Democratic Control of Both Houses May Not Bring Legislative Changes Before 2008

February 2007

Democratic control of Congress will likely bring change to the legislative picture, though its impact on benefits and retirement policy may not be felt before the 2008 elections and the resulting change in the White House, say longtime Congressional observers. After a busy year of pension legislation, and with focus on the next big elections, attention to retirement and benefit legislation is likely to be low.

Historically, Democrats have shown an ideological bias toward placing responsibility for benefits and retirement planning on employers, while Republicans generally have supported legislation that offers incentives to workers to save more and spend less on health care costs.

But passage of the Pension Protection Act in 2006 may have eased pressure to amend more existing retirement saving rules and regulations. One observer described the situation as one where both sides are “pensioned out” as a result of the new law, which was debated for almost five years. However, the PPA may need a technical corrections bill that could be passed before 2008.

Looking forward, an area that could draw action from lawmakers is legislation that would expand participants’ ability to sue employers regarding faulty investment choices in 401(k) plans, for example.

Annuity legislation could also be on the docket as Democrats search for ways to encourage employers to add annuity options to defined contribution plans. Employers who do not offer qualified plans may find themselves required to offer payroll deduction IRAs.

Looking beyond 2008, Bush Administration tax cuts—expiring in 2009 and 2010—will need to be addressed whether Democrats remain in control of Congress or it returns to Republicans. Observers say it is probable that significant retirement-related legislation will be considered along with any of these bills.

Hybrid defined benefit plan (such as cash balance plans) reform may also draw the attention of Congress. A cash balance plan is a defined benefit plan that defines the promised benefit in terms of a stated account balance that employees can elect to receive as a lump sum either when they quit working or when they retire.

With Democratic control of the both houses, plenty of cash balance plan critics will be in leadership roles. Among them is George Miller (D-CA) new chairman of the House Education & Labor Committee, which deals with Employee Retirement Income Security Act of 1974 (ERISA).

Miller has indicated a willingness to re-examine those provisions of the PPA. He also has shown interest in examining mutual fund fees to determine if they are justified and plans to begin hearings on the GAO report’s findings and the fee disclosure issues.

Health care legislation will also likely return to the agenda after the 2008 elections. A key change in how employer-sponsored health care is valued is certain to be the focus of much of the legislation, the tide having turned away from employer-paid health care premiums.

A shift from that position will put greater responsibility on governments and individuals to provide health insurance instead. Tax incentives to encourage individuals to save for retiree health care or further expansion of Health Savings Accounts (HSAs) are possible.

In addition, President Bush announced health care initiatives in his State of the Union address that would treat employee health benefits as income subject to income and payroll taxes, just like wages. The President’s proposal would create a tax deduction for health insurance, set at $15,000 for families and $7,500 for individuals. (see “White House Proposes Health Reforms)