Political Gridlock and Pension Law

The Presidential campaigns rarely mention pension issues, but pension law is shaped by politics. What do current political trends mean for the future of pension law? A recent book by two prominent congressional scholars tells us that the political gridlock in Washington is Even Worse Than It Looks. The authors, Thomas E. Mann and Norman J. Ornstein, explain that the causes for this include:

•  Political parties that are polarized and “vehemently oppositional”;  

•  The “checks and balances” in the U.S. constitutional system, which present “more structural impediments to action than any other major democracy”;

•  Redistricting that allows politicians to run in “safe” districts, not requiring them to respond to diverse political views;

•  Splintered media sources that narrow their ideology to viewers’ preferences, promoting extremism rather than centrism; and

•  Campaign finance laws that allow huge sums of money to buy negative, polarizing ads.

What does this portend for tax simplification proposals that would affect pension laws? It suggests that no comprehensive changes are imminent. In some ways, this is good. It delays the possible disruption that could be caused by major “simplification” of the kind proposed by the Bush administration, which would consolidate various retirement plans (457, 403(b), 401(k)) into a single form called an Employer Retirement Savings Plan. The American Society of Pension Professionals and Actuaries has stated that such reforms would “not be simplification” and “would disrupt saving, and force state and local government and nonprofits to modify their retirement savings plans and procedures.” Gridlock would also forestall proposals to reduce retirement plan tax benefits in order to raise revenue, such as the “20/20” proposal of the National Commission on Fiscal Responsibility and Reform that would limit annual contributions to the lesser of $20,000 or 20% of compensation.

The good news is that vast complexities of pension law could be simplified by administrative action and piecemeal legislation. Progress on simplifying pension law is possible despite a political situation that may remain Even Worse Than It Looks.