SECURE Act Progress Raises Enforcement Timeline Questions

The SECURE Act’s establishment of an in-plan annuity selection safe harbor and the development of open MEPs will take time to unfold—but perhaps not as much as some expect.

Speaking with PLANSPONSOR about the pending passage of the Setting Every Community Up for a Secure Retirement Act (SECURE Act), Melissa Kahn, managing director of retirement policy strategy for State Street Global Advisers, says the retirement industry is brimming with enthusiasm.

“The SECURE Act’s advance makes a lot of people recall the Pension Protection Act of 2006 [PPA],” Kahn says. “I think it’s fair to say that the SECURE Act could bring about as much change as the PPA did over the last 13 years.”

In Kahn’s analysis, the SECURE Act’s open multiple employer plan (open MEP) and in-plan annuity provisions may prove to be the most impactful in the long run, but in the meantime, some of the more modest provisions of the SECURE Act will probably be the most influential.

“I would emphasize the tax credits that are given to small employers to start a plan and to offer automatic enrollment—it’s really a great development that could have an immediate impact,” Kahn says. “Also, I would emphasize the raising of the required minimum distribution [RMD] age to 72 and the permission for people to make contributions to individual retirement accounts [IRAs] past age 70.”

Another likely area of immediate impact is on the use of IRAs as an inheritance vehicle by wealthy Americans.

When it comes to the SECURE Act’s establishment of an in-plan annuity selection safe harbor, and the establishment of open MEPs, Kahn says these will take more time to unfold—but perhaps not as much as some expect.

“The Department of Labor and the Treasury, with the various regulations they’ve published this year, have actually taken some good first steps,” Kahn explains. “The required regulations are more or less already formulated for open MEPs and in-plan annuities, and on the provider side, a lot of the people in the industry are already working on these kinds of solutions. In that sense, the major changes may come faster than what we saw with the PPA.”

Allison Brecher, general counsel at Vestwell, also says the passage of the SECURE Act is the biggest step taken in decades to make it easier and more affordable for small- and mid-sized businesses to offer retirement benefits, translating into more money in people’s accounts.

“At the same time, the new legislation is just the start of a critical conversation around the importance of retirement savings, and how we can make retirement plans work better for employees through increased flexibility, and improved access to products and information,” Brecher proposes. “Retirement is not one size fits all, and there is still an immense opportunity to ensure that everyone has access to a retirement plan that fits their individual needs.”

Brecher says that, while open MEPs, or “pooled employer plans,” as the DOL refers to them, are a potential game-changer for small businesses, business owners should be aware of certain restrictions including standardized investment options, fiduciary oversight of service providers, plan features like matches and contributions they might not be prepared to handle, and other operational hurdles.

Kahn agrees that open MEPs won’t take over the retirement industry overnight. “I believe it will remain true that retirement plans of any type, especially for small employers, are sold, rather than bought,” she says. “I think the role of financial advisers and providers will remain critical. Consumers will need education about MEPs and all the surrounding tax credits and administrative work.”

Additionally, surveys show that if small employers could offer one benefit to employees, the first benefit would be health care. But retirement plans are a close second, Kahn says.

“I think we can look to the United Kingdom as a model for what may unfold over time,” Kahn adds. “Years ago, they mandated coverage in the UK for even employers with a single employee. So they have had public and private options, and what’s been interesting is to see how not just small employers have gone into the master trust type arrangement, but also how larger employers are gravitating towards them. I do think over time we could see more of that in the U.S.”

In joining the chorus of enthusiastic retirement plan industry voices commending Congress for advancing the SECURE Act, Empower Retirement President and CEO Edmund Murphy III warns that many of the provisions in the law are seemingly due to become effective as soon as January 1, 2020. 

“If the bill passes in late December, Empower and others in the industry will work with Department of Labor and the Internal Revenue Service to obtain enforcement relief and allow for an orderly implementation,” Murphy proposes.

Murphy also says the lifetime income projection provisions should be modernized in order to be even more effective.

“SECURE includes a provision requiring plans to provide participants with an annual lifetime income disclosure converting their account balance into an income stream at retirement,” he explains. “At Empower, we are strong advocates of these types of projections. However, the SECURE Act provision does not take advantage of the latest technologies in arriving at the projection. A one-size-fits-all model will not work for all retirement savers. This provision has a delayed effective date—12 months after DOL issues guidance. We look forward to working with Labor to develop guidance.”