Members of the retirement plan industry were focused on, and looking forward to, implementing provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2020 when the coronavirus pandemic hit and, three months into the year, they had to focus on provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act.
Going into 2021, the SECURE Act will require more attention. In a webinar, “A Post-Election View of Retirement Planning,” sponsored by The American College of Financial Services, Sandy McCarthy, president of retirement services at OneAmerica, said plan sponsors now need education about SECURE Act provisions.
“What’s exciting about the SECURE Act is not only how it increases accessibility to plans through the pooled employer plan [PEP] and part-time employee provisions, but also that its provisions expand opportunities to provide retirement plan participants with lifetime income,” she said. “That is important because we’re starting to recognize the holistic view of retirement planning. The focus has been on accumulation for so long.”
Focusing on creating retirement income is increasingly important as savings have flowed out of retirement plans this year more so than normal because of the pandemic and the CARES Act provisions, McCarthy added. “We’ve seen twice as many distributions as the year before,” she said.
The SECURE Act included a safe harbor for the selection of guaranteed income providers, provisions allowing for the portability of guaranteed income and a mandate to include lifetime income illustrations on plan participant statements.
Jack Towarnicky, a researcher for the American Retirement Association, told webinar attendees he is “not enthusiastic” about the retirement income illustrations. “The illustrations will be disappointing to participants when they first show up, and I don’t think it will prompt participants who are younger to save more,” he said. “Congress didn’t anticipate employee turnover and the illustrations don’t apply to IRAs [individual retirement accounts] or pensions. They don’t reflect all employee situations or economic cycles. I think they will be ineffective if the goal of them is to increase savings.”
Towarnicky explained that the Department of Labor (DOL) relied on a 2013 study that found a 29% higher probability of a change in contributions from seeing lifetime income illustrations, but the increase in contributions was only $85 annually. He added that the 29% was based on 1% more participants paying attention to the statement than the DOL found in a previous study.
To get people to save enough for retirement, Towarnicky suggested that the industry keep pushing innovative plan designs, such as automatic features, and focus on financial wellness and reducing plan leakage. “Essentially, we should create liquidity for participants without plan leakage,” he said, referring to emergency savings accounts.
McCarthy noted that the U.S. retirement system received a C+ grade in the 2019 Melbourne Mercer Global Pension Index. She said, “I think we can get to a higher grade with the new initiatives, along with increased employer interest in helping employees with financial well-being.”
When McCarthy mentioned new initiatives, she wasn’t just talking about the SECURE Act, but also about a new piece of legislation that has recently been introduced in Congress. The Securing a Strong Retirement Act of 2020, which the industry is already calling “SECURE Act 2.0,” would mandate automatic enrollment for new plans, extend the PEP option to 403(b)s, allow an employer match on student loan payments, allow employees age 60 and older to contribute more to plans, remove barriers for the use of lifetime income products and increase the required minimum distribution (RMD) to age 75, McCarthy noted. She said she doesn’t think the legislation will lose its momentum in Congress.
Though progress is being made, Towarnicky said the biggest challenges to retirement security haven’t changed all that much.
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