Short-Term Spending Deal May Improve Chances for Retirement Fixes
Following weekend negotiations between the House and Senate leadership, it was announced that Congress will now seek a short-term spending bill to keep the government operating, rather than a longer-term bill, ensuring that there likely will be a lame-duck session.
The announcement came in the form of a Sept. 22 “Dear Colleague” letter from House Speaker Mike Johnson (R-La.). “Since we fell a bit short of the goal line, an alternative plan is now required,” Johnson wrote in the letter, explaining that the House will consider a clean, three-month CR [continuing resolution] later this week.
“While this is not the solution any of us prefer, it is the most prudent path forward under the present circumstances. As history has taught and current polling affirms, shutting the government down less than 40 days from a fateful election would be an act of political malpractice,” the Speaker added.
Rep. Johnson had originally put forward a spending bill to fund parts of the government for six months through March 28, 2025, but that plan was defeated last week. The latest plan is to approve a short-term fix that runs until Dec. 20.
The urgency is that the country faces a federal government shutdown if a short- or long-term spending bill is not enacted by Oct. 1, which is the start of the 2025 fiscal year.
A short-term deal ensures that Congress will have to come back after the November elections to pass either another short-term bill or legislation funding the government for the remainder of the fiscal year.
If Congress were to pass a spending bill that kicked the decision-making until next year, that would have lessened the chance for a lame-duck session and the chances that retirement legislation will be acted on this year. But because it seems more likely that Congress will approve a short-term fix, that scenario improves the chances that other legislation could be acted on during the post-election session.
Retirement Fixes
In the retirement space, many industry stakeholders are anxiously awaiting action on the technical corrections legislation to the SECURE 2.0 Act of 2022. Among the changes that need fixing are the SECURE 2.0 drafting error to ensure that participants can still make pre-tax catch-up contributions; clarifying that the Starter K contribution limit tracks with the IRA contribution limit; and clarifying the tax credit for small employer plan start-up costs.
Additional items include those related to automatic enrollment and PEPs/MEPs, as well as the special tax treatment for distributions to terminally ill plan participants.
These are among the issues that the American Retirement Association (ARA) has cited as needing urgent attention in order to give certainty to plan sponsors and service providers so they can implement the provisions.
In fact, the ARA joined several high-profile retirement industry organizations in submitting a letter to Congress in late August urging them to pass the SECURE 2.0 Technical Corrections Act of 2023 as soon as possible.
Meanwhile, separate legislation that would permit the use of collective investment trusts (CITs) in 403(b) plans has already passed the House and is pending in the Senate. The SECURE 2.0 Act had included a provision to address this, but while the Internal Revenue Code portion was included, changes on the financial services side were removed prior to final passage. Apparently, there was some disagreement at the time between key members of the House Financial Services Committee about including the 403(b) fix, but many stakeholders are hopeful that the changes will be approved.
What’s Next?
The House and Senate still need to approve the short-term continuing resolution (as outlined by Speaker Johnson), so things could still change, but at this point, it looks as if a lame-duck session is becoming more likely.
Of course, nothing is set in stone and the question will be how much enthusiasm the lawmakers will have after the elections to take on other issues – such as these critical retirement provisions.
Should the lawmakers not act this year on the pending retirement changes, then the process starts all over in 2025 with the beginning of a new Congress and a new president. As a reminder, both SECURE 1.0 and 2.0 were passed during lame-duck sessions in 2019 and 2022, respectively.