9 industry reactions to SECURE Act placement in spending bill

The Setting Every Community Up for Retirement Enhancement Act has been attached to a comprehensive spending bill that the House of Representatives is expected to vote on, and pass.

SECURE is actually part of a tax extender bill that appropriations negotiators comingled with the spending package.

The version of SECURE that lawmakers will vote on appears to be identical to the version that passed out of the House in May by a near unanimous vote, according to several preliminary retirement industry analyses.

The retirement bill is unquestionably substantial. Its lead provision relaxes regulations on Open Multiple Employer Plans.

If the spending package becomes law, as is expected, retirement industry service providers would be allowed to sponsor Open MEPs, allowing non-affiliated businesses to pool workers under one defined contribution plan, and shifting nearly all of employers’ fiduciary obligations to the MEP sponsors.

SECURE creates new and arguably robust tax incentives for small businesses to sponsor retirement plans. It also uses the tax code as a carrot to existing sponsors of retirement plans to deploy automatic enrollment.

A long-awaited annuity selection safe harbor for sponsors of retirement plans is championed by insurance providers, and sponsors of plans that want to infuse guaranteed income products into retirement plans.

Other provisions impact IRA investors: the required minimum distribution age is extended, and age cap on contributions to traditional IRAs is removed.

But whether or not the expansiveness of SECURE will revolutionize the retirement industry in the way that target date funds did when they were made a qualified default investment alternative with passage of the Pension Protection Act in 2006 remains to be seen.

Nevertheless, service providers are excited, seemingly universally. In fact, criticism for SECURE has been at the margins.

Where supporters of the policy do differ is on the extent to which it will close the retirement plan access gap in the workplace, and the degree to which employers that don’t now sponsor retirement plans will be incentivized to do so going forward.

And more work may need to be done to assure SECURE can move the needle in the right direction for the country’s retirement security.

For instance, with the Open MEP provision, questions will remain as to whether or not a service provider that also manages money can serve as a sponsor of a pooled plan under SECURE.

“For a recordkeeper that also offers investment products, there is a question as to whether it could sponsor a MEP,” said Phil Waldeck, CEO, Workplace Solutions Group, Prudential Financial, in an interview earlier this year. “Players like us would need to evaluate the legislative landscape that passes before entering the market.”

If plan providers were to enter the Open MEP market, they would need either additional legislation, or clean regulatory guidance from the Labor Department, said Waldeck.

According to analysis from the Joint Committee on Taxation, SECURE would add $428 million to the federal budget over 10 years.

If the bill becomes law, BenefitsPRO will be seeking input from all retirement stakeholders as to the potential market implications in the coming weeks and months. For the time being, here are a few reactions ahead of the House floor vote.

Edmund F. Murphy III, Empower Retirement President & CEO

Congress can do a great service to American retirement savers by voting for the SECURE Act. This bill has the potential to make it easier for small businesses to set up retirement plans – something they’ve told us they favor.

Many of the provisions in SECURE were due to become effective as soon as January 1, 2020.  If the bill passes in late December, Empower and others in the industry will work with Department of Labor and the Internal Revenue Service to obtain enforcement relief and allow for an orderly implementation.

SECURE includes a provision requiring plans to provide participants with an annual lifetime income disclosure converting their account balance into an income stream at retirement.

At Empower we are strong advocates of these types of projections. However, the SECURE provision does not take advantage of the latest technologies in arriving at the projection. A one-size-fits-all model will not work for all retirement savers.

This provision has a delayed effective date – 12 months after DOL issues guidance.  We look forward to working with Labor to develop guidance.

Joshua Lichtenstein, Partner at Ropes & Gray

If the SECURE Act ultimately becomes law, it will have a major impact on 401(k) plan participants, plan sponsors and the financial institutions that maintain those plans.  One of the most significant changes would be the creation of true open multiple employer plans, which would allow employers to outsource almost all plan related tasks to the sponsoring financial institution.

Ultimately, this may even lead to more variety in 401(k) investment choice as MEP sponsors could leverage their investment expertise to offer exposure to investments such as private equity or real estate, which would align with potential reforms the SEC is currently considering to open private investments to Main Street investors.

Dan Houston, Principal Financial Group CEO

This is a major step forward in helping Americans achieve financial security in retirement. Once approved, this legislation will help more small and medium-sized business owners to cover their employees with retirement savings plans.

It also opens up additional pathways to retirement savings by allowing the incorporation of guaranteed income solutions within an employer’s 401(k) plan.

As Americans continue to live longer, they may spend as many years in retirement as they did in the workforce. It is critical we emphasize and support lifetime income solutions that help people to protect and live off their retirement savings responsibly.

Graham Cox, Executive Vice President & Head of MetLife’s Retirement & Income Solutions

This legislation removes the long-standing regulatory barriers that prevent companies from including lifetime-income options in their employees’ retirement plans.

Through the requirement that lifetime income estimates be included on annual defined contribution (DC) plan benefit statements, employees will gain a better understanding of how their savings translate into retirement income. The safe harbor provision, provided under the SECURE Act, increases workers’ access to solutions that will protect against the risk of outliving their savings. Both of these provisions provide valuable tools that will strengthen retirement security for millions of Americans.

Larry Mandelker, Venable LLP Tax & Wealth Planning Partner

With regards to IRA planning, one item of note is that people who have already engaged in estate planning will need to review such planning to make sure it still meets their intentions given the rule changes. Otherwise, beneficiaries may receive lump sum payments which they were never intended to receive. –under SECURE, the stretch IRA is eliminated, a provision that pays for a substantial cost of the bill

Barbara Novick, vice chairman, BlackRock

Retirement security is a defining issue for Americans and we support initiatives that expand access to retirement plans, increase participation in those plans and help individuals achieve better retirement outcomes. The SECURE Act is our greatest opportunity in over a decade to improve retirement security for millions of Americans.

Enactment of the SECURE Act opens the door to greater retirement income security.

Susan Neely, President and CEO, American Council of Life Insurers

SECURE would mark a significant step toward modernizing America’s retirement system for workers.

The SECURE Act makes important changes that will go a long way toward addressing the nation’s looming retirement crisis. One provision alone will get more than 700,000 small business employees nationwide to start saving for retirement.

Phil Waldeck, CEO, Workplace Solutions Group, Prudential Financial

The SECURE Act is the most significant legislation aimed at bolstering America’s retirement system in more than a decade.

James Klein, President, American Benefits Council

The bipartisan deal struck by congressional leaders is a victory for millions of Americans who receive health and financial security through employer-sponsored benefit plans.