Before the coronavirus pandemic hit, many retirement reform legislation champions in the U.S. House and Senate were openly optimistic that the SECURE Act would be the launch pad for additional retirement reform in 2020.
Now? The outlook is cloudier, but the appetite for more reform remains. A big question is how, if at all, some of these retirement reforms could end up making it to President Trump’s desk this year.
While House Democrats work this week to craft what they hope will become the basis for a massive fourth COVID-19 recovery package, the Trump Administration and Republican-controlled Senate appear to be in no hurry to consider additional federal relief, saying they want to assess how effective the recent onslaught of stimulus funding has been before taking another expensive step.
Senate leaders have been saying a fourth stimulus package, if it happens at all, would be weeks away at best from approval in the chamber, whether the House passes a bill this week or not.
In the meantime, there’s plenty of speculation about what another stimulus package might include in the way of retirement relief—if anything at all.
There could be additional relief from required minimum distributions (RMDs), already waived in 2020 by the CARES Act, in a fourth COVID-19 recovery package. Some in the industry (looking at you, Ed Slott) speculate that RMDs could be eliminated altogether.
If that doesn’t happen, RMDs could be addressed by Congress in a follow-up bill to the SECURE Act, possibly later this year. The SECURE Act, which became law Jan. 1, 2020, was the most significant retirement reform legislation since the Pension Protection Act of 2006.
You’ll remember the SECURE Act sailed through the House with overwhelming bipartisan support (417-3 vote) just about a year ago, but then stalled in the Senate for months until being saved from the legislative scrap heap by being attached to a broader “must-pass” federal spending bill for fiscal year 2020, signed into law by President Trump on Dec. 20.
The SECURE Act included a variety of 401k reforms designed to broaden access for employees of small businesses while also making it easier for plan sponsors to include annuity options within 401k plans.
Retirement 2.0/SECURE Act 2.0
An April 29 Invesco blog post by Jon Vogler, senior analyst, retirement research, noted that Republicans and Democrats had been discussing a follow-up bill to the SECURE Act early this year, preliminarily dubbed “Retirement 2.0” or “SECURE Act 2.0.”
Whichever moniker emerges, the new bill, according to Vogler, would likely center around two bills previously introduced by House Ways and Means Chairman Richard Neal (D-MA).
“While Rep. Neal indicated early on his plans to move this year on ‘Retirement 2.0’ legislation (and there appears to be interest on both sides of the aisle to do so), the spate of coronavirus-related legislation in March of this year necessarily absorbed critical time and bandwidth on the congressional calendar,” Vogler writes.
The two bills he cites are the Automatic Retirement Plan Act, which would require most small employers with 10 or more employees to maintain automatic contribution retirement plans for employees; and the Rehabilitation for Multiemployer Pensions Act (also known as the Butch Lewis Act), which would provide funds for 30-year loans and new financial assistance (in the form of grants) to financially troubled multiemployer pension plans.
Among the notable provisions in the Automatic Retirement Plan Act that Rep. Neal introduced in 2017 are one that would set up automatic payroll deductions at 6% of earnings at first, with an automatic escalator adding 1% annually until a maximum of 10% was reached; and plans would have to offer participants the option of taking up to 50% of their distributions as an annuity, providing a steady stream of payments for life.
Other bills that could make the cut
Other bills that could make it into a “Retirement 2.0” package include the Retirement Security and Savings Act from Sens. Rob Portman (R-OH) and Ben Cardin (D-MD); Rep. Neal’s Retirement Plan Simplification and Enhancement Act; and the Securing Additional Value for Every Retirement Saver Act (SAVERS Act), recently introduced in the House by Rep. Patrick McHenry (R-NC), the top Republican on the House Financial Services Committee.
Some aspects of the Retirement Security and Savings Act (also known as Portman-Cardin) made it into the SECURE Act, but Portman-Cardin would take things a few steps farther. For one, it seeks to raise the RMD age to 75 by 2030 and also includes a broader set of reforms—57 specific provisions—designed to help more Americans save for their retirement.
Among them are a new safe harbor rate for automatic default deferrals, treating student loan debt payments as elective deferrals for purposes of matching contributions, increasing the catch-up limit and expanding the saver’s credit.
While all’s been quiet on the Portman-Cardin front since COVID-19, Sen. Portman had told 401k Specialist before the pandemic that he and Sen. Cardin intended to have the bill marked up by the Senate Finance Committee this year to advance it.
Among other measures, Rep. Neal’s Retirement Plan Simplification and Enhancement Act would set a new cap on automatic employee deferrals to 401k plans.
Finally, the SAVERS Act would temporarily raise contribution limits on 401ks and other “tax-preferred retirement savings plans and individual retirement accounts.”
The legislation would increase the annual contribution limits for 401ks to 300% of the amount currently or an amount equal to the employee’s compensation, whichever is less. While the current 401k contribution limit is $19,500 for people under 50, the 2020 limit under the SAVERS Act would jump to $58,500.
While a longshot to pass on its own, it could somehow find its way into a fourth stimulus bill or Retirement 2.0.
Obstacles to action remain
All the time and effort Congress is spending to address the economic crisis spurred by the coronavirus pandemic could effectively eat away any chance retirement-focused reform had at getting to the floor this session. Many in Congress may also be satisfied on the issue for the time being with steps already taken in the SECURE Act and the CARES Act.
Not to mention, Senate Majority Leader Mitch McConnell (R-KY) has repeatedly shown a penchant for prioritizing floor time for the appointment of federal judges at the expense of almost all else. If the SECURE Act with its massive bipartisan support couldn’t hit the floor last year, there’s little reason to think McConnell will make room for retirement reform this year, either.
And 2020 being an election year that could get particularly messy means the window for federal policymakers to work together on a bipartisan basis to address retirement reform issues is likely closing fast.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
