Following his first full read of the Senate’s recently passed tax overhaul legislation, Michael Webb, vice president at Cammack Retirement Group, sat down with PLANADVISER to offer some preliminary analysis.
At a high level, he explains, there are some crucial differences between the Senate’s proposed version of the Tax Cuts and Jobs Act versus what was actually passed over the weekend—particularly for sponsors of governmental 457(b) plans and for nonprofits offering 403(b) plans.
“It seems that essentially all of the changes to 457(b)s and 403(b)s that were being contemplated have been dropped, which is really great news for many of our clients and the industry in general,” Webb says. “Senator Susan Collins [a Republican from Maine] deserves much of the credit for pushing back against these provisions. Kudos to whoever convinced her to take up this issue directly both on Twitter and on the Senate floor, because it worked.”
On Webb’s assessment, Senator Collins requiring that various retirement-directed provisions be removed from the bill before she could offer her support is the only real reason the provisions were dropped. By way of background, the Senate’s initial proposal included language that would have affected elective deferrals under 403(b) and 457(b) plans. In particular, the proposal applied a single aggregate limit to contributions for an employee in a governmental Section 457(b) plan and elective deferrals for the same employee under a Section 401(k) plan or a 403(b) plan of the same employer. Thus, the limit for governmental Section 457(b) plans would have been coordinated with the limit for Section 401(k) and 403(b) plans in the same manner as limits are coordinated under present law for elective deferrals to Section 401(k) and Section 403(b) plans. Related to this, the proposal would have repealed the special rules allowing additional elective deferrals and catch-up contributions under Section 403(b) plans and governmental Section 457(b) plans.
As Webb confirms, it now appears Senate Republicans have removed all of these potentially damaging provisions. While anything is still possible during the conference committee session, through which House and Senate leaders will now attempt to rectify their differing versions of the Tax Cuts and Jobs Act, Webb says he is encouraged by the fact that the House bill never included these provisions in the first place.
“Plan sponsors cannot take their eyes off of this conference committee process, because anything is possible, but I do think that retirement plans have largely avoided any direct negative consequences from the bills,” he notes.
Success of Retirement Plan Industry Lobbying Groups
One other interesting thread in Webb’s tax-related commentary relates to his long-term tenure in the industry and how the quality and coherency of advocacy efforts has greatly improved.
“This whole situation is very telling about how the retirement planning universe has changed for the better in recent decades in terms of organizational advocacy and unity,” Webb says. “If you think about it, back in the days before the founding of many of the big groups we all know today, we just had to sit back and take these changes without really being able to answer with anything like a unified voice. So we can think about the example of when 403(b) plan regulations were changed to encourage such plans to look more like 401(k) plans. There was nobody at the table to say, wait a minute, 403(b) plans are unique, and they should be protected from these changes.”
Webb’s explanation continues: “This time around, we can point to a whole host of highly respected advocacy and lobbying organizations that stood up and encouraged senators to think more deeply about making these changes—to think about how they could harm individuals and nonprofits and governmental employers.”
Particularly as it pertains to the Senate’s now-defunct proposal to combine the deferral limits for 457(b) and 403(b) plans, Webb says, “[This] was more or less an unacceptable, outright attack on teachers,” and so he is vindicated to see the success of advocacy groups in standing up against these potential changes.
Our sister publication PLANSPONSOR’s recent “Who’s Working for You?” profile series looks at the work of industry lobbying and advocacy organizations playing a leading role in this conversation and others. For information on their most important recent efforts, see below:
Plan Sponsor Council of America (PSCA) – profile here
American Retirement Association (ARA) – profile here
ERISA Industry Committee (ERIC) – profile here
Society of Professional Asset-Managers and Recordkeepers (SPARK) – profile here
National Business Group on Health – profile here