ERIC Publishes Letter Offering Support and Recommendations for SECURE 2.0

The letter offered broad support for many of the provisions in the three bills composing ‘SECURE 2.0’ and provided recommendations for the final legislation.



The ERISA Industry Committee released a letter addressed to Congress that detailed its recommendations and views regarding a package of retirement reform bills dubbed “SECURE 2.0.” The In the letter, ERIC said it hopes to see a retirement reform bill passed by the end of the year.

SECURE 2.0 refers to one bill passed by the House, called the Securing a Strong Retirement Act, and two Senate bills that have passed their respective committees, but have not yet received a full vote. The Senate bills are called the Enhancing American Retirement Now Act (EARN), and the Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (RISE and SHINE). The three bills aim to increase American’s access to retirement plans in a variety of ways.

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The original SECURE Act was the Setting Every Community Up for Retirement Enhancement Act of 2019.

The latest legislation aims to improve Americans’ ability to save for retirement. For example, provisions in the EARN and SSRA bills are intended to make it easier for workers with student loan debt to repay it and save for retirement. The bills would enable workers to have pay deducted to repay their loans and have their employer match that amount as a retirement plan contribution. ERIC supports this proposal and hopes to see a version of it in the final bill.

Another common obstacle to saving is the concern of needing money for an emergency, and not having it available to them quickly since it is in a retirement plan and subject to a tax penalty for early withdrawal. The EARN and RISE and SHINE bills have early withdrawal provisions that make it easier to withdraw money from a plan in certain situations. ERIC likewise supports this proposal.

The ERIC letter also supported simplifying fee disclosure and summary plan statements, and tax incentives for plan participation. It also supported a provision only found in the EARN bill, which would allow overfunded pensions to use the extra money on health and life insurance benefits for plan participants until 2032. The current expiration on that provision was set for 2025 by prior legislation.

All three bills permit well-funded plans to forego recoupment of overpayments if the overpayment was the fault of the retiree. ERIC hopes to see this provision in the final legislation.

One proposal absent from all three bills that ERIC suggested was for Congress to create a plan “lost and found.” Some employers have large and complicated retirement plans and sometimes struggle to find missing participants. It recommends that Congress require creation of a database of retirement accounts so that workers and retirees can track down past employers and access their retirement funds.

The letter also expressed disapproval for SSRA section 314 “which takes a step away from electronic delivery of plan disclosures.” Section 314 of SSRA requires participants occasionally receive certain information by paper documents.

Congressman Jim Himes, D-Connecticut, of the House Financial Services Committee, told a conference hosted by the Investment Adviser Association that he expects SECURE 2.0 to pass during this Congress, most likely during the “lame duck” period between November and January.

The full letter is available here.

 

Empower Hit With Government Markets Lawsuit

The complaint has alleged fiduciary breach under the Investment Advisers Act. 



Former participants in government 457 plans run by Empower Retirement and affiliates Great-West Funds and Putnam Investments brought a lawsuit alleging breach of fiduciary duty against the firms and related companies.

The lawsuit was brought under the Investment Advisers Act, the federal law that regulates investment advisers.

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Additional named defendants to the lawsuit are Advised Assets Group, Great-West Lifeco, Great-West Life & Annuity Insurance Company, Empower Annuity Insurance Company of America and Empower Advisory Group.  

The plaintiffs complaint centers on Empower’s government markets division, the filing shows. Many state and local government workers can—in addition to pensions—save for retirement in supplemental 457 defined contribution plans.

The complaint has alleged Empower used deceitful sales practices to boost use of managed accounts.

Plaintiffs claim fraudulent sales practices comprised a breach of fiduciary duty to participants. The complaint alleges Empower instructed government plan advisers to use fraudulent sales tactics that caused employees to be “lured into the Empower-owned,” higher fee managed account option, filled with Empower-affiliated Great-West and Putnam funds, while lower cost investments were available from competitors.   

“As profitability of its retirement plan administration business dwindled, Empower instituted a companywide policy requiring the use of fraudulent sales tactics to induce individuals to transfer assets from their low-fee employer sponsored retirement plans to Empower’s higher fee managed account product, which contains individual funds owned by Empower’s sister companies,” the complaint states.

An Empower spokesperson said in an email the lawsuit is without merit.

“This is a lawyer-driven lawsuit filed by two individuals purportedly on behalf of a class of others. The lawsuit was not filed by a plan sponsor or an adviser. Anyone can file a lawsuit and in so doing they can make claims that are not valid. We believe our products and services are compliant with the applicable rules and are beneficial to our clients, helping them meet their retirement goals,” the email stated.

The lawsuit was filed by Forest James IV, an attorney with Birmingham, Alabama-based law firm, Fob James Law Firm, and James Z. Foster, with Atlanta-based Foster Law. 

Government 457 defined contribution plans are not subject to rules and requirements of the Employee Retirement Income Security Act, as are private-sector 401(k) plans.

Empower-managed accounts are designed to allow plan sponsors a way to provide greater personalization for workers’ retirement savings and investments that are tailored to a participants’ specific circumstances.

For example, their total assets needed for retirement, time to retirement, and risk tolerance. For the service and greater personalization, managed account fees are higher than plain-vanilla target-date funds with a traditional glide path that de-risks as the participant nears retirement. The managed account is overseen by a discretionary portfolio manager who makes investment decisions for individual participants.

“Empower used its knowledge as a retirement plan administrator to identify vulnerable unsophisticated investors and individuals with large account balances nearing retirement as targets for Empower’s sales representatives, who then used manipulative sales tactics and falsely portrayed Empower’s higher-fee Managed Account as the preferred solution without regard to whether the recommendation was in the participants best interest,” according to the complaint.

An Empower spokesperson said in an email the lawsuit is without merit.

The lawsuit seeks class action status. The complaint was filed in U.S. District Court for the District of Colorado.

 

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