Talk about your nail-biters! After months of collecting dust in the Senate, the SECURE Act, the most significant retirement saving reform legislation since the Pension Protection Act of 2006, is finally on its way to becoming law after being tacked on to a larger mandatory spending bill introduced into the House of Representatives on Monday afternoon.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed by an unheard of 417-3 vote in the House back in May, became stalled in the Senate after a handful of Senators placed “holds” on the bill over various concerns, preventing the bill from being fast-tracked to President Trump’s desk by unanimous consent.
Both chambers of Congress worked through last weekend, frantically negotiating the details of this final wide-ranging, must-pass $1.4 trillion spending package for fiscal year 2020. Down to its last chance of the year at moving forward, the SECURE Act, with strong bipartisan and retirement industry support, made the cut to be included in the package.
“Including the SECURE Act in the FY 2020 funding bill is a big victory that will help ensure that all hard-working Americans have a chance to build a nest egg for their retirement,” said U.S. Senator Rob Portman (R-OH), a key backer of the bill. “Many of the provisions in the SECURE Act have been under consideration by the Senate for multiple years and multiple sessions of Congress, dating all the way back to the Senate Finance Committee markup in 2016. I’m particularly pleased that this legislation includes legislation I’ve introduced to help protect the retirement security of hundreds of thousands of dedicated older Americans who are at risk of losing future retirement benefits this year.”
Portman noted it also includes two provisions he’s championed to help expand access to 401ks and allow individuals choosing to work later in life to keep saving for retirement. “I look forward to the president signing this legislation into law quickly to strengthen the retirement security of the American people,” he said.
The SECURE Act includes Portman’s Retirement Security Preservation Act, which would reform pension nondiscrimination laws to prevent more than 400,000 Americans from having their pensions frozen through no fault of their own. Several components of Portman’s bipartisan Retirement Security & Savings Act, which he introduced with Senator Ben Cardin (D-MD), are also included in the SECURE Act.
In a statement released Monday afternoon, American Council of Life Insurers (ACLI) President and CEO Susan Neely lauded congressional leaders for including SECURE Act in the 2020 spending package.
“The SECURE Act is the most sweeping retirement security legislation to move through Congress in more than a decade. It would mark a significant step toward modernizing America’s retirement system for workers.
“Each day, 10,000 Americans turn age 65 and many can expect to live 20 years or longer in retirement. Yet, research shows that one-third of Americans approaching retirement have between nothing and $25,000 in savings to supplement Social Security income,” Neely said. “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. Another will make it easier for employers to offer retirement plans with lifetime income options through annuities.”
Wayne Chopus, president and CEO, Insured Retirement Institute, said in a statement Monday, “We have a first down and goal on the 1-yard line. Congress and the President are about to deliver a meaningful, positive benefit to millions of American workers by expanding opportunities to save for and achieve a dignified retirement.”
The spending bill is expected to be voted on sometime Tuesday in the House, and then sent on to the Senate, where it would also be expected to pass without snags due to the looming Dec. 20 deadline to approve the spending bill and prevent a government shutdown, not to mention the fast-approaching Congressional holiday recess. It could be signed by President Trump by the end of this week.
Big changes coming
Provisions of the SECURE Act will have a wide-ranging impact on retirement savings plans, and 401k plans in particular. Among the biggies:
- The SECURE Act’s Section 204 gives fiduciary safe harbor to 401k plan sponsors who include annuities among offerings to plan participants, something long craved by insurers who offer annuity products. Many defined contribution plan sponsors have been reluctant to offer annuities in their plans due to the concern about fiduciary liability if the annuity provider becomes insolvent. Under Section 204, if an annuity provider chosen for a 401k plan were to go out of business or defraud plan participants, employees would not be able to sue the employer afterward.
MetLife released the following statement Monday from Graham Cox, executive vice president and head of MetLife’s Retirement & Income Solutions group, regarding Section 204:
“This legislation removes the long-standing regulatory barriers that prevent companies from including lifetime-income options in their employees’ retirement plans.
“MetLife is a strong supporter of these provisions and committed to ensuring that employees enjoy a secure retirement by having access to guaranteed income for life. 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.”
- The SECURE Act will increase the tax credit for employers introducing new retirement plans from $500 to $5,000, and small employers that implement an automatic enrollment feature in the plan design will be eligible for an additional $500 credit.
- The SECURE Act’s Open MEP provision will make it easier and more economical for smaller employers to offer retirement plans by allowing for the creation of pooled retirement plan providers. It removes the common nexus requirements and allows Open MEPs for employers that don’t share common traits to be administered by the pooled plan provider.
The provision also protects small employers in Open MEPs from penalties if other members violate fiduciary rules, also known as the “one bad apple” liability risk that a non-conforming member can pose to an entire plan. That issue has long been a stumbling block for MEPs.
- Many part-time workers will be eligible to participate in an employer retirement plan under the SECURE Act.
- The SECURE Act also pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70½ to 72.
To pay for the estimated $389 million the SECURE Act would add to the federal budget over the next 10 years, the bill—in perhaps its most controversial provision—will effectively put an end to the popular estate planning tool known as the “Stretch IRA.”
As James Lange wrote in an article about Stretch IRAs on 401k Specialist earlier this year, under existing law, non-spouse heirs of an IRA owner can “stretch” or extend the taxable distributions of an inherited IRA over their lifetime. The benefit of protracting the distributions of an inherited $1 million IRA could mean as much as a million dollars to the heirs of the IRA owner over their lifetime. It’s all about how quickly taxes are or are not collected.
Under the SECURE Act, the entire IRA or retirement plan would have to be distributed within 10 years of the death of the IRA owner.
American Benefits Council applauds pension fix
“Among the many valuable elements of the SECURE Act is a measure that would address a glitch in the nondiscrimination rules affecting participants in frozen pension plans. The Council has determined that hundreds of thousands of participants could lose future pension benefits as of January 1, 2020, without a legislative fix,” said Lynn Dudley, senior vice president, global retirement and compensation policy. “We applaud the leaders of the committees of jurisdiction for their support and, in particular, Senators Rob Portman and Ben Cardin, for their bipartisan commitment to employer-sponsored retirement plans.”
“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,” American Benefits Council President James A. Klein added.
Editor’s note: This is a developing story—stay tuned for additional updates.