Near-Term in Washington: Federal Policy Outlook
By: Tony Roda, Williams & Jensen
It's expected that the House and Senate tax-writing Committees – House Ways & Means and Senate Finance – will use 2026 to gather bipartisan proposals that ultimately would comprise a SECURE Act 3.0.
Congress will have a brief reprieve over the upcoming holidays from the political and policy wars related to federal spending. All of you know that the recent federal government shutdown ended on November 13, federal spending has resumed, and 670,000 federal workers who were furloughed have returned to work. The budget impasse was the longest in our nation's history when viewed in the context of shutdowns that affected all federal agencies and programs.
While the new end-of-January deadline still is a couple months away, it nonetheless looms over Washington, and we may not be out of the woods on the possibility of future shutdowns. Bear in mind that only three of the 12 annual appropriations bills for fiscal year 2026 have been enacted. The fiscal year began on October 1.
Come late January, we might see an all too familiar situation play out. The House Republican Leadership recently released its floor schedule for 2026. Interestingly, the House is scheduled to not be in session during the week leading up to the new funding deadline. So, it looks like the House leadership may re-run the strategy it used this year. They are likely to pass a new stopgap appropriations bill during the week of January 20 and then leave town to put maximum pressure on the Senate to approve the House-passed bill, as is. However, I'm not sure the Senate will be in a better position to quickly pass a House-passed bill next year than it was in October of this year. We could see another lengthy shutdown as a result.
Part of the reason a sufficient number of Senate Democrats ultimately voted to end the shutdown was because Majority Leader John Thune (R-SD) agreed to schedule a vote on the extension of the expiring tax credits for the Affordable Care Act (ACA) healthcare premiums. Congressional Democrats believe that the issue of healthcare, as it has at times in the past, could propel them to electoral success in next year's mid-term elections.
It is without doubt that Republicans are on the Democrats' playing field when it comes to healthcare. Currently, Congressional Republicans and the Trump Administration are scrambling to put forward proposals on the expiring ACA tax credits and as well as on broader issues related to healthcare. They may use the well-worn procedural tool known as budget reconciliation to avoid a Senate filibuster and pass a healthcare package in early 2026 by simple majority votes. Senate Budget Committee Chairman Lindsey Graham (R-SC) already has begun publicly taking about his desire to do a second reconciliation bill – Reconciliation 2.0 for short.
Now, moving away from the funding and healthcare policy challenges, it's expected that the House and Senate tax-writing Committees – House Ways & Means and Senate Finance – will use 2026 to gather bipartisan proposals that ultimately would comprise a SECURE Act 3.0. Many observers believe that, given the ongoing need for regulatory guidance from the Treasury Department and the Internal Revenue Service (IRS) on the SECURE Act 2.0, which was enacted in December 2022, Congress will allow some time to pass prior to developing new retirement legislation. This approach makes sense given that SECURE 2.0 contained over 90 separate retirement-related tax law changes, some of which were complex and raised many practical implementation questions.
Related to the need for regulatory guidance, the IRS's ability to draft, vet, and issue new tax guidance certainly was slowed down by the federal government shutdown. As the shutdown continued, there were concerns in the retirement plan community that the agency would not be in a position to timely issue cost-of living adjustments (COLAs) to retirement plan limits. However, the IRS moved quickly once the shutdown ended.
On November 13, just hours after the federal shutdown ended, the agency issued Treasury Notice 2025-67, which provides technical guidance regarding COLAs affecting dollar limitations for pension plans and other retirement-related items for tax year 2026. In some closely watched areas, the annual elective salary deferral limit for contributions to 401(k), 457(b) governmental, and 403(b) plans was increased by $1,000 to an annual limit of $24,500. Also, the over age 50 catch up contribution limit was increased by $500 to an $8,000 annual limit. For those public employees who are covered by Social Security, the wage base was increased from $176,100 to $184,500. Numerous additional adjustments are contained in the Treasury Notice.
NCPERS Legislative Conference & Policy Day is set to take place in Washington, D.C., from January 26-28. It will be the perfect opportunity for our members to receive the latest news on Congressional and Executive Branch actions affecting public pension plans, and to visit with lawmakers and staff as part of Policy Day. We hope to see many of you there!
In the meantime, please know that NCPERS will keep you updated on any significant policy developments.
Tony Roda is a principal at the Washington, D.C. law and lobbying firm Williams & Jensen, where he specializes in legislative, regulatory, and fiduciary matters affecting state and local retirement plans. He represents the National Conference on Public Employee Retirement Systems and state, county, and municipal retirement plans in California, Colorado, Georgia, Kentucky, Nebraska, Ohio, Tennessee, and Texas. Tony has an undergraduate degree in government and politics from the University of Maryland, J.D. from the Catholic University of America, and LL.M (tax law) from the Georgetown University Law Center.