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Election 2020: Preliminary benefit and compensation implications

Executive Compensation|Health and Benefits|Retirement
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By Ann Marie Breheny , Stephen Douglas , Kathleen Rosenow , Maria Sarli and Steve Seelig | November 25, 2020

This overview covers health care, retirement, tax, executive compensation and other workforce-related implications of the 2020 elections.

Based on vote counts at the time of this writing, former Vice President Joe Biden is the presumptive winner of the presidential election, though some results are subject to recount and President Donald Trump’s campaign has launched legal challenges in a few states.

In Congress, Democrats will hold a majority in the House of Representatives for the 117th Congress (2021 – 2022). Control of the Senate will be determined by two run-off races that will be held in Georgia on January 5. If Republicans win either of those seats, they will keep their majority for the 117th Congress. If Democrats win both seats, there would be a 50-50 tie and presumptive Vice President Kamala Harris would be the tie-breaking vote, which would give Democrats the majority.

This overview of the benefit-related implications of the 2020 elections is based on an assumed Biden presidency.

General overview

During his campaign, President-elect Biden issued proposals addressing health care and retirement; calling for additional payroll and income taxes on corporations and higher-income taxpayers; supporting paid family, medical and sick leave; proposing an increase in the federal minimum wage; and more. Many of his proposals will require legislative action, and the outlook for such action during the 117th Congress will depend on the outcome of the Georgia elections and the willingness of congressional leaders to work together to approve legislation, among many other factors.

In addition to pursuing legislative action, a Biden administration may use administrative and executive authority to advance its policy priorities. These actions could include new executive orders and agency rules and related guidance as well as actions to revise or rescind some executive orders and regulations issued by President Trump and his administration.

Health care

COVID-19 is expected to be a top priority for President-elect Biden. He has established a task force to help guide public health and economic policies addressing COVID-19. During his campaign, he said he would expand testing; address vaccine distribution; and provide support to state and local governments, small businesses and others. The first of several COVID-19 vaccines could be approved in late 2020 or early 2021, so the new administration would be expected to take steps to facilitate distribution of, and in many cases payment for, the vaccines.

President-elect Biden campaigned on expanding the Affordable Care Act (ACA) by creating a public option and expanding premium tax credits. Such proposals would require legislative action. President-elect Biden could also focus on proposals that can be achieved through executive or administrative action. For example, he could expand outreach and enrollment through the ACA marketplaces. He suggested that he would reinstate rules prohibiting health care discrimination based on gender identity. President Trump’s executive and administrative actions to expand state waivers and expand access to plans that are exempt from some ACA requirements also could be revised or rescinded.

The Supreme Court heard oral arguments on the ACA on November 10 and is expected to issue its ruling in California v. Texas by mid-2021. The case centers on whether the individual mandate is unconstitutional without an associated tax penalty, and whether the individual mandate can be separated from the rest of the law if it is found to be unconstitutional. Though oral arguments created a general expectation that the court will generally preserve the law, a decision striking down all, or significant portions, of the law could have wide-ranging implications for individuals, employers, providers and other stakeholders.

Lowering prescription drug costs was under active discussion in Congress and on the campaign trail during 2019 – 2020. President-elect Biden proposed allowing the secretary of Health and Human Services (HHS) to negotiate drug prices for Medicare, ending the tax deduction for pharmaceutical advertising and allowing drug importation if HHS certifies the drugs are safe. He also proposed limiting launch prices for new prescription drugs that lack market competition and generally limiting price increases for existing drugs to the rate of general inflation. Many of these proposals — and others — have been discussed in Congress. They have not yet been enacted but could return to the agenda during the 117th Congress. Like President Trump, President-elect Biden could use executive or administrative action to address prescription drug costs.

Surprise medical billing was also under discussion in Congress during the 2019 – 2020 term. There was broad agreement among lawmakers that patients should be protected from balance billing by medical providers they do not choose; however, no agreement was reached on how provider payments should be calculated when balance billing is prohibited. President-elect Biden also expressed support during his campaign for ending surprise billing. Congress may renew discussions in 2021, though similar challenges to reaching an agreement will remain. Executive or administrative action on surprise billing is possible.

President-elect Biden said he would prioritize enforcement of state and federal mental health parity laws. He would have the authority to prioritize enforcement of the federal Mental Health Parity and Addiction Equity Act, which is under the jurisdiction of the departments of Labor, Treasury and HHS. In addition, he supports using the government’s antitrust authority to address health care industry consolidation.

Action at the state and local level is also possible. Many employer-sponsored plans are governed by ERISA, which preempts numerous state and local laws; however, a patchwork of varying state and local laws could nevertheless create employee communication, reporting or other compliance burdens for employers.

Retirement

Retirement savings could provide an area for possible bipartisan discussion and compromise during the 117th Congress. President-elect Biden issued campaign proposals to “equalize” the tax benefits of defined contribution plans, provide tax incentives to encourage plan sponsorship among small businesses, provide automatic 401(k) programs to give workers without an employer-sponsored plan access to a retirement savings plan, allow catch-up contributions for workers who temporarily leave the workforce to care for family members, and allow survivors of sexual and domestic violence to access their retirement savings.

Retirement savings legislation generally attracts bipartisan support, and bipartisan bills introduced during the 2019 – 2020 legislative term could provide the foundation for discussion during the 2021 – 2022 term. Senators Rob Portman (R-OH) and Ben Cardin (D-MD) sponsored the Retirement Security and Savings Act (S. 1431), and House Ways and Means Committee Chair Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) sponsored the Securing a Strong Retirement Act (H.R. 8696). Representative Neal is expected to chair the Ways and Means Committee in 2021 and 2022, giving him the authority to move the Securing a Strong Retirement Act to a committee vote, though there would be no guarantee for additional action.

Defined benefit plans received some attention during the 2020 legislative session and could remain under discussion in 2021. The House twice approved provisions to extend amortization of liabilities for single-employer retirement plans to 15 years and to stabilize the interest rate corridor. The provisions were approved as part of the HEROES Act, sweeping legislation addressing COVID-19 relief and economic stimulus. The HEROES Act, however, has not been approved by the Senate. The defined benefit provisions could remain under discussion if negotiations toward a COVID-19 bill resume or in separate retirement security discussions next year.

Regulatory changes for retirement plans could also occur under President-elect Biden’s administration. Shortly before the election, the Department of Labor (DOL) finalized a rule that limits the ability of retirement plan sponsors to consider environmental, social and governance (ESG) factors when choosing plan investment options. In addition, the DOL issued a proxy voting proposal that directed fiduciaries to act in accordance with the economic interest of the plan and plan participants based only on factors they “prudently determine will affect the economic value of the plan’s investments.” In contrast, House and Senate Democrats have supported the ability of sponsors and fiduciaries to consider ESG factors, and a Biden administration could review and possibly modify these rules. In addition, President-elect Biden could order the DOL to review the current fiduciary standard. The Trump administration generally reinstated the fiduciary rule that was in place before the Obama administration issued a stricter rule in 2016. President-elect Biden’s administration could seek to modify the current rule and move it closer to the rule issued during the Obama administration.

Tax provisions

President-elect Biden proposed increasing tax rates on higher-income households and on corporations. The Tax Cuts and Jobs Act (TCJA) reduced corporate and individual tax rates and enacted a wide range of other provisions. President-elect Biden criticized the TCJA, saying it benefits higher-income taxpayers and corporations over lower- and middle-income workers, and he proposed repealing some TCJA provisions for higher-income taxpayers. For example, he proposed to reinstate the 39.6% top tax rate (under current law, the top rate is 37%), taxing capital gains as ordinary income for taxpayers with income over $1 million and eliminating the stepped-up basis for inherited assets. He also proposed raising the corporate tax rate to 28% and establishing a 15% minimum rate for some companies. In addition, he has proposed imposing payroll taxes on wages over $400,000. These proposals would be unlikely to see action if Republicans hold the Senate majority.

Executive compensation

With Biden’s proposals to increase marginal tax rates, social security taxes and capital gains taxes unlikely to be enacted unless Democrats win both Georgia Senate runoffs on January 5, the focus for executive compensation will turn to the regulatory front — specifically to a Democratic-led Securities and Exchange Commission (SEC). While issues related to COVID-19 are likely to take precedence over any other actions, expect that recent changes to regulations passed along partisan lines will be revisited during a Biden administration. These could include easing the recently imposed restrictions on proxy advisors, proxy access and shareholder proposals, which could increase shareholder influence over corporate operations. As to ESG issues, the SEC also may revisit its principles-based approach to the recently mandated rules for disclosing human capital metrics in company 10-K forms to require specific ESG-related disclosures for all companies.

Workforce proposals

President-elect Biden proposed new benefits and protections for workers, including an increase in the federal minimum wage, overtime protections and paid leave. In terms of the federal minimum wage, President-elect Biden favors increasing it to $15 per hour. He also supports the Paycheck Fairness Act, which addresses wage discrimination by, among other things, narrowing the “factor other than sex” defense to apply only where the wage disparity is based upon a bona fide factor other than sex, such as education, training or experience. These proposals have been pending in Congress for several years, and the prospects for final action during the 117th Congress are not clear.

A similar outlook faces congressional action on paid leave. President-elect Biden supports paid family and medical leave based on proposals such as the FAMILY Act, which would provide workers two-thirds of their salary (subject to a cap) for up to 12 weeks of qualifying leave. He also supports the Healthy Families Act, under which employees would earn an hour of paid sick leave for every 30 hours worked, up to seven paid sick days per year. These proposals have been pending in Congress for several years and would face an uncertain outlook during the next Congress.

President-elect Biden said he would ensure that workers receive the overtime protections to which they are entitled. In addition, he proposed restoring the broad definition of “joint employment” and stopping employers from misclassifying workers (including “gig” workers) as independent contractors. President-elect Biden could attempt to implement such proposals through executive and administrative action.

Looking ahead

The first effects of the election results will play out when the current Congress returns to session in December. This “lame duck” session will involve lawmakers who have served during the 2019 – 2020 legislative term, including some who will not return for the 117th Congress. During this session, Congress must approve legislation to fund the government starting after December 11 and may extend some expiring tax provisions and health care programs. Congress could also resume negotiations over a COVID-19 relief and stimulus bill, though action is not guaranteed.

In addition to completing work for the 2019 – 2020 legislative term, Congress and the new administration will be organizing and planning for 2021. In Congress, some committees that have primary jurisdiction over employee benefit and tax issues will have new committee leadership, even if Republicans retain the majority for 2021 – 2022. Term limits imposed on Republican committee chairs will require Senator Charles Grassley (R-IA) to give up his chair at the Finance Committee. He could be succeeded by Senator Mike Crapo (R-ID). Senator Lamar Alexander (R-TN), who has chaired the Health, Education, Labor and Pensions (HELP) Committee, is retiring and could be succeeded by Senator Richard Burr (R-NC). If Democrats gain the majority, Senator Ron Wyden (D-OR) would be expected to chair the Finance Committee and Senator Patty Murray (D-WA) would likely chair the HELP Committee. New committee leadership could bring new legislative priorities to these committees.

During its first days, the new Biden administration is likely to place a hold on rulemaking and guidance that has not taken effect. Such action has become typical so that the new administration can review guidance projects. President-elect Biden will also be organizing his administration and announcing nominees for cabinet and other important appointed positions. Cabinet members and many other nominees will require Senate approval.

The 117th Congress will commence next January, and President-elect Biden will be sworn in on January 20, 2021.

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