Last year around this time, I wrote about the unfinished retirement business pending in Congress. And I can humbly report that my predictions were on the mark: The big retirement legislation of 2006 turned out to be HR 4, the Pension Protection Act, which was reported on in two Your Retirement columns earlier this year (see BusinessWeek.com, 9/6/06, "What the New Pension Law Means to You," and 8/18/06, "Deciphering the New Retirement Law"). Despite continuing concern about long-term financing for Social Security, there was no progress on shoring up either issue.
So when the new, Democrat-controlled Congress convenes next year, what is it likely to do on issues that could affect your retirement? Conversations with key Capitol Hill staff and lobbyists in the last days of the 109th session suggest that at least three retirement issues are likely to surface on the Congressional agenda between now and the rush to the 2008 elections. They are: requiring more disclosure of the fees you pay for your 401(k) investments, requiring the federal government to negotiate Medicare Part D prescription prices, and reforming Social Security. Here's a summary of what sources who work on retirement issues say you can expect:
Most 401(k) fees—including commissions and administrative costs—are passed on to account holders, who are unaware that these costs can substantially reduce the growth in their retirement accounts. The Labor Dept. publication, A Look at 401(k) Plan Fees, offers this example of why it's important to know what fees you're paying: If a young employee with a 401(k) balance of $25,000 receives a 7% average return on the investment over 35 years and pays fees of .5%, the account will grow to $227,000, even with no additional contributions. But if the fees and expenses were 1.5%, the account balance would be $163,000, or 28% lower.
The fee issue has been brewing for some time, but two recent events have added momentum. One is a spate of class action lawsuits filed by 401(k) account-holders this fall against their blue-chip employers, alleging, among other things, that the employers "breached a variety of fiduciary obligations under the Employee Retirement Income Security Act (ERISA) by subjecting the plans and their participants to excessive fees and expenses, which operated to reduce participants' account balances."
The other was the release earlier this month of a report by the General Accounting Office that concluded that federal law doesn't require 401(k) plans to provide enough information on fees to enable you to make the best investment choices within your plan.
In releasing the report, U.S. Rep. George Miller (D-Calif.), who's the new Democratic chairman of the House Education & the Workforce Committee, said he wants the committee to hold hearings on the issue.
Medicare Part D
Even if you're not eligible for Medicare, the cost of prescription drugs under the new Part D program probably affects your parents now and will collide with your retirement budget sometime in the future. The law that created the prescription-drug benefit prohibited Medicare from negotiating the prices with pharmaceutical companies—something the federal government already does for the Veterans Administration, and for Medicaid, the medical program for low-income people.
Many Democrats argue that such negotiations would lead to lower prescription costs. Nancy Pelosi, the next Speaker of the House, has put legislation to allow the negotiations on her agenda for "The First 100 Hours" when the new House convenes.
On the Senate side of Capitol Hill, key Democrats, including Max Baucus of Montana, the new chairman of the Finance Committee, and Ted Kennedy of Massachusetts, have also expressed interest in reducing costs of the drug program and in other Medicare issues. Baucus has also said he would like to hold hearings on how to reform the entire Medicare program, which is projected to spend more money than it takes in starting in 2010.
Treasury Secretary Henry Paulson Jr. created some political ripples when he said recently that the Administration was prepared to return to a discussion of Social Security reform—an effort that has languished on the legislative docket for several years—with the Democrats, with "no preconditions" on the options to be discussed. Key Democrats on both sides of the Hill have said they're willing to hold hearings on ways to guarantee the long-term solvency of the program.
However a spokesperson for House Ways & Means Committee Chairman Charles Rangel (D-N.Y.) says the Administration's proposal to divert some Social Security funds into private accounts is a "non-starter," and suggests there's little hope for a bipartisan agreement unless the President backs off from the idea.
Of course, predicting what any Congress will do—and how a President will respond—is always an iffy proposition. David Wray, president of the Profit-Sharing Council of America, a group that represents companies with 401(k) plans, says a hopeful sign for action on retirement issues is that "pension legislation has been bipartisan" in recent years. But he adds that "it's hard to pass big legislation any time," and now, with Democrats in the majority on the Hill and Republicans controlling the White House, reaching consensus when there's "a split government" presents a serious challenge.
What does this say about your own retirement planning to-do list? My suggestion for a New Year's resolution is to read the Labor Dept. booklet on 401(k) fees mentioned above, and—without waiting for new legislation—try to figure out what the investments and other expenses are costing you. If you don't like the answer, make changes before you lose any more money unnecessarily.