With or without SECURE Act, retirement industry on the precipice of a new evolution

In the 1990s, what then passed for a retirement industry was consumed with the marketing of mutual funds and building advisory and asset management brands.

Moving into the first decade of the 2000s, the meme shifted to target-date funds and other qualified default investment alternatives made available to 401(k) sponsors through the Pension Protection Act of 2006.

Now, the stage is set for the next evolution in the retirement space, thinks Harry Dalessio, head of full service solutions at Prudential Retirement.

“It’s already begun, but in the next five years we expect to see aggressive growth, innovation, and expansion of the roll of the workplace retirement plan,” Dalessio said in an interview.

Financial wellness “morphing into something far bigger”

That growth will be driven by a deeper, strategic articulation and implementation of financial wellness, that well-intended sounding yet opaque buzzword that’s been peppered about for several years without much practical definition.

But after years of talk, grist is being added to the mill.

“The financial wellness conversation is expanding more horizontally with employees, their plan sponsors, and the advisors that support them,” said Dalessio.

“The defined contribution industry is the epicenter of this morphing into something far bigger—we see a tectonic shift already under way,” he added.

In the C suite, plan sponsors, particularly larger ones, are paying more than just lip service to the holistic financial security—beyond retirement—of workers.

“Traditionally, the chief financial officer has been focused on their 401(k) plan—that’s where the liability was seen,” said Dalessio.

That is changing. As recently as weeks ago, Dalessio, whose responsibilities include oversight of participant experience in the defined contribution and pension plans Prudential supports, fielded specific questions from a large employer who wanted to know how low savings rates were impacting employee absenteeism and workers compensation claims.

“They are paying more attention to this,” explained Dalessio.

Prudential is “rapidly” investing in a new comprehensive wellness platform, said Dalessio. Other recordkeepers are as well.

“It’s early, and there’s still much more to do, but we are beginning to see it impact our sales momentum in the market,” said Dalessio. “We’re investing heavily in this and we’re already seeing dividends.”

Recordkeepers that fail to adopt financial wellness capabilities or even those that are simply slow to adopt will find it difficult to compete in the next five to 10 years. So too will plan advisors, thinks Dalessio.

Insecurity over the SECURE Act

Financial wellness, which folds emergency savings, budgeting, and debt management into the retirement savings equation, is best addressed through the workplace, argued Dalessio.

For all of its momentum, access to traditional 401(k) plans remains a linchpin of the wellness equation.

The Setting Every Community Up for Retirement Enhancement, or SECURE Act, is of course in a holding pattern in the Senate as Congress returns to the Capitol.

The bill’s Open Multiple Employer Plan provision, which would allow financial service providers like Prudential to sponsor retirement plans that pool unrelated employers under one 401(k), is designed to incentivize plan access to the nearly 55 million Americans that work for employers without a retirement plan.

“It’s the most meaningful step Congress has taken to address the savings access gap,” said Dalessio.

The SECURE Act’s course to date is known to everyone in the retirement industry. A version of it passed unanimously out of the Senate Finance Committee in 2016, after a decade’s worth of consideration by lawmakers.

This spring the SECURE Act sailed out of the House Ways and Means Committee, and passed the House by a 417 to 3 vote—in this Congress.

This summer, it hit a wall in the Senate, unexpectedly. Several “holds” on the bill prevented it from being voted on by unanimous consent.

Those came from Republican lawmakers, and for esoteric reasons. Senate Cruz, R-TX, did not like that a provision expanding 529 savings vehicles to secondary education and home schooling was stripped in the House version.

Sen. Pat Toomey, R-PA, objected to a provision that addresses tax relief for Gold Star Families—those that have lost a family member in military service—in the SECURE Act. He would like that bill to stand on its own.

Now, the assumption that SECURE would move through the Senate this year is not so widely assumed. The bill could still be attached to must-pass spending legislation. But the upper chamber has limited working days between now and the end of the year. And some speculate that Majority leader Sen. Mitch McConnell, R-KY, may not be willing to burn limited floor time debating SECURE.

Who might not want the SECURE Act to pass?

Why would a retirement bill that enjoys such longstanding bipartisanship be stymied by relatively superfluous concerns?

And are those the real reasons inhibiting the SECURE Act? Are there other interest groups that would prefer it not pass? If so, their intentions are well hidden.

“I can’t speculate on what is standing in the way of getting this bill to the floor and voted on,” said Dalessio. “We remain optimistic. We’ve seen very little feedback from those that are not supportive of it. It all comes down to politics and how the bill fits into the bigger picture of the Washington machine remains an open question. That’s something we can’t handicap.”

Dalessio, and executives throughout industry whose firms would be better positioned to compete to close the retirement access gap, could be forgiven for their frustration with the Senate.

He underscores that he remains hopeful. “We all have a societal obligation to support U.S. workers more generally. This is the best opportunity to close the access gap. But what is outside of our control, we can’t get frustrated by that.”

What if the SECURE Act doesn’t pass?

If the SECURE Act fails, a new Labor Department regulation on pooled plans that prohibits Open MEPs and retirement service providers from sponsoring them goes into effect at the end of September.

Prudential and virtually all service providers have said Labor’s regulation will fail to meaningfully close the savings access gap.

“From the SECURE Act perspective, it allows for a whole host of new groups to enter the access gap conversation in a much different way,” said Dalessio, referring to the bill’s provision that would allow service providers to sponsor Open MEPs. “That type of new competition stretches the limit of what’s possible going forward.”

What would the delta be between the SECURE Act’s provision on Open MEPs and Labor’s rule on pooled plans if the former fails to pass? “That would continue us on a similar (plan access) path to the one we are on today,” said Dalessio.

READ MORE:

Impact and opportunities in the SECURE Act

Getting millennial employees on board with financial wellness

SECURE Act not clear on whether plan providers could sponsor Open MEPs