Compliance March 1, 2022

High Hopes for Legislative Progress in Late 2022

Taking a cue from the process that led to the adoption of the SECURE Act in late 2019, one retirement industry policy advocate says the odds are good for passage of retirement-focused legislation by the end of the year.

 

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As the director of policy at Principal Financial Group, Lance Schoening has spent a substantial portion of his professional life in Washington, D.C., including on Capitol Hill, although he did recently return to the firm’s headquarters in Des Moines, Iowa.

While he is no longer walking the halls of Congress daily, Schoening is still tracking the latest legislative developments and engaging in advocacy for the retirement industry reforms his company believes in. During a recent interview with PLANADVISER, Schoening pointed to multiple pieces of legislation already on the table and suggested more proposals could come ahead of the midterm elections—all in time for passage during the lame-duck session at the end of the year. 

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“I’m sure my colleagues would agree, it is gratifying to work in an area where true bipartisanship is possible,” Schoening says. “Members of Congress realize that retirement, 401(k) plans and pensions are kitchen table-type of issues for their constituents. Broadly, I think many members are focused on retirement security and financial wellness. That was proven by the success of the [Setting Every Community Up for Retirement Enhancement Act]. That was such a great bipartisan accomplishment.”

Among the bills Schoening is watching is the Lifetime Income For Employees Act, or the LIFE Act, for short. Its supporters, led by Reps. Donald Norcross, D-New Jersey, and Tim Walberg, R-Michigan, say the legislation would allow annuities to be part of a default investment in an employer-provided 401(k), with the stated goal of supporting workers as they seek to build a steady, guaranteed income stream during retirement.

Specifically, the LIFE Act addresses certain requirements in the qualified default investment alternative regulatory safe harbor that prevent some employers from including annuities as a component of their retirement plan’s default investment. Schoening agrees with Norcross’ and Walberg’s suggestion that the LIFE Act builds upon the SECURE Act provision that enhanced the safe harbor on which plan sponsors rely when choosing an annuity provider for their retirement plan.

While the enactment of this improved safe harbor was a significant step, Norcross and Walberg say, the LIFE Act will take the critical next step and ensure more savers have access to annuities as a matter of default.

“I think the collaboration between Congress and the private industry has been very positive in recent years,” Schoening comments. “The leading members of Congress who are very active in this area, they are very collaborative, and they are cognizant of what the private sector can bring to the table. We have been able to work with them in great detail and dynamically on policy proposals.”

Reflecting on his own advocacy work, Schoening says members of Congress, broadly speaking, now understand the pros and cons of annuity investing and the role annuities can play as part of the 401(k) plan system. For context, data provided by the Investment Company Institute shows that assets in individual retirement accounts are now in excess of $12 trillion, while defined contribution plan assets are in the realm of $10 trillion. Schoening says these figures, combined with the fact that annuities are not yet commonly embraced on retirement plan menus, show a clear need for policy innovation that addresses Americans’ need for stable sources of retirement income.

“I would say that the benefits of annuitization are being appreciated by members of Congress, and I think that’s an important thing,” Schoening says. “We are feeling encouraged and optimistic—it’s guarded optimism, of course. As the events of even just the last week have shown us, the tenor and direction of the Congressional agenda can always change very quickly. One point of optimism is that several leading members of Congress who are focused on these issues are themselves going to retire, so they have an incentive to get another policy victory sooner than later.”

Schoening’s experience suggests the staff of multiple key committees in the U.S. House are now collaborating behind the scenes and “hashing out” a way to advance retirement reform legislation.

“My impression is that they are exploring the ways that multiple committees could move in a coordinated way to create a consensus framework or a piece of legislation that could, for example, move in the lame-duck session after the midterm election,” he concludes. “The SECURE Act followed that same timeline, if you remember.”

Compliance March 1, 2022

Supreme Court Won’t Consider CalSavers ERISA Preemption Lawsuit

The move by the high court stops an advocacy organization’s effort to halt the program, which provides workplace retirement savings for private sector workers whose employers do not offer a retirement plan.

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The U.S. Supreme Court this week declined to accept an appeal of a lawsuit involving the CalSavers Retirement Savings Program.

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Launched in July 2019, CalSavers is available to self-employed individuals and to California workers whose employers don’t offer a workplace retirement plan. Under the program, savers contribute to an individual retirement account that belongs to them, with payroll deferrals being facilitated by their employer. Private-sector employers with five or more employees have to register with CalSavers by June 30, 2022, while employers with more than 50 employees were required to register by June 30, 2021.

The move by the Supreme Court comes after the 9th U.S. Circuit Court of Appeals affirmed a lower court’s dismissal of claims by a group that sought to block the program’s implementation. The lawsuit, filed by the Howard Jarvis Taxpayers Association, aimed to block CalSavers on the grounds that the federal Employee Retirement Income Security Act pre-empts it, thereby invalidating the program.

In its dismissal, the Circuit Court ruled in no uncertain terms that ERISA does not pre-empt CalSavers.

“We hold that the pre-emption challenge fails,” it said in its ruling. “CalSavers is not an ERISA plan because it is established and maintained by the state, not employers; it does not require employers to operate their own ERISA plans; and it does not have an impermissible reference to or connection with ERISA. Nor does CalSavers interfere with ERISA’s core purposes. Accordingly, ERISA does not pre-empt the California law.”

The Supreme Court has effectively endorsed the 9th Circuit’s ruling by declining to itself take up the case.

California State Treasurer Fiona Ma, who chairs the CalSavers Retirement Savings Board, says the Supreme Court’s decision is a victory for her state and its citizens.

“The United States Supreme Court’s denial of review preserves the ability of millions of hard-working Californians to save for their futures through this portable, simple option,” Ma says. “CalSavers is a simple solution to level the playing field for workers who for too long haven’t had effective access to retirement savings plans. Without this program, and programs like it across the country, millions of Americans would be left behind.”

“It’s great that this matter is finally behind us after nearly four years, but we never let it slow us down,” says CalSavers Executive Director Katie Selenski.

Selenski says more than 30,000 employers have registered since the program launched, while more than 233,000 workers are saving with funded accounts amounting to more than $186 million.

“We are laser-focused on bringing on tens of thousands more employers this year leading up to and following the June compliance deadline and supporting hundreds of thousands more savers as they begin their savings journeys,” she adds.

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