Stay in-the-know of how looming tax battles, regulatory shakeups, and legal risks are converging to potentially reshape the retirement landscape.
As 2025 unfolds, the retirement industry faces an evolving policy and regulatory landscape. The priority in Washington appears to be clear: extend the expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and implement other tax cuts promised by President Trump, while finding ways to pay for them. This goal will likely shape budget negotiations, with concerns from some that retirement plan tax incentives could be a target.
The massive suite of tax cuts implemented in 2017 under the TCJA will expire by the end of 2025 if Congress doesn’t act. Republican leadership in the House and the Senate recently cleared a big hurdle in their quest to renew the TCJA within one big budget bill – namely, passing a common budget resolution necessary to kick off the legislative process under budget reconciliation rules. Republicans are keen to use the budget reconciliation process due to their very slim majorities in Congress. This legislative tool allows for the passage of tax and spending measures with a simple majority in the Senate, bypassing the filibuster. But there's a caveat—every provision must comply with the Byrd Rule, which prohibits measures that increase the federal deficit beyond a 10-year window, among other specific requirements. At an estimated cost of $4.5 trillion to extend the TCJA over the next 10 years, this constraint will impact what can and cannot be included in reconciliation and could play an outsized role in shaping tax policy this year. Meanwhile, the ability to move a bill of this complexity—and magnitude—through Congress quickly will be a tall order.
When it comes to determining the cost of tax cuts and how, or if, to pay for them, lawmakers face some tough choices. The first being whether to use either the current law baseline or the current policy baseline. The difference determining whether a new proposal would cost money or have no budget impact. Even though the budget resolution was passed in both chambers, the baseline debate has not yet been decided.
House Republicans are seeking to use the current law baseline, which assumes TCJA provisions expire as scheduled and extending these provisions would be scored as a massive new tax cut costing approximately $4.5 trillion over the next 10 years. Under the House resolution, lawmakers would need to come up with $1.5 trillion in offsetting spending cuts. Since this would increase the deficit beyond the next 10 years, the TCJA extension would again have an expiration date to meet the Byrd Rule.
Senate Republicans are seeking to use the current policy baseline. This approach assumes extending the TCJA tax cuts is simply a continuation of current policy, has no cost, and does not increase the deficit. This approach provides lawmakers two advantages; first, it would require smaller spending cuts, mainly to offset President Trump’s other tax cut objectives (i.e. no taxes on tips, overtime, etc.); second, it would allow the extension of TCJA to be permanent, with one big caveat. The Senate parliamentarian, a nonpartisan role charged with determining compliance with the Byrd Rule, must agree. This is sure to set up some robust debate in the weeks ahead.
The House plans to move forward with bill markup sessions in some of the 11 committees with reconciliation instructions the week of April 28. Whichever baseline is determined, retirement-related tax incentives could be on the radar. At roughly $136B annually,
For now, there is no immediate risk to existing retirement tax benefits. In fact, bipartisan support for retirement savings incentives remains strong, particularly considering the success of the SECURE Act and SECURE 2.0. But as lawmakers search for revenue, no major tax expenditure is completely off the table.
While tax policy takes center stage, the regulatory environment is undergoing significant change—driven in part by executive action. Upon taking office, the administration issued a broad freeze on new regulations, casting doubt on several Department of Labor (DOL) initiatives, including the 2023 Fiduciary Rule. Designed to expand the definition of fiduciary advice under ERISA, the rule’s fate is uncertain and may ultimately be decided in the courts.
Meanwhile, another executive directive—the “10-for-1” order requiring agencies to eliminate 10 old regulations for every new one—has created additional complexity in rulemaking. This appears to have led to delays in guidance and a slower rollout of some retirement-related provisions from SECURE 2.0.
Among the most closely watched are the auto-enrollment mandate for new 401(k) and 403(b) plans and the new Roth catch-up rule, which requires individuals earning over $145,000 to make catch-up contributions on a Roth basis. Also in the spotlight is the so-called “Super Roth” provision that allows expanded Roth contributions under certain employer-sponsored plans. Many plan sponsors are awaiting final regulations or clarifying guidance before making administrative changes.
Finally, developments in ERISA fiduciary litigation continue to shape how employers and plan fiduciaries approach their responsibilities. A growing wave of copycat lawsuits alleging fiduciary breaches—often tied to investment performance, fees or plan design—has prompted calls for reform in how ERISA cases are pled and evaluated in court.
There is increasing momentum among lawmakers and the retirement industry to establish clearer pleading standard requirements for allegations of a breach of fiduciary duty, with the aim of reducing frivolous litigation while preserving protections for plan participants.
Plan fiduciaries may get support from an unlikely corner – the DOL. Current nominee to head DOL’s Employee Benefits and Security Administration (EBSA), Daniel Aronowitz, has written extensively – and not in a positive way – about the class action firms that have turned ERISA litigation into a profitable business. He has also been very critical of the Department of Labor for being “missing in action” in defending plan sponsors. If confirmed, Mr. Aronowitz is expected to be a positive force in combatting the proliferation of ERISA class action lawsuits and a supportive voice for plan fiduciaries.
The next few months could be pivotal in shaping the future of retirement policy. The intersection of tax reform, regulatory change, and litigation risk presents both challenges and opportunities for retirement plan sponsors. Though uncertainty may be part of the journey, many in the retirement industry feel a strong foundation has been set with SECURE 2.0 and other bipartisan reforms. One that remains committed to safeguarding the incentives and features that help Americans save for retirement.
Find more legislative updates and retirement trends from Principal® thought leaders on the Principal retirement research and insights webpage.
