Regulatory Pullbacks: A Key Theme for Retirement Plans Under Trump

Regulatory Pullbacks: A Key Theme for Retirement Plans Under Trump – Donald Trump’s return to the White House, coupled with a Republican-led Congress, heralds significant changes for the employer-sponsored retirement plan industry. Experts in the Employee Retirement Income Security Act (ERISA) anticipate shifts in regulatory priorities that could bring both opportunities and challenges for plan sponsors, advisors, and participants.

Fiduciary Rule: A Likely Reversal

One of the most notable potential changes is the likely demise of the Department of Labor’s (DOL) Retirement Security Rule, also known as the fiduciary rule. This regulation, which expanded fiduciary responsibilities for retirement-related investment advice, has faced legal challenges and political resistance. Legal experts, including Fred Reish of Faegre Drinker Biddle & Reath LLP, believe that under a Trump administration, the fiduciary rule could effectively become obsolete.

The courts are currently deliberating the rule’s validity, but a Republican-led DOL may opt against appealing unfavorable rulings. Marcia Wagner of the Wagner Law Group predicts a scenario like 2018 when a new fiduciary rule was overturned by the 5th Circuit. If this happens, the retirement industry could revert to the five-part test for fiduciary advice established in 1975.

Bonnie Treichel, founder of Endeavor Retirement, sees this potential shift as an opportunity for advisors to adapt and expand their use of existing exemptions, such as Prohibited Transaction Exemption (PTE) 2020-02. While originally focused on rollovers, PTE 2020-02 offers broader applications for advisors willing to innovate.

ESG Investing: Back to Basics

Environmental, Social, and Governance (ESG) investing has been a contentious area under differing administrations. The Biden administration removed restrictions on ESG factors in defined contribution plans, emphasizing fiduciaries’ discretion to consider these factors when appropriate. However, a Trump administration is expected to revert to its prior stance, prioritizing “pecuniary” factors and curbing ESG considerations.

For plan advisors, this regulatory ping-pong may have limited practical impact. Treichel [DP1] emphasizes that ESG investments have never been exempt from fiduciary scrutiny under ERISA. Nonetheless, the clarity offered by the Trump-era rule could appeal to those who view the Biden rule as overly permissive.

Tax Legislation: A Double-Edged Sword

Tax policy is another area poised for transformation. Republicans are likely to focus on extending provisions of the 2017 Tax Cuts and Jobs Act, which could strain federal revenues. As a result, tax incentives for retirement savings might come under scrutiny. Michael Kreps of Groom Law Group warns of a potential return to discussions about “Rothification,” which would mandate Roth deferrals over traditional pre-tax contributions.

Simultaneously, Republican leadership is unlikely to support Democratic-backed initiatives like the Automatic IRA Act, which aimed to expand retirement plan access through universal coverage. These setbacks could hinder broader efforts to close the retirement savings gap.

Industry Dynamics: Shifting DOL Priorities

Under Republican leadership, the DOL’s relationship with the retirement industry may shift. During the Obama administration, the DOL often prioritized large-scale regulatory initiatives, such as the fiduciary rule, over sub-regulatory guidance. Kreps suggests that a Trump-led DOL might adopt a more business-friendly approach, reducing regulatory burdens and fostering a more collaborative relationship with industry stakeholders.

However, this approach comes with risks. While regulatory relief could ease compliance costs for plan sponsors and advisors, it might also weaken participant protections. Striking the right balance will help lean toward a thriving retirement system that benefits all stakeholders.

Opportunities Amidst Uncertainty

Despite the challenges, retirement plan advisors have opportunities to adapt and thrive in this evolving landscape. By staying informed about regulatory changes and emphasizing their value to plan sponsors, advisors can navigate these shifts effectively. As Treichel points out, reinforcing their expertise and commitment to prudent processes can help advisors build trust and maintain strong client relationships.

As the new administration takes shape, the retirement industry must prepare for regulatory and legislative flux. While some changes may simplify operations and open new doors, others could pose significant hurdles. Navigating these dynamics will require vigilance, adaptability, and a clear focus on the best interests of plan participants.

Source: Planadviser.com: ERISA Experts See Regulation Pullback as Key Theme of Trump Rule

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