After the Secure Act, what's next on retirement legislation?
Now that the first federal retirement bill in more than a decade has become law, industry insiders are hoping that momentum will carry over into new efforts to boost retirement savings and expand the benefits universe.
Opinions vary on the significance of the Secure Act, which Congress approved in December, enacting numerous provisions concerning annuities, new benefits and pooled plans. Some argue that it is more incremental than revolutionary, but it nonetheless came after a long period of inaction in Congress on the retirement front, dating back to the 2006 passage of the Pension Protection Act.
And with roughly 10,000 Americans reaching age 65 each day, industry groups are hoping that the next legislative action will come sooner.
"We don't have the luxury to wait another 14 years before Congress considers another comprehensive package of legislation to strengthen Americans' retirement security," Paul Richman, chief government and political affairs officer at the Insured Retirement Institute, told reporters on a conference call.
The IRI lobbied for the Secure Act, and has several other retirement bills that it is championing at the top of its policy agenda.
Many of those proposals would bring significant changes to the benefits world, such as the legislation that would require all but the smallest employers to offer some kind of retirement plan.
Sen. Sheldon Whitehouse (D-R.I.) has authored one such measure, which would require businesses with more than 10 employees to sponsor an IRA with contributions made via payroll deduction.
That type of proposal might face an uphill climb given that it would amount to a government mandate, though it would address the growing concern that too many workers don't have access to a retirement plan through their employer, which is generally viewed as the most effective vehicle for people to put money away for retirement. Then, too, even if the plans were directed to launch with automatic enrollment, employees would have the chance to stop contributing at any time.
"'Mandate' is a scary word in Washington, but making sure that participants in these plans would always have the ability to opt out, I do think there is some traction there for that," says Paul Sommerstad, a partner with the Cerity Partners, where he helps lead the firm's Retirement Services Group.
The AARP has asserted that workers with access to a retirement plan through their employer are 15 times more likely to save for retirement. However, more than 40% of full-time employees who work at small and midsized firms don't have an employer-sponsored plan, according to research by the Pew Charitable Trusts.
"We know that automatic savings programs are an effective strategy for building a nest egg, yet tens of millions of Americans don’t have that option through their job," Whitehouse says in a statement. "This bill would make it easier for employees to save for retirement in a simple fashion without overburdening employers."
As a policy goal, expanding access to retirement plans and encouraging workers to save more is not especially controversial. Still, Brent Weiss, a CFP and the chief evangelist at Facet Wealth in Baltimore, likely speaks for many when he raises doubts about how a bill like Whitehouse's would be implemented.
"I can't say I wouldn't be behind some kind of mandate to make retirement plans universally accessible," Weiss says. "The challenge is ... I struggle to believe that the federal government would be the best organization to oversee it and monitor it."
Weiss envisions some form of public-private partnership that would lean more heavily on the business community to set up an organizational structure to oversee a retirement-plan mandate.
The interest in a federal response to the shortfall of workplace-sponsored retirement plans cannot be viewed without considering developments in several states, which have been moving to set their own mandates requiring most businesses to offer a plan. The OregonSaves program was the first to take effect. Its provisions are typical of the model that many other states are pursuing, which requires most employers to set up a qualified private retirement plan or to offer a state-run retirement plan.
Industry groups such as the IRI and the National Association of Insurance and Financial Advisers have been arguing against those proposals on the grounds that they could put the state in competition with private retirement plans. Instead, they argue that statehouses should focus their efforts on encouraging more small businesses to roll out private plans on their own through various incentives and deregulatory efforts.
"A number of states are rightfully concerned about the millions of Americans who are not benefiting from workplace retirement plans, but we believe the solution lies in the robust private-sector marketplace rather than newly created state-run plans," says Jason Berkowitz, IRI's chief legal and regulatory affairs officer. "Although these state-run retirement plans are well-intentioned, they are misguided and threaten the vibrant private-sector retirement savings market."
While the IRI and allied organizations will be working to defeat state-level retirement plan, back on Capitol Hill they are encouraging lawmakers to pursue other novel approaches to boost retirement savings and reshape the benefits landscape. One involves legislation that would authorize employers to make matching contributions to employees' 401(k) that would be calibrated to the payments the employees make to their student loan debt. The rationale for that proposal is simply that many students — or their parents — face such a massive debt burden from school expenses that they are unable to contribute to their retirement savings.
"One of the biggest issues younger generations in particular face is this crippling student loan debt that keeps them behind the eight ball," Weiss says, who calls proposals to couple retirement matching with student loan payments "a win across the board."
"When I think about what employee benefits really do for an employer, number one, it's talent recruitment," he says. "If you start to provide more comprehensive financial solutions, not only do you help those individuals but you can retain top talent."
Sommerstad has seen employers growing interested in offering some type of student loan benefit, and some, such as the healthcare-technology company Abbott, have secured authorizations to pair retirement contributions with employees' student loan repayments.
"We are seeing more employers just move ahead regardless of clarity from Washington with different programs to help their current population of employers and potentially future hires," Sommerstad says. "Others are wanting to do it, but are waiting for guidance because they would feel more comfortable with a thumbs up — for lack of a better word — from Washington."
Some in the industry are also asking for some technical fixes for various provisions of the SECURE Act, such as an assurance that nonprofits, public schools and religious institutions are eligible to join the pooled employer plans that the bill authorized. The IRI is also asking Congress to clarify that a tax credit for small businesses that join a multiple employer plan or a pooled employer plan would take effect immediately.
The SECURE Act was widely hailed for provisions to permit employers to annuitize defined contribution plans and to make it easier for employers to join together in group plans.
Weiss is hopeful that the MEP and PEP provisions will encourage more small employers to offer plans, he is skeptical about the broader impact of the bill.
"I'm not buying the hype about it," he says, appealing to lawmakers to rethink their approach to retirement legislation with a stronger focus on financial literacy and wellness, which he calls "the new frontier in employee benefits."
"I think there's a great way to provide some kind of financial wellness and financial coaching to employees that can go a lot further than saying, 'Hey we're going to give you a tax benefit,'" Weiss says. "Employers that have educated, engaged and financially healthy employees — those employees are more engaged and more productive."