As the administration of President-elect Joe Biden ramps up marching orders regarding retirement policy, one early focus is likely to be on ordering non-enforcement of the U.S. Department of Labor’s revamped ESG rule, State Street’s managing director of retirement policy Melissa Kahn said in an interview.

Even though the DOL modified the new rule in response to an outpouring of criticism, the Biden administration is likely to do a sweep of all regulatory agencies to ensure that regulations encourage environmental, social and governance investing and that companies address climate change, racial equity and inclusion, Kahn said.

“I think the Biden administration will say, ‘Let’s put a hold on any enforcement of this regulation.’ Whether they decide to pull back the regulation entirely or make revisions remains to be seen, but the first thing they can do is put in place a non-enforcement policy,” Kahn said.

The rule has had a chilling effect on financial advisors who work with employers and other clients who want ESG funds in retirement accounts, she said. While the DOL regulation only targets ERISA funds, it also hampers the inclusion of ESG investments in non-ERISA plans, including municipal, state and university system plans.

“I receive many inquiries from advisors about ESG,” Kahn said. “I think given the Biden administration’s key focus on climate change, they’ll take a look at what this regulation does and move forward with a non-enforcement policy. A lot of millennials and Gen Zs really, really want ESG funds in their plans and this relief will help advisors who work with both ERISA and non-ERISA plans feel confident that the ESG investments they choose won’t trigger compliance issues or enforcement.”

Kahn also believes the Biden administration will focus on the never-ending saga of fiduciary regulation. The DOL’s fiduciary rule pertaining to investment advice was overturned by the Fifth Circuit Court of Appeals two years ago, but it’s speculated that the Biden administration will revisit at least parts of the rule.

The current uncertainty is especially concerning to advisors in the rollover space regarding whether recommending a rollover is a fiduciary act or not.

“For financial advisors, this not knowing is a big deal,” Kahn said.

The Obama-era rule would have classified rollover recommendations as fiduciary advice. In the proposed prohibited transaction exemption released by the DOL over the summer, the agency “pulled back an advisory opinion that was issued years ago that said rollover recommendations are fiduciary advice,” Kahn said. “So it leaves it up to interpretation” whether rollover recommendations are or are not a fiduciary event.

As for Biden’s relationship with Congress, Kahn said it is highly unlikely that Democrats will win both open Senate seats in Georgia. As such, Congress will remain divided with the GOP retaining control of the Senate and Democrats maintaining its majority in the House.

The market likes gridlock because it means there will be no new taxes or extreme measures, Kahn said.

Despite gridlock, she predicts the bipartisan “Securing a Strong Retirement Act of 2020” (SECURE Act II)—the sweeping retirement package co-sponsored by House Ways and Means Committee Chairman Richard Neal (D-MA) and the committee's ranking member, Kevin Brady (R-Texas)—will pass in the coming year.

“We worked closely with Chairman Neal and Ranking Member Brady, and no matter what happens in the Senate, the Democrats will maintain their majority in the House and Neal will hold hearings and push forward with this bill, which has a lot of support,” Kahn said.

The bill would raise the age, from 72 to 75, when people have to begin taking required minimum distributions from their 401(k)s and individual retirement accounts. It would also exempt individuals with account balances of $100,000 or less from the RMD rule.

“Raising the retirement age to 75 is a great opportunity for advisors, who will be able to continue to advise clients on how to invest for a longer period of time,” Kahn said. “Baby boomers are either working longer by choice or by necessity, so this gives them and their advisors flexibility.”