The Year Ahead

Navigating 2024's Policy Challenges

2024 concerns can be simplified into three main items: the Department of Labor’s (DOL) fiduciary rule proposal, upcoming elections, and potential tax reform

by Alex Kim

Alex Kim is Vice President, Public Policy, with Finseca. 

As we find ourselves in the initial months of 2024, Financial Security Professionals are navigating myriad federal policy issues that carry far-reaching implications for our profession and the diverse needs of the individuals, families, and business clients we serve. These policies will significantly shape our strategies and decision-making, particularly when devising a holistic plan that includes life insurance, retirement planning, and investments.

Challenges spilling over into 2024 include high borrowing costs, persistent inflation worries, and multiple armed conflicts worldwide. Adding to the complexities is the issue of federal legislative inactivity, a growing federal deficit, and the absence of decisive policy action on important matters, such as taxation and government spending. However, 2024 concerns can be simplified into three main items: the Department of Labor’s (DOL) fiduciary rule proposal, upcoming elections, and potential tax reform.

Department of Labor’s (DOL) Fiduciary Rule Proposal

The DOL’s proposed fiduciary rule, released on October 31, 2023, expands the definition of investment fiduciary advice while simultaneously restricting the business practices of Financial Security Professionals. If the proposal moves forward, it will drastically impact the profession’s ability to provide holistic retirement planning to clients who depend on retirement advice. Independent research by Ernst and Young and other thought leaders has proven that a holistic financial plan is essential to achieving financial security. EY’s research shows that consumers with permanent life insurance, savings through investments, and guaranteed income from annuities get better outcomes.

Contrary to DOL’s intended goal, the proposal could hinder or even deny needed retirement advice, particularly for individuals with low to moderate income. Additionally, it will also make it more challenging to enter or start a career as a new Financial Security Professional. The DOL’s proposal is offensively framed, misleading, and substantively very bad. Even more, it overlooks the existing robust investor protections provided by the SEC’s Regulation Best Interest and the adoption of NAIC’s model best interest regulation for annuities in over 40 states.

Finseca has worked collaboratively with trade coalition partners, policymakers on both sides of the aisle, and members to rally support to defeat this rule. In addition to the comment letter submitted by Finseca on January 2, 2024, more than 1,200 Finseca members submitted letters of their own. Working with champions on Capitol Hill, Finseca is attempting to prohibit government funds from being spent on implementing this rule – through the appropriations process.

Upcoming Elections & Potential Tax Form

Narrow margins within the 118th Congress have posed challenges for policymakers as leaders grapple with securing legislative victories in an increasingly partisan environment. Despite numerous dramas and subplots unfolding on Capitol Hill throughout 2023, attention is now turning towards the upcoming 2024 Election Day. Close margins mean the Speaker’s gavel control in the House depends upon a few key races. All eyes are on the 18 Republicans in districts won by President Biden in 2020 and the five Democrats in districts won by former President Trump.

In the face of a staggering $12 trillion protection gap and the daunting reality that tens of millions of Americans have minimal to no retirement savings, we need policymakers and regulators to come alongside Financial Security Professionals....

Over in the Senate, a few key states will decide the Majority Leader. Democrats face tough races in traditionally red states, such as Montana, Arizona, and West Virginia. Furthermore, there has been an unprecedented number of retirements from Congress. An election that results in a divided government is best for the profession and clients, as it will force compromise and bipartisan dealmaking. The election results have the potential to reshape the legislative landscape, particularly with the sunset of the Tax Cuts and Jobs Act (TCJA) in 2025, creating what lawmakers have referred to as the “Superbowl of Tax Reform.”

Financial Security Professionals will need to closely monitor these developments, as potential changes in taxation and regulations can impact client strategies, including financial and estate planning, as well as their own business practices and compliance.

Several key provisions of TCJA are slated to sunset after 2025, including the increased estate tax exemption, child tax credit, SALT deduction cap, individual income tax rates, standard deductions, and 199A deductions for pass-through businesses. The projected cost of extending TCJA for an additional ten years through 2035 is estimated to exceed $3.5 trillion. The fate of these provisions beyond 2025 will be significantly influenced by the outcomes of elections, determining both the President’s and party’s control in each legislative chamber.

With a growing federal deficit, regardless of who is Chair of the House Ways and Means Committee – Representative Jason Smith (R-MO) or Representative Richie Neal (D-MA)- both leaders must think carefully about revenues and spending. Additionally, the anticipated transfer of approximately $100 trillion from baby boomers to the next generation in the coming decades is poised to prompt legislative proposals aimed at capturing additional revenue. These tax proposals will be strategically targeted to address escalating government debt, Medicare and Social Security shortfalls, and to offset other federal initiatives.

In fact, there are several tax proposals targeting Americans based on specific income and wealth thresholds. Both parties have recently taken opposing stances on wealth transfer and wealth transfer tax, as evidenced by over 160 House Republicans supporting a proposal for estate tax repeal. At the same time, 17 Senate Democrats have endorsed taxing the wealthy. The ultimate success of either proposal is contingent upon complete control of Congress and the White House. If one party achieves this, it enhances their prospects of reaching their policy goals. Conversely, in the event of continued divided government post the November election, negotiations for a middle-ground solution are likely to unfold. There is always a potential for some work to be accomplished during Lame Duck, the period after the election, but before the new Congress, when lawmakers are willing to make deals to notch final wins.

In the face of a staggering $12 trillion protection gap and the daunting reality that tens of millions of Americans have minimal to no retirement savings, we need policymakers and regulators to come alongside Financial Security Professionals. With greater scale and a more influential collective voice, there exists the potential to address the substantial challenges that loom in 2024. While the obstacles ahead pose significant challenges, together, they are not insurmountable.