Plenty of steps are required to actually get retirement reform legislation through Congress and to President Trump’s desk.
Another step was taken today, when the U.S. House of Representatives passed H.R. 1994, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) with an overwhelming 417-3 vote. The three who voted against the bill were Justin Amash (R-MI), Thomas Massie (R-KY) and Chip Roy (R-TX).
The bill now goes to the Senate, which is considering its own retirement reform legislation in the form of the Retirement Enhancement and Savings Act of 2019 (RESA), introduced in April, and the Retirement Security & Savings Act (S. 1431), introduced May 14.
RESA in particular shares a number of the same provisions as the SECURE Act.
The SECURE Act and RESA (and possibly S. 1431) are likely headed for conference committee, where select members from the House and Senate will meet to reconcile the differences and resubmit for approval from both chambers before it could reach President Trump.
The SECURE Act passed both the House Ways and Means Committee and the Senate Finance Committee unanimously before it was put to a full House vote on May 23.
House Ways and Means Committee Chairman Richard E. Neal (D-MA) released the following statement after this morning’s vote:
“With passage of this bill, the House made significant progress in fixing our nation’s retirement crisis and helping workers of all ages save for their futures. The SECURE Act is a bipartisan success, filled with commonsense proposals authored by members from both sides of the aisle. The legislation closes loopholes and makes it easier for small business employees, home care workers, and long-term part-time workers to save for retirement. I’m also proud that we were able to incorporate a much-needed fix to reverse unfair and unexpected high taxes on Gold Star families, low-income scholarship recipients, and children of fallen first responders, among others. I encourage the Senate to follow our lead and swiftly pass this important bill that goes a long way in helping American families prepare for a financially secure retirement.”
Among its many provisions, the SECURE Act would increase the age at which retirees must take money out of their retirement plans, from age 70½ to 72. It is worth noting that the Senate’s proposed Retirement Security & Savings Act goes a few steps further, seeking to raise the required minimum distribution age to 75 by 2030.
- Editor’s Note: This article has been updated to reflect incoming industry reaction to today’s House passage of the SECURE Act
Senator applauds 401k-friendly SECURE Act content
Senator Rob Portman (R-OH), co-sponsor of Retirement Security & Savings Act, was quick to applaud the House for passing the SECURE Act, which includes a trio of his retirement reform-related legislative priorities.
“The House-passed bill includes three important retirement security measures I’ve worked on, and I’m pleased they are moving forward,” Portman said. “In particular, this bill includes my Retirement Security Preservation Act to help protect the retirement security of hundreds of thousands of dedicated older Americans who are at risk of losing future retirement benefits as early as this year. It also includes two provisions from the Retirement Security & Savings Act to help expand access to 401ks and allow individuals choosing to work later in life to keep saving for retirement.”
Portman noted 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 a Senate Finance markup in 2016.
There is still more that we can do to strengthen the retirement security for all Americans, including the broader legislation called the Retirement Security & Savings Act that I introduced with Senator Cardin last week,” Portman said. “But passing the SECURE Act now should be our first priority, and I would urge the Senate to swiftly pass this bipartisan legislation and send it to the president’s desk for his signature.”
Critics raise safe harbor concerns
While the bipartisan SECURE Act has enjoyed a comparatively non-controversial ride through the House, critics have raised concerns about Section 204 of the bill, which would give safe harbor to 401k plan sponsors who include annuities among offerings to plan participants.
A May 22 article on independent news website The Intercept points out that insurance companies who offer annuity products have long been keen to get into the 401k business.
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.
That, the argument goes, could incentivize the use of “fly-by-night” annuity providers that give good deals to the companies for business, making their money by ripping off the firm’s workers before filing for bankruptcy.
“The lack of a safe harbor has been the primary hurdle to getting annuities into 401k offerings. It’s the single most frequently mentioned obstacle by plan sponsors,” said J. Mark Iwry, quoted in The Intercept, who is a former senior adviser at the Treasury Department during the Obama years and current nonresident senior fellow at the Brookings Institution.
Section 204 says the safe harbor applies as long as the insurance company is licensed by a state for seven years; it does not assess whether the company is financially secure or highly rated by credit rating agencies.
“As currently drafted, the legislative safe harbor would cover even insurers that are rated below investment grade and that barely meet the pass-fail standards of the state insurance departments,” Iwry said in The Intercept, which also points out the bill makes explicit that there is no requirement for the plan sponsor to select the lowest-cost contract when selecting an annuity provider.
Supporters say the legislative safe harbor is an improvement.
“The establishment of an improved safe harbor provides clarity to the steps employers must take to evaluate and select a provider of a guaranteed income solution for their retirement plan, making it easier for workers to convert their accumulated nest eggs into guaranteed streams of income through their retirement,” said Principal SVP/ERISA Advisory Committee Chair Sri Reddy.
Industry support
Empower Retirement, which administers $610 billion in assets for more than 9 million retirement plan participants, sent a statement May 23 applauding the bipartisan effort.
Empower President and CEO Edmund Murphy said Congress has done a great service to American retirement savers by voting for the SECURE Act.
“It’s exciting that retirement policy has garnered bipartisan support from Reps. Richard Neal, D-Mass., chairman of the Ways & Means Committee, and Kevin Brady, R-Texas, the committee’s ranking member, who understand the importance of helping American workers save for retirement,” Murphy said. “This bill has the potential to make it easier for small businesses to set up retirement plans—something they’ve told us they favor. We believe these changes will encourage retirement savings and help provide American workers with a more secure retirement.”
The life insurance/annuity industry has been lobbying hard for the SECURE Act, with organizations including the American Council of Life Insurers (ACLI), the Association for Advanced Life Underwriting (AALU) and the Insured Retirement Institute (IRI) all voicing support.
ACLI President and CEO Susan Neely strongly endorsed the SECURE Act in a May 23 statement:
“We’re moving past talk to action on retirement security now. This overwhelming and bipartisan vote in the House provides tremendous momentum for Senate consideration of the Retirement Enhancement Savings Act (RESA),” Neely said.
“Key provisions in the SECURE Act and RESA will go a long way toward addressing the country’s looming savings crisis. They will provide more than 700,000 additional workers with access to workplace retirement plans to help them save,” Neely continued. “The bills also make it easier for employers to offer workplace retirement plans with annuities that guarantee an income for life. The SECURE Act and RESA provide the right solutions at the right time to ensure all Americans, regardless of where they live and how they work, have access to the tools they need for a secure retirement.”
IRI also released a statement May 23 praising the House’s passage of the SECURE Act.
“Americans face a retirement crisis of too little savings amplified by existing barriers that discourage and hamper the ability of small employers to offer a workplace retirement plan,” said Wayne Chopus, IRI president and CEO. “Today’s vote demonstrates how Congress can work together on a bipartisan basis to advance common-sense solutions to help retire the retirement crisis.”
IRI notes the bill would improve the ability for employers to extend greater access to lifetime income options in those plans, and also requires retirement plans to provide participating workers with an illustration of how much monthly income a retirement savings account might deliver.
“Too many Americans have anxiety about their retirement finances,” Chopus said. “Improving opportunities for workers to save, extending more access to lifetime income options and provide information to help savers make more-informed decisions about their finances, will boost Americans’ retirement confidence to help ensure they do not outlive their savings and can enjoy a secure and dignified retirement.”
IRI also supports RESA and the Retirement Security & Savings Act.
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.
