A flurry of activity as policymakers settle into 2022

Congress continues to struggle with bitter partisan divisions that will likely only worsen as we head toward this fall's midterm elections. But rare moments of bipartisanship have cropped up in recent weeks.

In March, an enormous government funding bill that had been in limbo for months was approved. The bill assures that government operations are funded through September, halting the threat of a government shutdown until the fall. The catalyst for quick passage was the decision to attach a $13.6 billion aid package for Ukraine to the legislation – support for Ukraine has near-universal bipartisan support on Capitol Hill. Indeed, by mid-May Congress was poised to approve a second Ukraine aid package that was approaching $40 billion. 

House approves SECURE Act 2.0

Another bipartisan bright spot is retirement savings legislation. On March 29, the House of Representatives voted 414–5 to approve the Securing a Strong Retirement Act, a bill better known as "SECURE Act 2.0." The bill includes several important provisions for individuals, including an increase in the required minimum distribution (RMD) age from 72 to 73 next year. The RMD age would then move to 74 in 2030 and, finally, to 75 in 2033. The legislation also would increase the "catch-up contribution" limit to $10,000 for individuals ages 62 to 64 years.

The majority of the bill's provisions focus on expanding coverage and increasing savings through employer-sponsored plans. Key provisions include:

  • Requiring newly established 401(k) and 403(b) plans to automatically enroll participants and then increase the default contribution rate annually
  • Allowing small financial incentives, such as a gift card, to encourage employees to enroll in the company's plan
  • Accelerating how quickly long-term part-time employees can become eligible for the company plan
  • Allowing employer matching contributions on behalf of employees who make payments on their student loans
  • Creating an online "lost and found" database to help employees who change jobs keep track of their retirement accounts

Next up is consideration in the Senate, where a similar bill, the Retirement Security and Savings Act, is pending. The two bills have significant overlap, but there are also some differences that ultimately need resolving. The timing for Senate consideration remains uncertain, although there are reports that the bill could be considered in the Senate Finance Committee in May or June. Like the House bill, the Senate legislation enjoys strong bipartisan support.

Optimism is high that the bill will be passed into law before the end of 2022, though the bill will likely have to be attached to a larger government funding bill or other must-pass legislation near the end of the year. That's what happened in 2019 when the SECURE Act was passed as part of a larger bill just before the Christmas holidays. That timing may repeat itself in 2022.

Will there be any tax code changes in 2022?

Can Democrats find consensus on another economic bill? The "Build Back Better Act," which focused on climate change and social programs, collapsed in the Senate at the end of 2021. Democratic leaders would like to pivot this spring to a less ambitious bill that focuses more narrowly on helping families struggling with the impact of inflation. Among the ideas in the mix are addressing prescription drug costs, improving access to childcare and elder care, and establishing universal pre-K programs. Climate change provisions and deficit reduction also remain priorities. However, it's far from certain whether Democrats can unite around a slimmed-down bill that will inevitably mean popular ideas are left on the sidelines.

Last fall's Build Back Better Act included several notable tax provisions, including an increase in the state and local tax deduction and a new wealth tax, among other changes. While those specific proposals are on hold for now, Democrats are vague about whether a smaller package will include any tax increases. Voting for a tax hike in a midterm-election year can be a tricky political position to take, particularly for Democrats in competitive races. That may mean no significant tax changes are on the table until the very end of the year, after the election.

One tax proposal that drew headlines was included in the president's March budget proposal. The president called for a new "billionaires minimum income tax," which, despite its name, would apply to households with assets above $100 million. Notably, the proposal would tax income and unrealized gains on an annual basis. Never considered by Congress as an actual piece of legislation, the president's budget serves more like the administration's policy priorities' wish list. And while the wealth tax has been met with significant skepticism, even among Democrats, on Capitol Hill, it is noteworthy that it is the first time the president has specifically championed taxing unrealized gains for any taxpayers. We do not expect the proposal to pass anytime soon, but it merits watching as Congress develops its budget plan in the months ahead.

Executive order on cryptocurrency

With the explosion in investor interest in cryptocurrency, the Biden administration has prioritized creating a better regulatory structure. In March, the president signed an executive order that seeks to develop the first government-wide, coordinated strategy on cryptocurrency. The order calls on nearly two dozen government agencies to develop positions on various issues, from creating a central bank digital currency to protecting investors from fraud to combating money laundering and other uses of cryptocurrency for criminal activity. The order is also expected to clarify the roles and responsibilities of regulatory agencies with regard to cryptocurrency. The SEC has been hostile in approving proposals to launch a cryptocurrency exchange-traded fund, citing high risk and too few investor protections. The Commodity Futures Trading Commission (CFTC) has told Congress that it stands ready to be a primary regulator of crypto products. Still, the issue of whether cryptocurrency should be treated as a currency, commodity, or security remains murky. Results of the administration's work on centralizing cryptocurrency oversight should come this fall.

Also in March, the Department of Labor (DOL) issued strongly worded guidance warning 401(k) plan fiduciaries about the risks of including cryptocurrency options among a retirement plan's investment choices. While not explicitly banning cryptocurrency-related investment options from plans, it stated that plan fiduciaries should "exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu." The guidance emphasized "serious concerns about the prudence of a fiduciary's decision to expose 401(k) plan participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies," citing a significant risk of fraud, theft, and/or loss of value. The guidance specifically noted that plans offering open brokerage windows are likely to be questioned by examiners as to "how they can square their actions with their duties of prudence and loyalty."

Industry trade associations have pushed back on regulators, not over the issue of the appropriateness of retirement plan investments in cryptocurrency but rather the process. Among other concerns, a recent joint letter from 11 trade groups questioned whether the DOL's guidance created a new fiduciary responsibility for plan sponsors for investments made through brokerage windows. The groups called on the DOL to withdraw the guidance and instead propose new rules through the standard regulatory process, which includes notice and an opportunity for public comment. At this writing, the guidance remains in place, pending further decisions from the DOL.

SEC issues regulatory proposals at a frantic pace

Last fall, the SEC issued an ambitious regulatory agenda that included more than 50 rulemaking initiatives. So far in 2022, the agency seems focused on getting many of those issues pushed through the rulemaking process. Proposals have included high-profile issues, such as new disclosure requirements detailing contributions public companies make to climate change and future risks they face from it; another round of money market fund reforms; shortening the securities settlement cycle from two days after a trade to one day; and new rules for short-sellers, special purpose acquisition companies, and private funds. The SEC also recently proposed rules that would require RIAs to create written policies around cybersecurity, report breaches to the SEC, and notify clients and prospects of cybersecurity risks and incidents.

The financial services industry has been particularly frustrated that most of these proposals have had unusually short public comment periods, sometimes as little as 30 days, despite their complexity and the controversy surrounding many of them. More than two dozen trade associations wrote a joint letter to the SEC in April, noting that the SEC has had more 30-day comment periods in the past year than in the previous seven years. The letter called on the SEC to set comment deadlines that are better tailored to the proposed rule's complexity. The industry's efforts paid off when the SEC announced on May 9 that it would extend the comment periods for three high-profile rule proposals, including the climate risk disclosure proposal. 

SEC exam priorities for advisors

Finally, on March 30, the SEC released its annual examination priorities. Not surprisingly, top priorities include compliance with Regulation BI and Form CRS, with the SEC focusing on best execution obligations, conflicts of interest, the impartiality of advice, and client disclosures. The SEC specifically said it would look at whether RIAs are recommending more expensive share classes when lower-cost classes are available and recommending wrap fee accounts without assessing whether they are in clients' best interest. Cybersecurity is another key focus area, with the SEC planning to review firms' abilities to safeguard client assets, manage service providers, respond to cyber incidents, identify potential threats of identity theft, and manage risks related to the ongoing work-from-home environment. Other areas of emphasis include digital engagement practices and the use of technology in the provision of advice, recommendations involving crypto-assets, and environmental, social, and corporate (ESG) governance-related recommendations.

About the author

Michael Townsend

Managing Director, Legislative and Regulatory Affairs, Charles Schwab & Co., Inc.