Compliance May 22, 2024

Digital Assets Legislation Passes House of Representatives

The bill would define the jurisdictions of the SEC and CFTC for crypto assets but it is likely to be vetoed by Biden.

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The Financial Innovation and Technology for the 21st Century Act passed the House of Representatives Wednesday by a 279-136 vote. The bill was first proposed in July 2023 and passed out of the committees of jurisdiction on May 6. The Senate has not yet taken up the bill.

Representative Patrick McHenry, R-North Carolina, and the chair of the House Committee on Financial Services, today spoke in defense of the FIT Act at the Investment Company Institute 2024 Leadership Summit, a bill he is a sponsor of.

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The act would create a regulatory structure for the digital assets industry and has been criticized by Gary Gensler, the chair of the Securities and Exchange Commission. McHenry characterized Gensler’s criticism sarcastically as “shocking,” at the conference as Gensler is known to be a harsh critic of the crypto industry generally.

If passed, the bill, also known by its bill number, H.R. 4763, would assign regulatory authority to the Commodity Futures Trading Commission of digital assets that are decentralized, as well as over the cash or spot market for digital commodities. Decentralized is defined in the bill as a crypto asset in which “no person has unilateral authority to control the blockchain or its usage, and no issuer or affiliated person has control of 20% or more of the digital asset or the voting power of the digital asset.”

The SEC would regulate digital securities that are not decentralized, with additional exceptions for those that limit annual sales or non-accredited investor access. All rulemaking for digital assets would have to be joint rulemakings of the SEC and CFTC if the bill were passed.

Gensler today identified some potential issues in the bill in his statement. He noted that the bill allows crypto issuers to self-certify that they are decentralized and only gives the SEC 60 days to review and challenge such a certification. Gensler said that the SEC does not have the staffing to review the large volume of digital assets. He also suggested that “pump and dump schemes and penny stock pushers” could falsely claim digital asset status to avoid regulation and the SEC would only have 60 days to review it.

Representative Sean Casten, D-Illinois, proposed an amendment to the FIT bill that would have extended this deadline to 90 days, but it was not accepted.

Gensler added that existing rules are clear enough, it is just that the crypto industry does not want to follow them: “The crypto industry’s record of failures, frauds, and bankruptcies is not because we don’t have rules or because the rules are unclear. It’s because many players in the crypto industry don’t play by the rules. We should make the policy choice to protect the investing public over facilitating business models of noncompliant firms.”

McHenry responded during an interview with ICI CEO Eric Pan that “right now we have no definition of digital asset” under the law and that the bill will provide regulatory clarity for the industry. McHenry added that “it is the Gensler regime that has made things less certain,” and he will continue to focus on “speaking to legislators that have actual votes” on the bill.

The White House said in a statement that “the Administration opposes passage of H.R. 4763, which would affect the regulatory structure for digital assets in the United States,” suggesting that a veto of the bill would be likely if it were to reach President Joe Biden.

During debate on the bill, Representative Stephen Lynch, D-Massachusetts, the ranking Democrat on the House Financial Services Committee Subcommittee on Digital Assets, described the act as among the “top three worst bills I have seen progress to the floor of the House.” Other opponents of the bill explained that it does not address crypto’s role in financing illicit activities and leaves much crypto enforcement to the CFTC, which traditionally has little experience working with intangible assets or in retail markets.

Client Service May 22, 2024

401(k) Assets Rebound 15% Amid Critiques

Recent data shows an uptick in assets held in 401(k) accounts even as the national conversation turns to savings gaps.

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In 2023, 401(k) assets rose about 15% year-over-year to hit $7.4 trillion, the second highest mark in history after 2021’s $7.9 trillion, according to a recent update by the Investment Company Institute.

Meanwhile, the average balance for 401(k) savers was up 19% to $134,128 at the end of last year due in large part to market performance, according to Vanguard’s most recent data. The median balance, which helps strip out the higher account balances, was also up 29%, though at a much lower $35,286.

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But while the numbers have risen, sentiment around the 401(k) has been taking knocks recently. The headline in a May 20 piece in the New York Times Magazine asked, “Was the 401(k) a Mistake?” The piece goes on to consider arguments made in 2021 for a government matching program in savings plans and a more recent suggestion of a reduction or end to the 401(k) tax benefit. That story came after Politico published in April a two-year investigation detailing the 401(k) lobby. That outlet concluded, in part, that the findings “called into question the fundamental effectiveness of the 401(k) system for large segments of the population.”

The retirement industry has been responding to the discussions. This April, leaders of the National Association of Plan Advisors national conference noted the importance of combatting 401(k) critiques ahead of tax policy decisions expected in 2025. In a recent piece in MarketWatch, Ed Murphy, the CEO of Empower, cited the ICI as well as Federal Reserve data showing dramatic growth of retirement savings for middle and lower-income families alike.

“While there are legitimate concerns about Americans’ savings for their post-work years, the hyperbole obscures the reality that the 401(k) system has been one of our most successful, bipartisan public-private initiatives,” he wrote.

Meanwhile, the industry has been largely supportive of federal and even state legislation working to expand workplace plan access—with a combination of tax incentives, mandates, and policy such as mandatory automatic enrollment for new plans.

In the private industry, data certianly shows a gap in tax-advantage saving plan availability and use. According to the most recent statistics from the U.S. Bureau of Labor Statistics, 67% of private industry workers have access to a defined contribution retirement plan, with just 49% contributing; 15% of access to a defined benefit plan, with about 11% participating.

Growth Continues

Chris Horne, vice president, customer success and operations at Human Interest, reveals a different picture of retirement plan growth. He says the digital 401(k) provider has been booking over a thousand new retirement plans every month.

“The retirement industry is known for moving slowly,” Horne says. “But in the last couple of years there have been a lot of changes, and we’ve sought to find ways we can iterate on that by using technology and learnings from what plan sponsors want.” 

Don MacQuattie, senior vice president of institutional fiduciary solutions at Raymond James, points to the $10.5 trillion in savings Americans hold in defined contribution plans that show how “wildly successful” the system has been in helping people save.

“What the industry needs to do is get back to where we started, which is working to continue to expand coverage both to employers and to participants as well,” he says. “We want to make sure people have access to a plan, are in the plan, and are allocating properly to the plan. We in the industry have done a great job with that, and for those who are [criticizing] the 401(k), I’m sorry, but I’m just not seeing that.”

MacQuattie, who oversees Raymond James’ retirement plan advisement team and has served in various industry association roles, sees three parties responsible for improving the system: the retirement industry (advisers and providers), the governement and plan sponsors. In order to progress, however, he says the industry must be clear about what gaps it is looking to address and how it is going to get there.

In terms of the government, MacQuattie believes federal legislation, including the SECURE 2.0 Act of 2022, has made great progress when it comes to more employers offering plans. Likewise, he believes the retirement adviser industry has made progress in easing those plan startups by offering 3(38) and 3(21) fiduciary capabilities, providing both the expertise of plan design and management to a plan sponsor while shouldering fiduciary liability.

The biggest gap remains, he believes, for small businesses with 50 or fewer employees. Here, he notes that the industry is working to provide them with easier plan access, including the creation of pooled employer plans.

Bridging the Gap

Ted Schmelzle, 2nd VP for Retirement Plan Services at The Standard, believes PEPs are a major development in coverage expansion in part because they take the “inertia” out of setting up an individual plan. He notes that, for The Standard, the vehicle is not focused on startup plans or even small plans, but plan sponsors “of all sizes” who see the value in a customized plan with large plan benefits.

“To the extent that employers learn about this there is no hesitation in terms of fitting their plan size,” he says. “There’s no reason you should ever outgrow a PEP if it’s designed properly.”

There is a different problem, however, when it comes to addressing the savings gap for participants, says Raymond James’ MacQuattie. For workers who have plan access, he sees the issue largely one of education and support.

“You can have the prettiest website and best fund lineup—but if a participant is checked out it’s all for not,” he says. “[The retirement industry] needs to engage with participants and plan sponsors to really make that workplace plan hum.”

MacQuattie notes the success of innovations such as target date funds and more recently the promise of managed accounts. But ultimately, he believes the industry has work to do in educating and engaging participants to manage budgeting and financial concerns with decisions around saving and security; a task that will be best done through partnerships between advisers, providers, recordkeepers and plan sponsors.

“There’s no secret to building long-term wealth and security, and it’s incumbent upon us in this industry to help that plan participant population,” he says.

 

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