Washington and Regulatory Updates That May Shape Retirement Plan Strategy

As we head toward the midpoint of 2026, it has already been a strange year for investors. The S&P 500 was down for the first quarter, but a 16.1% rebound in April and May produced the fifth-best two-month period for the index since 1950. Investors are cheering the strong returns, but there remains significant anxiety. Inflation has been rising, gas prices remain sky-high, consumer confidence has plummeted, geopolitical uncertainty persists, and the Federal Reserve is signaling that it may be a while before interest rate cuts resume. Yet the market remains solidly in positive territory for the year.

In Washington, the midterm elections are looming larger and larger. Legislative activity has slowed and the narrowly divided Congress is unlikely to pass more than a handful of issues in the coming months. But regulatory activity remains busy, with several notable rule proposals in the queue. Here's a quick look at the issues investors, plan participants, and plan sponsors should be keeping an eye on.

New leadership at the Federal Reserve

In May, the Senate confirmed Kevin Warsh as the 17th Federal Reserve chairman. Warsh, who served as a Fed governor from 2006 to 2011, arrives under pressure from the president to cut rates, but it's important to remember that he is just one of 12 voting members of the Federal Open Market Committee (FOMC) that sets interest rates–and almost all of them have indicated little interest in cutting rates in the face of rising inflation and an uncertain economic picture. It's possible the Fed won't cut rates at all this year and some FOMC members have even hinted that a rate hike may be on the table.

Fed watchers are interested to see what kinds of changes Warsh makes as he settles into his new role. He has said that he believes the Fed "overcommunicates." He has pointedly not committed to hold a press conference after every Fed meeting, something his predecessor, Jerome Powell, began doing in 2019. And Warsh has said he is not a fan of forward guidance like the "dot plot," where each member of the FOMC shares anonymously their interest rate projections for the next two to three years. Whether and when he may implement changes to how much the Fed shares information remains uncertain.

Warsh will see a familiar face at the central bank's headquarters: Powell is just the second Fed chairman ever to stay on as a "regular" governor after his term as chair ends, the first since 1948. Powell's unusual decision meant that Stephen Miran, who was nominated to the Fed board last September and dissented from every FOMC vote since in favor of more aggressive rate cuts, stepped down in May to make room for Warsh.

Priorities on Capitol Hill

While the looming midterms and narrow margins are making it difficult for Congress to get much done, there are at least a couple of issues that could move forward this summer. In an effort to make housing more affordable, both chambers have passed by overwhelming bipartisan margins legislation to boost housing supply by reducing regulatory red tape and expanding eligibility for federal assistance. The bill also bans institutional investors from owning large numbers of single-family homes. Final negotiations between the two chambers to harmonize the bills into a final version are underway and proponents are optimistic the bill can get across the finish line this summer.

Another bill to keep an eye on is the Clarity Act, which would create a regulatory framework for cryptocurrency. A key Senate committee approved the bill, which clarifies when crypto tokens are commodities and when they are securities, in May. The bill gives much of the oversight responsibility to the Commodity Futures Trading Commission (CFTC) while the SEC would retain oversight of digital securities. Difficult issues remain to be resolved, but a vote in the full Senate this summer is possible.

The fast-growing prediction markets is another area that is suddenly getting attention for Capitol Hill. These markets, where individuals can wager on everything from which party will win the midterms to who will win the Best Actor award at the Oscars to whether a pop star will say a certain word from the stage at a concert, have exploded in popularity. But they have also been plagued by insider trading concerns, particularly on political and geopolitical developments. Earlier this year, the Senate banned senators and staff from participating in these markets, and the House is expected to do the same. Bipartisan bills have been introduced to restrict the ability of administration officials to participate in these markets. Regulators are also analyzing ways to ensure the integrity of these markets without stifling growth and innovation.

Key regulatory issues to watch

As expected, the Department of Labor (DOL) issued a rule proposal in March to allow 401(k) plans to invest in private markets, cryptocurrency, and other alternative assets. While the "Investment Selection Rule" ostensibly is designed on implementing the president's August 2025 executive order to expand 401(k) investment options to include alternative assets, the proposal focuses more broadly on how retirement plan fiduciaries should select and oversee all investment options for a plan. It sets out a "prudent process" with six factors for a "plan fiduciary to objectively, thoroughly, and analytically consider and make determinations about when selecting" investment options for a plan. The six factors include performance, fees, liquidity, valuation, performance benchmarks, and complexity. A plan fiduciary that follows the process outlined in the proposal with regard to the six factors would be presumed to have met its fiduciary duty. Schwab filed a comment letter with the DOL on June 1 generally supporting the proposal but suggesting several improvements and clarifications that would make the rule stronger.

Meanwhile, on April 30 the president signed an executive order to boost retirement savings opportunities for some of the estimated 56 million workers who don't have access to a retirement plan through their employer, something he discussed in February's State of the Union address. The executive order directs the Treasury to launch a website (TrumpIRA.gov) next year that will function as a sort of one-stop shop for IRAs. Workers who earn less than certain income limits will be allowed to pick a provider, open an IRA, and get up to $1,000 in matching contributions from the federal government. Accounts offered through the site can come from any financial institution but will have to meet certain criteria for low fees, no account minimums, and access to low-risk, diversified investment options. The order also says that the administration will develop legislative recommendations to Congress to expand access to the IRA portal, likely by raising the income limits so that more individuals can be eligible for the government match.

Finally, Treasury is moving quickly to launch "Trump Accounts," the accounts for children that were created by 2025's "One Big Beautiful Bill Act." In late May, the administration launched an app where parents can manage their children's accounts. On July 6, the federal government will start distributing $1,000 to the accounts of eligible children who were born on or after January 1, 2025. That's also when parents, grandparents, guardians, and others can began making contributions, up to $5,000 annually until the child turns 18, at which time the account converts to a traditional IRA. Treasury announced that more than 6 million families had filed forms to open a Trump Account by the end of May. Expect a robust communications effort from the administration to make sure parents are aware of the new accounts and realize that they may be eligible for the starter contribution.

Midterm election update

Midterms are historically terrible for the president's party. The party in the White House has only managed to gain seats in the House in three midterm elections since 1906. That history, plus the president's low approval ratings, provides momentum for Democrats. But the gerrymandering frenzy that has swept across nearly a dozen states has reduced the number of House districts that are considered competitive. As June began, the non-partisan Cook Political Report, a Washington-based election analysis website, ranked just 18 of the 435 Congressional races as toss-ups, and just 17 more as learning one way or the other. In other words, less than 10 percent of all House seats are considered truly competitive. But Democrats need only flip a handful of seats to capture the majority. They remain favored to do so.

In the Senate, just 35 seats are up for election and Democrats need to net four seats to win the majority. Four of those races are considered toss-ups: Georgia, Maine, Michigan, and North Carolina. Since two of those currently have a Republican senator and two have a Democratic senator, a Democrat sweep would net just two seats. Democrats are eagerly contesting seats in red-leaning states like Alaska, Iowa, Ohio, and Texas in hopes of finding additional wins. But the odds are daunting and Republicans remain a slight favorite to hold on to their majority in the Senate. A split outcome, with Democrats potentially in the majority in the House and Republicans retaining the Senate, would be a recipe for even more gridlock on Capitol Hill in 2027.