This report is current as of February 2, 2022.

Congress returned to Washington in 2022 facing a difficult legislative environment. The narrow margins in both chambers were already a huge impediment to passing legislation, but the fact that 2022 is a midterm election year only exacerbates the political tensions.

As a result, 2022 is expected to be relatively light on big legislative initiatives—though the atmosphere could be right for a dormant retirement savings bill to be rekindled. It is also expected to be big year for regulations, as the administration seeks to use the regulatory process to accomplish some of its priorities away from the gridlock on Capitol Hill. Here's a quick look at some of the key issues in Washington that could impact you and your clients in the year ahead.

Build Back Better Act in limbo

The year began with uncertainty on Capitol Hill about the fate of one of the president's key domestic priorities, the Build Back Better Act. The roughly $2 trillion bill that focuses on climate change and social programs was approved by the House of Representatives in November, but it collapsed in the Senate right before the holidays. Moderate Democratic Senator Joe Manchin of West Virginia objected to the size, scope, and some of the specifics of the bill—and his opposition was enough to derail the package in the 50-50 Senate.

As January ended, President Biden, Senator Manchin, and other Congressional leaders all professed that negotiations were not over, and that a slimmed-down version of the Build Back Better Act could still emerge. Trying to find a compromise that can placate moderates without alienating progressives will be a trick for Democratic leaders, but expect a sincere effort to find that sweet spot in the weeks ahead.

The collapse of the bill has left in limbo numerous tax provisions that were part of the House-passed version of the legislation. It has been a rollercoaster ride of uncertainty for investors and advisors over the last six months. Last summer, the original draft of the bill included an increase in the top individual income tax rate, a new top rate for capital gains, and changes to the estate tax. All of those ideas, however, were scrapped.

The bill that passed the House last November included a new surtax on the wealthiest individuals and an increase in the deduction for state and local taxes. It also placed new limitations on wealthy individuals whose aggregate retirement savings exceeded $10 million; called for the elimination of Roth conversions of after-tax contributions beginning in 2022; and eventually would have ended all Roth conversions for wealthier filers. Of course, those provisions died when the bill collapsed in the Senate. Whether any of those proposals will come back to life in a revised version of the legislation remains to be seen. 

SECURE Act 2.0 looks to be a priority in 2022

While uncertainty prevails on whether the Build Back Better Act can be resurrected, buzz in Washington is increasing that a long-stalled retirement savings bill could move forward this winter. The House Ways & Means Committee unanimously approved the Securing a Strong Retirement Act—better known as "SECURE Act 2.0"—back in May 2021, but it fell off the agenda as other priorities took over. Now, however, Ways & Means Chairman Richard Neal (D-MA) has said that the bill is back on the front burner.

The legislation would slowly raise the required minimum distribution age to 75 over the decade and increase catch-up contributions for individuals approaching retirement age. The bill would also expand auto-enrollment and auto-escalation requirements for new plans, speed up plan eligibility for long-term part-time employees, create a national lost-and-found database for retirement plans, and allow plans to match employee contributions to an employee's student loan payments, among other provisions. A Senate version of the bill differs in some key areas, but also enjoys bipartisan support. As the list of issues that could attract bipartisan support shrinks, SECURE Act 2.0 stands out as a proposal whose chances of being approved in 2022 seem to be rising.

Busy regulatory agenda

Almost any discussion of regulatory environment for registered investment advisors needs to begin with an issue that has been at the forefront of the industry's policy debates for more than a decade: the Department of Labor's (DOL) fiduciary rule. It is widely known that the Biden administration is planning another crack at redefining who is a fiduciary in the retirement savings context. On its regulatory agenda, released in December, the DOL said that it "would amend the definition of the term fiduciary … to more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries." The agency also said it would "evaluate available prohibited transaction class exemptions and propose amendments or new exemptions to ensure consistent protection of employee benefit plan and IRA investors." Reports have suggested the DOL could be poised to propose a new rule as soon as late in the first quarter of 2022.

At the SEC, a focus in 2022 is expected to be tougher enforcement of the agency's Regulation Best Interest, which went into effect last year. The agency has made it clear that it's seeing problems with proper compliance to the rule's standards by both investment advisors and broker-dealers, particularly in areas like rollover recommendations and alternative investment options. Expect a step-up in deficiency letters and enforcement actions this year.

Meanwhile, the SEC is planning an extremely aggressive regulatory agenda in the year ahead. Chairman Gary Gensler has outlined a dizzying array of nearly 50 issues on which he would like to see the agency take action. A key one for advisors to track is the SEC's broad review of equity market structure, undertaken in 2021 in the wake of the "meme stock" retail trading frenzy. Gensler has particularly focused on issues like the "gamification" of stock trading, payment for order flow, on-exchange vs. off-exchange trading, and settlement times. An overhaul of market structure would be a major undertaking, so don't expect a quick resolution.

Other issues on the SEC's agenda include the agency's December proposal to reform money market funds; forthcoming proposals on enhancing public company disclosures in the areas of climate risk, cybersecurity risk, and human capital; an effort to standardize when a fund can use terms like "green" or "sustainable" in its name; a review of special purpose acquisition companies (SPACs), the suddenly-hot alternative way for companies to go public; and cryptocurrency. Whether the SEC has the bandwidth to juggle all of these topics remains unclear, but Gensler's aggressive agenda has the potential for broad implications for individual investors and investment advisors.