Policy, Politics, and 401(k) Plans: What to Watch This Fall

Despite a rocky beginning to the year, markets have been strong since spring. As the calendar turned to September, both the S&P 500 and the Nasdaq were up about 12% for the year, while the small-cap-focused Russell 2000 was up more than 16%. Strong corporate earnings and the continued spending boom on artificial intelligence have helped overcome some market headwinds, including the on-again, off-again war in Iran, the ongoing disruptions to global shipping due to the uncertainty in the Strait of Hormuz, and a surprise trade war with Canada.

Meanwhile, in Washington, the looming midterm elections and a Congress struggling to find consensus have derailed most legislative initiatives. The House and Senate have been unable to get on the same page on numerous issues despite Republicans holding majorities in both chambers. As a result, much of the action plan sponsors and retirement professionals should watch is taking place at regulatory agencies. Here's a look at the developments most likely to affect plans and participants this fall.

Notable retirement initiatives

The Department of Labor (DOL) received more than 47,000 comments on its "Fiduciary Duties in Selecting Designated Investment Alternatives" rule proposal, published in March, that would simplify the process for plan sponsors to add alternative investment options to 401(k) plans. The financial services industry generally supports the proposal, though trade groups and companies, including Schwab, offered a variety of suggestions for improvements and clarifications in their comment letters. Democrats on Capitol Hill, as well as 22 attorneys general from Democratic-leaning states and consumer advocates, argued that the rule will increase cost and risk for participants. DOL has not committed to a timeline for finalizing the rule, but a final rule before the end of the year would not be surprising.

A second DOL proposal—a rewrite of the rule governing how fiduciaries weigh environmental, social, and governance (ESG) factors—is currently under White House review, the final step before a formal proposal. Expected this fall, the proposal would direct fiduciaries to select investments and exercise shareholder rights based only on financial considerations, marking the latest turn in an ongoing ESG back-and-forth that has produced sweeping changes across four consecutive administrations.

On Capitol Hill, there continues to be a push to allow Collective Investment Trusts (CITs) to be included as an option in 403(b) plans. Legislation passed the House of Representatives last fall, but the bill has stalled in the Senate. Sponsors of the Senate legislation are hoping the measure could be included in a broader legislative package during the post-election session of Congress at the end of the year.

The administration is also pushing forward with its effort to make it easier for employees who don't have access to a retirement plan to find a savings opportunity. A new website, TrumpIRA.gov, is slated to launch on January 1, 2027. It's designed to be a one-stop shop for low-fee, low-risk IRAs, and the administration has said it won't favor any financial institution on the site. Low-income workers will be eligible for up to $1,000 in matching contributions from the federal government if they open an account. Further rules and information are expected this fall as the administration strives to meet its timeline for launching the site.

Trump Accounts launch, but questions linger

One of the administration's signature initiatives, Trump Accounts, became operational on July 4. Created as part of last year's One Big Beautiful Bill Act, the accounts are available for any child under 18 and allow for annual contributions of up to $5,000 from parents, grandparents, employers, philanthropists, and others. The money is invested in low-cost index funds, with a State Street S&P 500 ETF tapped as the initial default investment. The administration announced that four more index funds—including two from iShares, a second State Street fund, and a Vanguard ETF—will soon be added as investment options. When the account holder turns 18, the account converts to a traditional IRA.

The primary attention-grabber is the $1,000 seed contribution from the federal government for children born from 2025 through 2028. Parents must file an affirmative election form for a child to receive the contribution. Treasury reported in August that Americans had opened more than 7 million accounts, of which 1.5 million had been validated as eligible for the government contribution.

Employers may contribute up to $2,500 per employee per year toward a child's Trump Account. That amount is excluded from the employee's income and counts inside, not on top of, the overall $5,000 annual cap. In June, DOL issued guidance confirming that such an arrangement generally will not be treated as an ERISA plan, provided participation is entirely voluntary and the employer does not restrict how funds are used beyond the tax code's limits, influence investment decisions, hold the program out as employer-established or maintained, or receive compensation in connection with the accounts. Benefits teams weighing whether to add a Trump Account contribution to their offerings should review that guidance closely.

With one administration official saying publicly that the goal is for all 70 million children under 18 to have an account, we can expect a marketing blitz in the months ahead to raise awareness and encourage new parents to open accounts. The Social Security Administration announced it is working on a plan to allow parents to open an account from the hospital as part of registering a newborn for a Social Security number. Expect participant questions to increase as awareness of the new accounts grows.

Several details about how the accounts will work are still to be determined. The administration has said the accounts will soon accept donations of stock, but the process is still in development, and it's unclear whether such donations will receive the same tax treatment as gifts to a charitable organization. If so, that could boost interest in the accounts from a tax-planning standpoint. Another key unknown is when and how accounts can be moved to an account holder's preferred financial services provider. Bank of New York Mellon serves as trustee for the initial accounts, but the administration has said transfers to other brokerages will be possible soon.

SEC advances e-delivery and reporting proposals

On July 16, the SEC proposed a rule that would allow financial services providers to send most regulatory documents to investors electronically by default, while still giving investors the option to receive paper copies. If implemented, the rule would cover a wide range of investor communications, including prospectuses for funds and other issuers, annual and semiannual fund shareholder reports, proxy statements, and trade confirmations. "In an age of artificial intelligence and blockchain technology, a default to paper delivery should be a relic, not a standard," SEC Chair Paul Atkins said in a statement announcing the proposal. Schwab, along with much of the financial services industry, has long advocated for e-delivery, making this a significant step forward. A public comment period for feedback on the proposal closes September 21.

At the same time, the SEC is sorting through more than 200,000 public comments—a record for any issue—on its proposal to allow public companies to report earnings semiannually rather than quarterly. The overwhelming majority of commenters are opposed due to concerns about reduced transparency. But the proposal is optional for companies, and it's far from clear that many large companies would switch to semiannual reporting even if given the opportunity. The SEC is expected to issue a final rule by year-end, potentially with changes from the original proposal.

New era at the Federal Reserve

As Kevin Warsh settles in as Fed chair, the focus has been on stubborn inflation and whether the Fed will need to hike rates this fall. More broadly, Warsh is looking to make significant overhauls to how the Fed operates. In his first few months on the job, he dramatically reduced the Fed's forward guidance and formed five independent task forces to examine nearly every aspect of how the central bank functions. Big changes are likely to come, particularly in how much and how often the Fed communicates, and perhaps even in how frequently the Fed makes monetary policy decisions. Expect a raft of changes to Fed operations in early 2027.

Midterm election season is heating up

With just weeks to go before the midterm elections, political uncertainty is beginning to take center stage.

All 435 House seats will be on the ballot this fall. An unusual flurry of mid-decade redistricting in 10 states may give Republicans a net gain of a handful of seats, but voters will have the final say in November. Given historical precedent, the president's low approval rating, voter frustration with the economy, and other headwinds, Republicans face a challenging outlook: Since 1906, the president's party has gained House seats in only three midterm elections. For these and other reasons, Democrats are favored to take the House majority, though likely by only a narrow margin. 

On the other side of Congress, we're in for an even tighter race. Republicans currently hold a 53-47 majority in the Senate, meaning Democrats need to gain at least four seats to take control. Of the 35 Senate seats on the ballot, six are considered toss-ups: Michigan, currently held by a Democrat, and five Republican-held seats in Alaska, Iowa, Maine, Ohio, and Texas. Even if Democrats hold Georgia and win the open Republican-held seat in North Carolina—both rated as leaning their way—they would still need to hold Michigan and win at least three of the five Republican-held toss-ups, a plausible but far-from-certain path. For now, Republicans are narrowly favored to retain their majority, potentially resulting in a split Congress for the next two years that may set new standards for gridlock and dysfunction.

Election season can bring increased market volatility, which may heighten participant anxiety as well. In the months ahead, plan sponsors and their advisors can play a key role in helping employees stay focused on their long-term financial plans and avoid emotional decision-making. As always, Schwab's Washington team will continue sharing timely perspective on policy and political developments to help support those conversations.