Compliance October 27, 2020

Retirement Industry Cheers New ‘Securing a Strong Retirement Act’

The bipartisan piece of legislation includes provisions that have long been popular among retirement industry stakeholders, including the elimination of barriers to allow greater use of lifetime income products.

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Members of the Ways and Means Committee of the U.S. House of Representatives have released a proposed retirement reform legislation called the Securing a Strong Retirement Act of 2020.

The proposed legislation was introduced by Ways and Means Committee Chairman Richard Neal, D-Massachusetts, and Ranking Member Kevin Brady, R-Texas.

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As the pair explain, the proposed legislation builds in various ways upon the landmark Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was signed into law in December and was the most comprehensive retirement security legislation in more than a decade. 

Though it will take some time for the retirement planning industry to digest the proposed legislation, early feedback has been positive, reflecting the reactions to the initial publication of the SECURE Act last year.

“Our country is facing a retirement savings crisis that has been compounded by the economic impact of the COVID-19 pandemic,” says Financial Services Institute (FSI) President and CEO Dale Brown, noting that his organization is still digesting the sizable proposal. “It is promising to see continued interest in Congress to address this critical issue, and we applaud the committee leadership’s bipartisan approach. We look forward to working constructively with lawmakers to ensure this crucial legislation effectively assists Main Street Americans’ ability to achieve a financially secure retirement.”

“Congress is demonstrating once again that retirement security is a bipartisan issue in which leaders from both political parties focus on solutions to benefit workers and retirees,” adds Wayne Chopus, president and CEO of the Insured Retirement Institute (IRI). “We are very appreciative of the leadership, hard work and commitment of House Ways and Means Committee Chairman Richard Neal and Ranking Member Kevin Brady to introduce this legislation to help workers and retirees save more so they can enjoy a financially secure and dignified retirement.”

Chopus notes that the IRI has been advocating for many of the points included in the Securing a Strong Retirement Act, including the provision to increase the qualified plan required minimum distribution (RMD)  age to 75, the elimination of barriers to allow greater use of lifetime income products, the expansion of retirement savings opportunities for nonprofit organization employees and the creation of greater clarity for startup tax credits that incentivize small businesses to join multiple employer plans (MEPs) and pooled employer plans (PEPs).

Chris Spence, managing director of federal government relations at TIAA, also hails the legislation, while expressing some caution.

“TIAA applauds Chairman Neal and Congressman Brady for today’s introduction of the Securing a Strong Retirement Act of 2020,” he says. “This bipartisan legislation will build on the important retirement reforms set in motion by enactment of the SECURE Act, which passed last year. While we are just beginning our review of the legislation, TIAA is supportive of a number of proposed measures that will address today’s retirement security challenges. We believe that as Congress works to refine this bill, ultimately, it will improve the retirement readiness of Americans and help millions attain a secure financial future.”

A preliminary analysis suggests the legislation is indeed ambitious and a potentially worthy successor to the highly popular SECURE Act. Among many other provisions detailed across some 130 pages of text, the legislation proposes expanding automatic enrollment in retirement plans, simplifying and increasing the saver’s credit, enhancing 403(b) plans, expanding automatic enrollment in retirement plans and indexing the individual retirement account (IRA) catch-up limit. Other sections address the treatment of student loan payments as elective deferrals for purposes of retirement plan matching contributions, while others describe a new military spouse retirement plan eligibility credit for small employers.

An early summary provided by the American Council of Life Insurers (ACLI) highlights the following goals of the legislation:

  • Promote savings earlier for retirement by enrolling employees automatically in their company’s 401(k) plan, when a new plan is created;
  • Create a new financial incentive for small businesses to offer retirement plans;
  • Increase and modernize the existing federal tax credit for contributions to a retirement plan or IRA (the saver’s credit);
  • Expand retirement savings options for nonprofit employees by allowing groups of nonprofits to join together to offer retirement plans to their employees;
  • Offer individuals 60 and older more flexibility to set aside savings as they approach retirement;
  • Allow individuals to save for retirement longer by increasing the required minimum distribution age to 75;
  • Allow individuals to pay down a student loan instead of contributing to a 401(k) plan and still receive an employer match in their retirement plan;
  • Make it easier for military spouses who change jobs frequently to save for retirement;
  • Allow individuals more flexibility to make gifts to charity through their IRAs;
  • Allow taxpayers to avoid harsh penalties for inadvertent errors managing an IRA that can lead to a loss of retirement savings;
  • Protect retirees who unknowingly receive retirement plan overpayments; and
  • Make it easier for employees to find lost retirement accounts by creating a national, online, database of lost accounts.
Client Service October 26, 2020

Financial Planning With Gen Z Gig Workers

As more Gen Zers enter the gig workforce, financial advisers are tailoring their services to fit the needs of these workers.

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More Generation Z workers are taking gig work, but it might not be their first choice. As a result, financial advisers are crafting their advice to ensure younger members of the workforce stay on track with their retirement savings. 

A report by Kronos Incorporated, a workforce management and human capital management cloud provider, found that while 53% of Gen Z respondents expressed interest in working for themselves, 47% said they were unwilling to sacrifice the stability of a traditional “9 to 5 job” and 46% said they would rather have the stable income that comes with a salary job than flexible hours.

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However, industry experts say that, despite these fears, more employees in this younger workforce are making the leap to gig work due to concerns about COVID-19. The risk of returning to an office setting amid the pandemic has made workers want to avoid traditional work environments, and high unemployment numbers have forced some to consider gig work instead, says Brian Pirri, partner at New England Investment and Retirement Group.

“We’ve definitely started and will continue to see that shift,” he explains. “Fewer people today want to go into a workplace in an office setting, and you see more people working remote or doing contract, gig work.”

As a result, these workers are leaving their traditional, employer-sponsored 401(k) plans and, instead, enrolling in accounts such as a SIMPLE [savings incentive match plan for employees] plans, simplified employee pensions (SEPs) or Roth individual retirement accounts (IRAs).

Some gig workers might eventually think about starting their own business. For these workers, Robert Conzo, Certified Financial Planner (CFP), CEO and managing director at The Wealth Alliance, recommends adding a traditional 401(k) profit sharing safe harbor for its flexibility. “You are not handcuffed to the 25 mutual funds that are offered in big corporations,” he adds. “You can have more flexibility, save more pre-tax, have more access, open architecture, etc. As an independent contractor, the same plans that I had access to in the big corporate world are available to me as an individual.”

Still, for workers who are just working for themselves and serving as freelancers, consultants or gig economy workers, contributing to an IRA is their only option. “It requires the ability, fortitude and discipline to save on your own,” says Pirri. “When the plan is there and it’s on you to make that contribution, it’s tougher to stick to that plan.”

Without a traditional 401(k) plan, these workers miss out on key features and benefits that could help them increase their retirement savings, including financial advice. While companies such as Vanguard are targeting their services at Millennial and Gen Z workers with the addition of Vanguard Digital Advisor, Pirri says New England Investment and Retirement Group is currently speaking with its clients’ children on financial and retirement planing, who are now adults as they enter the workforce.

Micah DiSalvo, chief revenue officer at American Trust, notes that more financial advisers are tailoring their advice to the Millennial and Gen Z workforces, especially when it comes to retirement savings. “If you get someone who is 25 years old, you can make a real impact on retirement,” he says. “We’re seeing advisers trying to connect on their terms, whether that’s through technology, social media, education, motivation, it’s all centered around how advisers can connect and transcend that message to Gen Z.”

Conzo advises gig workers to speak to advisers instead of determining their financial futures through an online or mobile assessment. Digital investment advice services such as robo-advisers are popular, but connecting with a financial expert with years of experience can save these workers money, he says. “The benefit of talking to a professional with many years of experience is that they’ve seen the pitfalls of making the wrong decision,” Conzo argues. “That type of experience blends itself into something that is very hard to acquire from a virtual medium.”

Instead, Conzo recommends using virtual assistance tools as resources and not guidance. It would be a mistake if workers only use digital tools to make their decisions, he adds.

“Advice is much broader and expanding, and it comes from a place where a CFP sees a lot of the problems in coupling the wrong plan with a person,” he concludes. “There’s no substitute for a person with many years of experience in a specialty area like financial planning.”

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