I don't think there will be any partisan politics surrounding it, but I would imagine that the shortened year will probably make it difficult to get something together," said Christopher Spence, senior director of federal government relations for TIAA-CREF in Washington."The next package probably needs more vetting than they can do in a short time frame."

New fiduciary standard
At the Department of Labor, a new proposed fiduciary standard is expected in early 2020. Labor Secretary Eugene Scalia, who has been at the helm since late September, will be able to participate in the rule-making process, thanks to an October decision from department ethics attorneys.

Mr. Scalia was part of a Gibson Dunn & Crutcher LLP team, where he was a partner, representing the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and other associations in successful challenges to the previous fiduciary rule, including during oral arguments before the 5th U.S. Circuit Court of Appeals in New Orleans. The court vacated the Obama-era rule in 2018 and the Trump administration did not appeal.

Also, the Labor Department in October issued a proposal that would permit default electronic delivery of retirement plan disclosure, much to the thrill of plan sponsors and record keepers. The allotted 30-day comment period — shorter than other 60- or 90-day windows — ended in November and indicates "a desire to get it done more quickly," said Michael P. Kreps, based principal at Groom Law Group LLP.

With respect to proxy voting, a proposed rule is expected in 2020 that aims to ensure proxy-voting decisions tied to investments governed by the Employee Retirement Income Security Act are "solely in the interest of, and for the exclusive purpose of providing plan benefits to, participants and beneficiaries," according to the Labor Department's fall regulatory agenda.

The rule-making comes on the heels of a White House executive order in April that asked then-Labor Secretary Alexander Acosta to "complete a review of existing Department of Labor guidance on the fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets."

SEC
Proxy voting will be a major focus at the Securities and Exchange Commission, which is expected to have a busy year.

In early February, SEC officials are expected to have plenty of comments to sift through as they pursue a fast-tracked proposal to impose new requirements on proxy advisory firms and make it harder for investors to submit shareholder proposals.

The reforms, long a priority of business groups, "would result in the most significant changes to the voting rights of shareowners in decades," according to the Council of Institutional Investors, which along with other investor groups is promising to challenge any sweeping changes and push for a longer comment period, for starters.

SEC Chairman Jay Clayton is also expected to continue addressing the 2-to-1 imbalance of private fundraising vs. public offerings, including how to make it easier for retirement savers and other investors to get into private markets. A concept release issued in June asked for market participant input on how to do that with protections. Unlike a formal rule-making proposal, the concept release, dryly titled "Harmonization of securities offering exemptions," is seen as more of a conversation starter for now.

More transparency in fees charged by exchanges should start to emerge, following an October vote by the commission to make future fee changes for core data first subject to a public comment period. The change was welcomed by CII members long frustrated by what they see as exchanges' monopoly over market data and access. The SEC will also continue to fight the exchanges in court over whether it can proceed with a transaction fee pilot program to see how exchanges charge customers, with a judicial opinion expected in early 2020. Groups like CII and the Investment Company Institute backed the SEC in a joint amicus brief, saying the pilot program "is urgently needed."

ESG
On the ESG front, through a series of examination letters sent to firms in 2019, the SEC signaled it will be watching how asset managers of environmental, social and governance funds apply sustainable criteria when making investments, and marketing themselves.

"The SEC's move is a clear indication that as ESG products continue to gather assets, the SEC will scrutinize firms offering these products," said Vadim Avdeychik, of counsel with law firm Paul Hastings LLP's impact and sustainability and investment management practices in New York. With no uniform standards, "it will be tricky to reconcile the different methodologies being used by asset management firms," said Mr. Avdeychik, who thinks it also "makes complete sense that they would be looking at how asset managers are voting proxies with respect to ESG proposals."

Investor groups are also hoping to see more action, or at least attention, from Congress on legislative proposals aimed at more disclosure of private equity fees and expenses. The proposed Investment Adviser Alignment Act, which would require SEC reporting on fees and expenses, impose a fiduciary duty on private equity funds and allow communication among limited partners, is supported by the Institutional Limited Partners Association, whose members are pushing for minimum standards for investors. A November hearing before the House Financial Services Committee hearing on private equity practices made it clear it is a partisan issue, especially in an election year, with one candidate, Sen. Elizabeth Warren, D-Mass., backing a "Stop Wall Street Looting" bill.

In April, broker-dealers will be required to submit data to the SEC's Consolidated Audit Trail on trades executed on behalf of clients — including institutions. CAT will be a single database for all equity and options trades executed on U.S. exchanges. It's intended to allow regulators to track illegal or manipulative trades and show a way to quickly determine what caused large, sudden losses in trading value.

Commissioner Hester M. Peirce and groups like the Securities Industry and Financial Markets Association have expressed concern over CAT's security. "SIFMA and its members are supportive of the CAT and its regulatory intent but have repeatedly expressed strong concerns regarding the risks to our customers' sensitive financial data information, including the wholesale collection of personally identifiable information and transaction data being compiled in one place," Kenneth E. Bentsen Jr., SIFMA president and CEO, said in a statement Dec. 10.