Congress Has Passed the SECURE Act

The retirement plan industry is hailing Congress for passage of the Setting Every Community Up for Retirement Security Act, better known as the SECURE Act, which is expected to be signed by the President as soon as Friday.

Technically, the SECURE Act has been incorporated into a broader 2020 fiscal year appropriations bill. On Thursday, the Senate voted 71 to 23 to approve the legislation. The House approved the same measure on Tuesday by a vote of 297 to 120.

Through a laundry list of popular bipartisan provisions, the SECURE Act seeks to expand and modernize the defined contribution (DC) retirement plan system. Through the establishment of “open multiple employer plans,” or “open MEPs”, the SECURE Act is expected to expand access to workplace retirement plans for millions more full- and part-time workers, particularly small business employees.

The legislation also expands opportunities for workers to obtain guaranteed lifetime income products, increases the age at which required minimum distributions must be taken from retirement accounts and repeals the age limit for IRA contributors. Additionally, the SECURE Act will require that plan participants receive an illustration of how much monthly income their retirement savings will provide, which can help them plan to increase their retirement savings.

The SECURE Act also allows qualified automatic contribution arrangement (QACA) safe harbor plans to increase the cap on automatically raising payroll contributions from 10% to 15% of an employee’s paycheck, with the option to opt out.

“Our optimism that the SECURE Act would pass this year never wavered,” said Wayne Chopus, president and CEO of the Insured Retirement Institute. “Longer lifespans mean workers will have more years in retirement and will need a retirement financial plan that ensures they won’t outlive their savings. Greater access to lifetime income products within workplace retirement plans can provide monthly income for the life of a retiree.”

Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee (ERIC), said passage of the SECURE Act is a major accomplishment that will allow Congress to turn to other important retirement issues.

“ERIC looks forward to working with all interested parties in the new year to bring additional flexibility and modernization into the private retirement system,” Robinson says. “In particular, we look forward to updating the lifetime income disclosure rules to allow plan sponsors to continue providing disclosures that are specific to participants and beneficiaries; modernizing the 401(k) plan system through updating several provisions including the definition of a highly compensated employee and providing financial wellness through student loan debt repayment and emergency savings; and working with Congress to find a comprehensive solution to the multiemployer pension crisis.”

The Financial Services Institute (FSI) also quickly applauded Congress’ passage of the SECURE Act as part of the end-of-year spending package.

“The passage of the SECURE Act is a significant victory for Main Street Americans,” said FSI President and CEO Dale Brown. “We applaud Congress for passing this important measure to address the retirement savings crisis. Americans are living and working longer than ever before, and too many have inadequate savings as they enter retirement. Currently, 40% of private-sector workers do not have access to a workplace retirement plan. The SECURE Act will increase workers’ access to retirement savings and allow them to make contributions for as long as they are working. We urge President Trump to sign this legislation into law as quickly as possible.” 

Speaking with PLANADVISER just ahead of the Senate vote, Jamie Hopkins, director of retirement research at Carson Group, said this is indeed a big day for the retirement plan industry, but he wonders whether the small business community will benefit from the SECURE Act as much as some parties are anticipating at this early juncture.

“I’m more skeptical than most, particularly about the potential impact of the open multiple employer plan provision on small businesses,” Hopkins says. “We’ve been trying since the establishment of ERISA to help small businesses set up retirement savings plans—through very low-cost SEP and SIMPLE IRA plans, for example. Today, these options are already very affordable and very well-suited for the small business community, but they haven’t really moved the needle. I wonder whether access to open MEPs alone will help small businesses as much as some expect.”

According to Hopkins, the small business community in general perceives retirement plans of any type to be associated with complexity and risk. For that reason, it will require significant effort and investment from the retirement plan industry to help small business owners embrace open MEPs, or indeed any other type of retirement plan.