Current Thinking

How Trump’s Win Could Affect the National Retirement System

A blog by Pete Swisher, CFP, CPC, Senior Vice President, Pentegra Retirement Services – November 9, 2016

Set aside your feelings about the election for a moment, good or bad, and focus on what the results might mean for the national retirement system. Consider:

No Deadlock
Instead of the expected deadlock (Republican Congress, or at least House, and Democratic President), it appears that we will have Republicans in power in House, Senate, and White House. We can therefore expect major Republican priorities to drive the agenda.

Tax Reform
Republicans want tax reform, which means “flattening the rates and broadening the base.” Translation: deductions for retirement savings may be under attack. New comparability and cash balance designs for small business may go away. Deferral contributions may be forced to be Roth contributions and not deductible. This may have profound implications for the retirement plan industry, employers, and individual savers. It may also eliminate or reduce deductions for home mortgages, health insurance, charitable contributions, and more.

Significant tax reform would have been far more difficult without Republicans holding the majority in Senate, House, and White House, or at least control of Congress. With one house of Congress behind a Democratic president, the overall balance of power would likely have precluded significant tax reform. The Republican sweep of White House, Senate, and House makes some form of tax law change almost inevitable.

Repeal the Affordable Care Act?
Republicans want to repeal the Affordable Care Act (ACA). Whether they can succeed, even with control of House, Senate, and White House, is not certain. The greater question is whether they will replace ACA with a better plan. Failing to provide a new and improved plan would, some might say, be a bit of a “party of ‘no’” letdown. So the Republicans could fail to abolish “Obamacare,” or they could replace it with a better plan, or they could abolish it but fail to replace it with a better solution. The Republican Party history is that they have tended to reject Democratic healthcare proposals but, as some would argue, offer no viable alternatives. So any action on healthcare should be interesting.

Entitlement Reform
Republicans, at least in the abstract, want fiscal sanity. If there is any grand opportunity before the government in the next few years, it is the opportunity to reform entitlements and the portfolio of social insurance as a step toward long-term fiscal balance. A strong argument could be made that President Obama, as a Democrat, had a better chance to reform entitlements than any Republican President could possibly have—though such reform never happened. But a trifecta of House, Senate, and White House under Republican control may lead to change. Don’t get your hopes up yet—anything can happen.

Rewriting the Fiduciary Regulations
Putting a hold on pending effective dates of new regulations imposed by predecessors is something virtually every new president does. The expectation prior to November 8 was that Clinton would win and that she would support the new Department of Labor (DOL) fiduciary rules, which some have criticized as being an example of government overreach. There is speculation that a Trump victory would lead to a delay and re-examination of these rules. Putting the brakes on pending regulation usually happens within days of inauguration day, so Mr. Trump’s stand on the DOL’s conflict of interest rules should become clear no later than the end of January.

What would such a rewriting mean? There is a chance that Trump might cause the DOL to work with the SEC to rethink the rules to create a truly uniform standard of fiduciary care that would extend beyond retirement accounts. On the other hand, Trump may just let the new rules go into effect, or could kill them completely, or cause the DOL to make adjustments.

Summary
Many of us were surprised by the outcome of the election. But whether you like or dislike the outcome, it makes sense to rapidly assimilate the potential implications and make the appropriate strategic response.