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In need of a win, Congress proposes expanded retirement accounts before mid-terms

The bill includes a proposal for "pooled" or multiple employer plans, and the possibility of annuities for retirees in company plans.

Senate Finance Committee Chairman Orrin Hatch (R., Utah) has co-introduced the Retirement and Enhanced Savings Act of 2018.
Senate Finance Committee Chairman Orrin Hatch (R., Utah) has co-introduced the Retirement and Enhanced Savings Act of 2018.Read moreJ. Scott Applewhite / Associated Press

Congress wants a bipartisan win before fall elections, so look for expanded access to retirement accounts.

The new bill would incentivize small companies to band together to reduce the costs of retirement plans, extend the age at which people can contribute to Individual Retirement Accounts beyond 70½, and allow the purchase of annuities. The Senate version of the Retirement Enhancement and Savings Act of 2018 was introduced by Finance Committee Chairman Orrin Hatch (R., Utah) and ranking member Ron Wyden (D., Ore.).

Wharton School professor Olivia Mitchell told us the bill includes a proposal for "pooled" or multiple employer plans, a proposal to require lifetime income estimates at least annually on participants' retirement plans; a safe harbor for insurance companies and other "lifetime income providers" offering annuities for retirees; "stretch" IRAs, which allow investors to take out retirement assets over a lifetime; more time for investors with an outstanding loan to roll over the loan and pay it off without the money being a deemed distribution; as well as tax credits.

"Social Security fixes should come first, but as long as we're talking private, company-provided plans, there are interesting things on the table," Mitchell said.

Why now?

"Congress needs a win, even a small one," she added. One possible drawback? Roth IRAs may be Congress' next target, as the government loses $200 billion in tax revenue annually in taxes from Roth IRA tax-deferred status, Mitchell said.

What's Vanguard's view on the proposed legislation?

"We're continuing to assess the various provisions of the bill, and to advocate on behalf of the best interest of our clients and investors everywhere. Employer-sponsored defined contribution plans are the bedrock of retirement savings for millions of Americans, and Vanguard supports efforts by Congress to expand access, enable higher savings rates, and promote best-practice plan-design features," said Emily Farrell, a spokeswoman for Vanguard, in an email statement.

We'll keep you updated on the legislation.

Dollar and emerging markets

Whoa! The dollar's really getting jerked around right now, partly by U.S.-China trade war jitters, partly by White House jawboning. That may present opportunity for investors.

Matt Topley, chief investment officer of Fortis Wealth in King of Prussia, points out the greenback's strength has hurt emerging markets, where the majority of debt is dollar-denominated. The dollar rose in value in the first half of 2018, "making their debt load that much heavier," he explained.

As a result, emerging market stock markets sold off and "are extremely cheap. One fund we use for clients and which is my biggest position personally is DFA Emerging Market Value" (symbol: DFEVX), Topley said. The fund trades at below book value, which he argues is a buying opportunity. The Dimensional Fund Advisors product is down 7 percent year to date, about the same as its underlying fund category. Emerging markets mutual funds can carry high fees, so investigate cheaper options out there, including index funds, which generally cost around 0.10 percent and up annually, before buying.

The point is, if you think the dollar will continue to strengthen, perhaps there are more emerging market stock losses on the horizon. If, on the other hand, you think the president and other factors will push down the dollar, then this may be a point in time to start buying emerging markets.

S&P five horsemen

If you own the S&P 500 index through a mutual fund or an exchange-traded fund, it's interesting to note that the bottom 282 companies are about equal in market capitalization to the top five companies: Apple, Amazon, Alphabet, Facebook, and Microsoft.

Is this is a good or bad thing? Neither — just pointing out that when the bottom 282 index components double or triple in value, that might equal a 1 percent move in Apple, according to an explanation from the chart's creator, Michael Batnick, director of research at Ritholtz Wealth Management.