Even More SECURE?

The surprising SECURE Act success in the waning days of 2019 gave supporters in financial services the confidence to lobby for a repeat.

And that explains how SECURE 2.0 came to be introduced by House Ways and Means Committee Chairman Richard Neal, D-Mass., and Committee Ranking Member Kevin Brady, R-Texas, in late October. The bill would build on the changes in the SECURE Act to boost retirement savings options.

However, the political considerations have changed greatly from last December to this one. Multiple industry sources say they do not expect SECURE (Setting Every Community Up for Retirement Enhancement) to get signed into law this time.

For starters, this was an election year — and a pretty big one. As this issue went to press, the presidential election between challenger and Democratic nominee Joe Biden and President Donald Trump was still unsettled.

The good news, if only for the long-term prospects, is that SECURE legislation is one of the few issues of agreement between Democrats and Republicans.

“Ensuring Americans have the resources they need for a prosperous retirement is a bipartisan priority — and I’m glad that Chairman Neal and I were able to come together again to build on our work from the SECURE Act,” Brady said. “Our legislation will make it easier for folks to save, protect Americans’ retirement accounts, and give workers more peace of mind as they plan for the future.”

Part II Details

Officially known as Securing a Strong Retirement Act of 2020, the latest bill includes the following:

» Allow people who have saved too little to set more aside for their retirement.

» Offer low- and moderate-income workers a tax credit for contributions to a 401(k) or similar plan.

» Help people with student loans save by letting employers make retirement plan contributions equal to what an employee pays on their loans.

» Further support the use of annuities that provide guaranteed lifetime income in retirement.

» Create a new incentive for small businesses to offer a retirement plan.

Industry trade associations have intensely lobbied for these and other changes. As products and regulations evolve, the line between traditional fee-only advisor and commission-based agent is getting blurry. As it relates to annuities, industry leaders say the time has come to remove the barriers to products that can help consumers save more efficiently for retirement.

Likewise, there are many arcane rules and tax laws that form a barrier to Americans saving more, say groups such as the Insured Retirement Institute. The COVID-19 pandemic put retirement savers even further behind, said Wayne Chopus, president of IRI.

“The SECURE Act was the first step toward reversing the looming retirement crisis where too few workers are saving adequately,” he wrote in an October column. “Now, the COVID-19 pandemic and its associated economic harm have added to retirement anxiety for millions of Americans.”

Surprise Passage

The initial SECURE Act started off strong, cruising through the House by a 417-3 vote on May 23, 2019, then hit a wall. For months and months, the legislation languished in the Senate while other priorities headlined upper chamber business.

Just when it seemed the legislation was left for dead, it suddenly reemerged during frenetic December horse-trading. An amended version quickly passed and the House and Senate and was signed by Trump a day later on Dec. 19 as part of a massive spending bill.

While the SECURE Act includes a wide range of things, by far the biggest news for the insurance industry is that it opened the door for annuities to be sold into retirement plans.

While companies already can offer annuities in their 401(k) lineups, just 9% do, according to the Plan Sponsor Council of America. The SECURE Act aims to boost that figure, and improve retirement readiness, by eliminating companies’ fear of legal liability if the annuity provider fails or otherwise fails to deliver.

The act creates a safe harbor that employers can use when choosing a group annuity to include as an investment within a defined-contribution plan, with new provider-selection rules.

For instance, the legislation will protect employers from liability if they select an annuity provider that, among other requirements, for the preceding seven years has:

» Been licensed by the state insurance commissioner to offer guaranteed retirement income contracts.

» Filed audited financial statements in accordance with state laws.

» Maintained reserves that satisfy all the statutory requirements of all states where the annuity provider does business.

Rule-Writing Phase

Nearly a year after the SECURE Act was signed into law, the industry has yet to see much impact from it. That can be explained simply: The wheels of government move slowly.

Once a law is passed, the bureaucracy still has work to do writing the rules. That is taking place at present. Specifically, two rules are going through the public notice process:

» The SECURE Act requirement that plan sponsors provide a statement, at least once during a 12-month period, that sets forth the “lifetime income stream equivalent” of the participant’s account balance.

» Another SECURE Act provision allows for “multiple-employer plans,” meaning small businesses can join together to offer their employees retirement plans. This rule is further along and near final publication at press time.

With the bureaucracy moving ahead, industry representatives say they expect to see more actual movement to expand usage of retirement savings products in 2021.

The MEP provision alone is expected to create 700,000 new retirement accounts, bill supporters say.

In the next round of legislative action, groups such as American Council of Life Insurers want to see a bill requiring employers to offer 401(k) retirement accounts.

“The automatic retirement plan proposal would create 22 million [new retirement accounts],” said Kathleen Coulombe, vice president for retirement security and principal deputy of federal relations for ACLI, during the group’s October conference. “So talk about moving the needle, it really could have a big impact on savings.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.