- With Republican control of both houses of Congress and a new president who promised throughout his campaign to dismantle key existing laws, many are anticipating regulatory changes for retirement plan and healthcare-related rules.
- After taking the oath of office last Friday, President Trump signed an executive order to dismantle the Affordable Care Act (ACA).
- It is also anticipated that the Department of Labor will delay the Fiduciary Rule before its general effective date of April 10, 2017.
President Donald Trump took the oath of office on Jan. 20, 2017, officially ushering in Republican control of the executive and legislative branches of government. With Republican control of both houses of Congress, and a new president who promised throughout his campaign to dismantle key laws passed under former President Barack Obama, many are left wondering about the regulatory outlook for retirement plan and healthcare related rules.
In his first hours in office, Trump officials sent a memo to all federal agencies instructing them not to issue any new regulations, withdraw unpublished regulations, and temporarily postpone regulations that have been published but have not yet taken effect.
Specifically, President Trump has promised to repeal and replace the Affordable Care Act (ACA), and signed an executive order on his first day to dismantle the ACA. While the Trump Administration has not directly addressed the regulations issued by the Department of Labor in April 2016, which change the definitions of fiduciary and fiduciary advice (the Fiduciary Rule), it is anticipated that the Department of Labor will, at a minimum, delay the applicability of the Fiduciary Rule before its general effective date of April 10, 2017.
The Affordable Care Act
Last Friday, on his first day in office, President Trump signed an executive order giving federal agencies broad powers to unwind regulations created under the ACA. In the last week and a half, both houses of Congress approved parliamentary language allowing them to proceed with the repeal of parts of the ACA without filibuster. However, the Trump Administration and Republicans in Congress have not reached consensus regarding a transition period between the repeal of the ACA and replacement measures. Republican Senate leaders prefer at least a three-year transition period, the House Republican caucus prefers a maximum two-year transition period, and President Trump has continuously stated that there should be no gap between the repeal and replacement of the ACA. On Jan. 15, 2017, President Trump stated in an interview that he is almost ready to release his proposed plan to replace the ACA.1
Many attorneys are reviewing previous Republican legislation, namely the "Restoring Americans' Healthcare Freedom Reconciliation Act of 2015" (H.R. 3762), which was vetoed by President Obama, to try and anticipate the key provisions that Congress will pass to undo the ACA. These key provisions include:
- repealing the premium tax credit and cost sharing subsidy
- repealing the small business tax credit
- ending the expansion of Medicaid
- repealing individual and employer penalties for violation of mandates
- repealing the Cadillac excise tax on high cost employer sponsored health coverage
- repealing a number of provisions relating to health savings accounts, Archer medical savings accounts (MSAs), flexible spending accounts (FSAs), health savings accounts (HSAs) and health reimbursement accounts (HRAs) - namely their use for over the counter medications, lowering the tax on distributions from HSAs and Archer MSAs that are not used for medical expenses and repealing the salary reduction contribution limit for FSAs
- repealing the taxes and fees on health insurers, brand name prescription drug manufacturers and medical devices
- repealing the employee compensation limit that a health insurer may deduct
President Trump and the House Republicans both have signaled that they want to expand the use of HSAs and HRAs drastically, and retain some portions of the ACA, such as the ban on any exclusions for individuals with pre-existing conditions or the provision of dependent coverage up to age 26.
The Fiduciary Rule
The Fiduciary Rule is already effective, but revised provisions are not applicable until April 10, 2017. To date, President Trump has not stated that it will direct the Department of Labor to reevaluate the Fiduciary Rule. However, the legal community anticipates that the Trump Administration may delay the applicability date with an interim final regulation, subject to notice and comment. With the delay, the Trump Administration may re-evaluate the Fiduciary Rule and provide for modifications or exemptions. Of course, each modification would be subject to the notice and comment requirements. Given the timing requirements of the rulemaking process, we anticipate that the applicability of the Fiduciary Rule will remain uncertain for at least several months.
In addition to executive action by the Trump Administration to delay and revise the Fiduciary Rule, Congress is anticipated to review legislation that may replace the Fiduciary Rule, subject to an effort by Democrats in Congress to block such legislation. The Fiduciary Rule also continues to be challenged in federal court. (It is likely that the Trump Administration will direct the Department of Justice not to defend these cases, though legal advocacy groups would almost certainly take their place.) Regardless of the likelihood that the applicability of the Fiduciary Rule will be delayed, the Employee Benefits Security Administration released a set of frequently asked questions regarding the rule last week, and last Thursday published a proposed exemption from the Fiduciary Rule for certain fixed-annuity contract commissions for insurance intermediaries.
Retirement-Related Tax Provisions
While the Trump campaign did make some specific policy recommendations regarding the Internal Revenue Code or Treasury Regulations, many questions remain outstanding, especially with respect to retirement related provisions. The House and Senate Republican leadership, further, have not released detailed plans about reforming the Internal Revenue Code or Treasury Regulations with respect to the U.S. retirement system. However, House and Senate Republicans, under Obama's Administration, have generally sought to reduce tax expenditures, including with the Tax Reform Act of 2014. Tax incentives for retirement planning are some of the greatest tax expenditures under the Internal Revenue Code, and have therefore historically become a target of reform for House and Senate Republicans. The Tax Reform Act of 2014 includes the following provisions, which may be indicative of upcoming reform efforts:
- aggregate and reduce the number of tax brackets
- establish a limit on pre-tax contributions to plans
- require all defined contribution plans to permit Roth contributions
- impose a freeze on certain retirement contribution and benefit limits
- subject all defined contribution plans to the contribution limits in 401(k) plans
- eliminate certain plans such as traditional Individual Retirement Accounts (IRAs) and Simplified Employee Pensions (SEPs)
Under the Trump Administration, we believe it will be the goal of House and Senate Republicans to undo significant regulation passed under the Obama Administration. The retirement and health systems are likely to be greatly impacted, because they make up a large part of spending and tax expenditures in this country.