As expected, the SECURE Act cleared another hurdle Tuesday, as the House of Representatives approved the massive $1.4 trillion government-wide spending bill, called the Further Consolidated Appropriations Act, 2020, carrying the SECURE Act along with lots of other provisions backed by special interest groups.
The House passed the spending bill by a vote of 297-120 Tuesday, advancing it to the Senate, where it could be voted on and approved as early as Wednesday before being sent to President Trump to be signed into law, perhaps before the weekend. It is one of the two “minibus” appropriations bills Congress is considering to fund the federal government for the rest of the 2020 fiscal year.
Quite the whirlwind week for the most comprehensive retirement reform legislation in more than a decade, which had been bogged down in the Senate since it nearly unanimously passed in the House back in May.
The SECURE Act of course includes several provisions that will have a major impact the 401k market, such as making it easier and more attractive for small businesses to launch retirement plans, expanding access to plans for part-time and gig workers, and making it easier and less risky for plan sponsors to offer annuities within 401k plans.
Roger W. Ferguson, Jr., president and CEO of TIAA, said Tuesday the bill stands to reshape and modernize much of the private retirement system by increasing access for millions of Americans to a workplace retirement plan and by allowing for guaranteed lifetime income options, by way of annuities, in these plans.
“The legislation also requires an annual statement that illustrates retirement account balances as a monthly income stream to show participants what they may expect to see as their ‘paycheck’ meant to last throughout retirement, a critical piece of a sound retirement plan,” Ferguson said. “With life expectancy growing, the SECURE Act will also allow Americans to put more money into their retirement accounts by raising the age of required minimum distributions. Together, all of these provisions will significantly help Americans build their financial futures.”
While some say the SECURE Act’s annuity provisions amount to caving in insurers offering annuity products, who have long wanted better access to 401k plans, perhaps the most controversial provision of the SECURE Act is the elimination of the popular estate planning tool known as the “stretch IRA.”
Getting rid of it amounts to a tax revenue generator as a primary means to help pay for the estimated $389 million the SECURE Act would add to the federal budget over the next 10 years. Under the SECURE Act, non-spouse heirs of an IRA owner will no longer be able to “stretch” or extend the taxable distributions of an inherited IRA over their lifetime, but instead the entire IRA will have to be distributed within 10 years of the death of the IRA owner. This provision would take effect Jan. 1, 2020 if the spending bill is signed into law by President Trump later this week as expected.
While not without controversy and opposition to certain provisions, the retirement industry and insurance and financial services companies have generally applauded the SECURE Act’s inclusion in the spending bill.
“The elements of this critical legislation have enjoyed bipartisan support in both houses of Congress, and for good reason,” said Brian Graff, CEO of the American Retirement Association. “American workers are concerned about retirement, and this legislation will help expand access to these critical programs.”
The ARA, which includes the National Association of Plan Advisors (NAPA) and the Plan Sponsor Council of America (PSCA), said in a statement Tuesday that the SECURE Act “addresses the real challenges that small business owners face—including costs, administrative burdens, and increased liability for mistakes—when they consider providing retirement benefits for their workers.”
To that end, ARA notes the SECURE Act allows for unrelated employers to join a pooled employer plan, significantly increases the small employer pension plan startup tax credit up to $5,000 and gives business owners more flexibility to help guide their decision-making.
The legislation would also:
- simplify the 401k safe harbor rules
- expand portability of lifetime income options
- allow long-term part-time workers to participate in 401k plans
- allow plans adopting by the filing due date to be treated as in effect as of close of year
- provide a fiduciary safe harbor for selection of a lifetime income provider
- modify the treatment of custodial accounts on termination of 403(b) plans
- extend the current required minimum distribution requirements to age 72
- require disclosures regarding lifetime income
- modify the nondiscrimination rules to protect longer-service participants
The legislation includes additional good news, ARA says, for plan sponsors and those who administer these programs; language providing for a remedial plan amendment period until the 2022 plan year—critical because many of the SECURE Act provisions become effective as of January 1, 2020, just 15 days away. The American Retirement Association strongly advocated for the inclusion of such a remedial amendment period to help smooth compliance with the new law.
“We very much appreciate the energy and thoughtful efforts of Congressional staff during the negotiations this past weekend,” Graff said. “We encourage the full House and Senate and President Trump to act quickly and help expand retirement plan coverage and support the retirement preparations of hard-working Americans with these common-sense reforms.”
Negotiations last weekend by top congressional leaders and the Trump White House—involving among others House Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin, carved out what was to be included in the spending bill, which if/when passed would forestall a government shutdown this weekend.
SEE ALSO:
- It’s In! SECURE Act Included in 2020 Spending Package
- SECURE Act Victory Lap: Industry Celebrates, Congratulates Lawmakers