SECURE Act: Workplace Retirement Plans Impact & Analysis
Question: With the new SECURE Act, what are the differences between and the impact to MEPs & PEPs employers should be aware of?
Bob Holcomb: There is still a distinction post SECURE. MEP refers to traditional multiple employer plans that meet the DOL commonality requirements. These were the type of MEPs that were in existence prior to SECURE and generally covered separate employers that were in the same trade or industry. The commonality rules were modified by the DOL last summer when they issued their final Association Retirement Plan (ARP) regulations allowing unrelated employers that are not in the same industry to participate in a MEP sponsored by an association (e.g. a Chamber of Commerce) or a Professional Employer Organization. Pooled Employer Plans (PEPs) are MEPs that meet all the requirements of SECURE. PEPs allow unrelated employers that are not in the same trade or industry to participate, and may be sponsored by entities that are not covered in the ARP regulations.
Robert A. Holcomb,
Vice President Legislative & Regulatory Affairs
Robert A. Holcomb, is Vice President of Legislative and Regulatory Affairs for Empower Retirement.
In his role, he oversees retirement policy efforts on behalf of Empower. In addition, he interprets pension-related legislation and regulations, consults with clients and internal partners on legislative and regulatory issues, and represents the organization in advocacy groups.
Bob joined the organization in 1991 and has been in the retirement services industry for 30 years, serving in client management, operations, technical consulting and sales support roles. Bob is a graduate of the University of Kansas School of Law.
NEW: Episode Transcript
Rick Unser: 00:00 Well Bob, welcome back to the podcast.
Bob Holcomb: 00:03 Well thank you Rick. Thank you.
Rick Unser: 00:04 Yeah, it's been a little while and I'm certainly excited to have you back and I think we've got a fun and meaty topic to jump into today with the secure act.
Bob Holcomb: 00:13 Absolutely.
Rick Unser: 00:14 So I guess let me just start with with the headline that I saw the other day, which was, you know, the secure act, the most important retirement legislation in over a decade. And I guess as I was looking through that, I'm like, all right, well if memory serves and maybe I'm wrong here, a kind of thing, this is the only major retirement legislation we've had in a decade and it knows certainly not meaning to take anything away from our conversation today, but is that right that this is really the first thing that we've seen come through since the pension protection act back in 2006
Bob Holcomb: 00:46 I would agree with that. I think it's certainly the first major piece of legislation where our primary focus was on pension reform. And you know, it has been a long time since we've seen any meaningful pension reform. And you mentioned the pension protection act back in 2006 five years. Prior to that, we have another major piece of pension legislation in the economic growth tax relief and reconciliation act that contained all the pension reform efforts of then representatives, Rob Portman and Ben carton. So it's good to see Congress finally prioritizing pension reform once again. And I'm, I'm very hopeful that we're not going to have to wait another 13 years before we see Congress take some action in this field.
Rick Unser: 01:30 I'm with you. It certainly is helpful when they, when they clarify and give us some more fiduciary safe harbors, et cetera, that we can work with. I had a client the other day just say, Hey, give me the, give me the broad brush strokes here. You know, thematically what was, what was this thing all about? And it got me thinking a little bit and I'd love to see if you think this is sort of the right paraphrasing of, of what happened. I feel like if you look back to the pension protection act, a lot of the emphasis, or at least in hindsight, a lot of what we took from that was things like automatic enrollment, automatic escalation, QDA, which I think really helped with accumulation in that phase of people's journey. And as I thought a little bit about the secure act, and we'll dive into this a lot more in the conversation here today. What kind of struck me was that this was a little more about decumulation and coverage and my kind of thinking about that writer or is that too simplistic?
Bob Holcomb: 02:30 No, I think that's fair. I'd, you mentioned the pension protection act and the one, the one thing I always like to raise about the pension protection act. For those of us in the defined contribution world, we've looked at the pension protection act as a very positive reform and it, it did a number of things that we've been wanting for a while now for our colleagues who work in the defined benefit area. I don't think that they weren't happy with the pension protection act. So the pension act was kind of a mixed bag, but you know, looking at secure and really its Genesis and how it came about, about you really have to go back to RESA retirement enhancement savings act. And this whole journey really started back in 2015 and that was when the then chairman of the Senate finance committee, Orrin hatch, Republican out of Utah created a number of different working groups, five different working groups, one of which is focusing on savings and investments.
Bob Holcomb: 03:33 Each of these working groups were co-chaired by a Democrat and Republican. They had equal numbers of Democrats and Republicans on them. And the goal of each of these groups was to come up with some sort of tax reform package, something that could get broad bipartisan support. And so in, in July of 2015, the working group on savings and investments reported out a number of provisions that became RESA. And to their credit, they were a number of reforms that we've been talking about. And we'll obviously go in more depth in a moment. A number of reforms that we'd been talking about for years, but also they were low hanging fruit. There were things that were non-controversial and you know, we're meant to get the bipartisan support that hatch was seeking. Risa was introduced in 2016 it came out of the Senate finance committee with unanimous support and looked like it was probably going to be signed into law at the end of that year. Then of course we had the 2016 presidential election. Republicans had control after that election of both the white house and both chambers of Congress. And so they kind of put everything on hold to introduce legislation beginning of the next year where they could look at what they wanted to do with a unified government. So Risa went to the wayside and then it was picked up again last year in the house with a new name secure.
Rick Unser: 05:02 Got it. And, and as you said, as it's gone through some iterations here, I feel like secure had a lot of momentum and then it just sort of fell off the face of the earth. And then lo and behold, all of a sudden now it's was passed into law at the end of 2019 how did that go from sort of on the scrap heap to all of a sudden it's now law?
Bob Holcomb: 05:26 Well, it was definitely a roller coaster ride. You really have to go back to the Democrats to control the house after the 2018 midterm elections. So when the new chairman of the house ways and means committee, Richie Neal came in, mr Neil chairman Neil is a, has a long history, long record of being a strong advocate of pension reform and common sense, good common sense pension reform. Whereas his predecessor Kevin Brady, the Republican, now the Texas was more interested in tax reform in general rather than pension reform. So Neil read at the beginning of the year made clear that pension reform was going to be one of his top, if not his top priority as chairman of ways and means and true to his word, secure was introduced. And Neil did a good job of of getting this introduced. He had his main co-sponsor on the bill was Kevin Brady. So you had the chairman of ways and means and the ranking member ways and means both sponsoring this bill, it flew through the house, they voted it through in may with a 417 to three majority.
Bob Holcomb: 06:36 And I mean usually that kind of a majority is reserved for renaming post offices. So I think a lot of us in the industry, we're a very gratified and we expect secure to move quickly through the Senate, particularly since so much of it was based on the iPod artisan Risa bill that had been introduced in the Senate earlier. Well, unfortunately that didn't happen and it got stalled and it got stalled. For reasons that were pretty much unrelated to pension reform, there had been some changes to section five 29 college saving arrangements that were tacked into secure. And when the bill went to the floor of the house, they removed a provision that would have allowed five 29 withdrawals be used to pay for homeschooling expenses. Senator Ted Cruz out of Texas had raised an objection over that and had placed a hold that kept the bill from moving through the Senate via unanimous consent.
Bob Holcomb: 07:35 There were a couple of other senators who had some procedural questions around secure, so secure became stalled. The avenue that Mitch McConnell wanted to use was via unanimous consent where it really didn't have to go to the floor for any debate for any offering of amendments on that fell through. It got pushed to the side and I would say that is as late as the end of November. A lot of us in the industry were not optimistic about whether or not secure was going to make it across the finish line. But then in early December talk started up again between the house and Senate around the year end appropriations package and they were considering pushing a, putting secure as part of that package. So it was included pass through the house on December 17th passed the Senate on the 19th then president Trump signed it into law as part of that broader appropriations package on the 20th so a lot of activity over the last few weeks of the year that really pushed it across the line. And, and frankly, I think a lot of that was a desire on Congress to show that they could move some things forward. Even in this, you know, the very partisan atmosphere that Washington seems to be locked in right now.
Rick Unser: 08:53 Yeah. And some might say that is an understatement about the partisan atmosphere, but nonetheless, it's good to see that that was checked off the list and certainly some good things to come from it. So I guess if you, if you look at secure and maybe we start to unpack a few things that are in there, what are some of the elements that, that are contained in it? And then how do you sort of prioritize or frame this for employers who are like, okay, we've got new law, we have new regulation. What do I do? What do I need to pay attention to, et cetera.
Bob Holcomb: 09:27 Okay. Well let's go back to something that you mentioned earlier that secure focused a lot on both coverage and de cumulation issues. Right, and I think that's very fair and I think from a broad standpoint, a lot of the provisions and secure we can divvy up between those various buckets. Now obviously the biggest item in secure, the one that probably got the most discussion was open MEPS and we, we now have a new acronym, pets pooled employer plans. So as I'm sure almost all your listeners know, there were some DOL and IRS rules that limited the ability of small employers to band together under a map. On the DOL side. It was a whole commonality issue that DOL had taken, the position that there had to be some common interest among the various employers who are participating in these open multiple employer plans. And they viewed that as being employers who are in the same trade or industry.
Bob Holcomb: 10:29 Now secure eliminates that and allows completely unrelated employers to band together. Now there has to be a pool plan provider as someone who is a fiduciary to the plan and is responsible for the administration, making sure that the various participating employers are complying with all the rules under both the risks and the internal revenue code. So maps was really probably the big ticket item, but there were also some provisions around lifetime income. They created a new safe Harbor for the selection of lifetime income providers or annuity providers that would make it easier for fiduciaries to add these types of options into the plan. In addition, they address what's been known in the past as a portability problem. The idea that if I have a lifetime income option as part of my fun lineup and I want to eliminate that potentially, then my participants would lose any annuity buildup that was within that product.
Bob Holcomb: 11:32 What secure would allow is treating that as a distributable event with respect to the money's in that option, so then the participant could then directly roll that over to an IRA and preserve that annuity buildup. In addition, there's a new requirement that would require employers to provide at least annually a new that would take the participants account balance and break that down or interpret that as what it would provide as a stream of income. Once the participant reached retirement, you know, a number of other issues, they expanded tax credits for small employers. You know, this once again goes to the coverage issue trying to make it easier for small employers to start up plans, introduced a new tax credit for small employers who adopt automatic enrollment. And then you know, I think a couple of the other big changes that plan sponsors want to make sure that they're looking at.
Bob Holcomb: 12:32 One is an increase of the required minimum distribution age that changes from 70 and a half to now 72. And this is, this is actually a big change and this is probably the item that is really the most expensive from a scoring aspect and secure this provision scored at about $8 billion over a 10 year period. Plan sponsors will now also be required to or will not immediately, but in the future we'll be required to cover longterm part time employees. And that's defined as employees who work at least three consecutive years with 500 hours. There's a new withdrawal option for birth and adoption of children and then also an elimination of what was known as the stretch IRA stretch RMD provision that allowed a beneficiary to an IRA or a defined contribution account to draw down that account over their lifetime. Now with a few exceptions for spouses, minor children, disabled heirs, that balance has to be drawn down within 10 years. And this was a big revenue raiser for secure. It was scored at raising about $15 billion in revenue over that 10 year period. And that's what paid for a lot of the other provisions. So sorry Rick. Long answer to short question, but you know a number of things that I think plan sponsors and their advisors need to be aware of.
Rick Unser: 14:00 Yeah, and I'm going to go back to the beginning there and I guess this is a beauty is in the eye of the beholder thing. To me, the big headline grabber was more the retirement income piece versus the, the map or the, you know, the ability of employers to unrelated employers to kind of pull together. Like I said, I, I'm, I'm not debating or disputing any of the, any of the, the accuracy of what you just said there, but certainly as I was kind of thinking about what were the, the maybe the more impactful sides of secure in my world, I kind of gravitated towards retirement income versus the versus the met piece or versus the youth. The pet piece, as you were saying.
Bob Holcomb: 14:42 Right. And that's fair. I mean, if I, if I look at what are the hot topics when we're walking into offices, when we're talking to members or staff, clearly coverage has been an issue for a long time. I mean, we've, you know, that's, that's been a nut that the industry and Congress has been trying to crack for some time. There's been a want more interest in accumulation in lifetime income and the provisions that we got in secure, you know, the portability that I mentioned earlier and the provision that creates a safe Harbor for selecting an annuity provider. And it basically lets the plan fiduciary, the plan sponsor rely on representations from the provider that they're in compliance with the applicable state law and then they can rely on that as far as satisfying their due diligence requirements. And in addition, it also makes it clear that you don't have to select the lowest cost provider.
Bob Holcomb: 15:38 You can look at all the rights and features under the option and make the decision on what is the best value, what's most appropriate for your plan participants. But both of these provisions I think are more geared at trying to eliminate perceived fears that plan sponsors had around offering lifetime income options. I think Congress was looking at why aren't these options more popular within plans? And so they tried to identify through jail reports, through discussions with those of us in the industry. What were some of the key concerns and fears that plan fiduciary might have? So I think this is consistent with an approach that Congress takes. Our first step is we're going to offer the carrot, we're going to try to offer the incentives or remove perceived roadblocks as far as offering these types of options. But I think that's just a step down the road to, you know, I think future reforms, we're going to see more of a stick approach where there has to be some provision that allows at least a portion of an account balance to be drawn out in the form of lifetime income.
Rick Unser: 16:47 Yeah, and I think it could be interesting to see where that that heads as the defined contribution world looks and feels more like the old defined benefit world. Obviously without some of the balance sheet implications, but kind of replicating that ease of accumulation and de cumulation that defined benefit provided. I wanted to come back to the, to the coverage side of it. And a little while back I had Phyllis Borzi, one of the ex heads of the EBSA employee benefits security administration and just one of the funny things that she said and she said, you know, Hey, as I was retiring and you know, we got together with a lot of my former peers from, you know, several, several decades and somebody from the early seventies was just laughing and sharing stories of Hey, all the stuff that we were talking about in the 70s around coverage and things like that.
Rick Unser: 17:40 We're still trying to figure out in, you know, 2018 2019 2020 so I guess that's my way of bringing it back to I that I think the coverage nut has been something that's been really difficult to crack. And so here comes, I guess a two part question. Why has, is the DOL or, or other groups sort of resisted this idea that employers can kind of get together and offer a retirement plan if they're not related in some way, shape or form? You know, why, why has that happened historically? And then I'll put you on the spot a little bit. And do you think that this move to more open MEPS or PEPs, if you can clarify that for me, do you think that will actually improve coverage or my personal opinion, maybe you get some more people that come off the sidelines, but I honestly think it's going to be more people that already have plans might gravitate towards getting out of being an individual sponsor and might hitch their wagon to one of these, you know, group programs to maybe try to save a little money, help with administration, ease, fiduciary liability, exposure, et cetera.
Bob Holcomb: 18:53 Right. Well a couple of good questions there Rick. So going to your first, as far as why had the department of labor taking the position that unrelated employers couldn't participate in? I think that was just their interpretation of what type of an organization could, you know, really step into the shoes of the plan sponsor and offer one of these pooled arrangements. And they had really taken the position that there had to be some commonality. Now, the Trump administration had issued a memorandum and this came back, Oh gosh, it was in, I guess it was in August of 2018 that directed both labor and treasury and IRS to remove some of these hurdles and to reinterpret what type of employers could participate in these arrangements. And as a result, the department of labor came out with their rules on association retirement plans last year. Now I would think many of us in the industry would say that those rules really didn't move the needle in the open map market very much because it, it really left out any kind of financial institutions, broker dealers from sponsoring these types of arrangements and really limited it to organizations like chambers of commerce or professional employer organizations.
Bob Holcomb: 20:15 So secure takes it a step further now, you know, going into the second part of your question how much of an impact will this have on the market? You know, I think a lot of that is ms still to be seen. I think there are number of opportunities here. I think there's plenty of opportunities, but then the advisor consultant market to sponsor these types of arrangements, particularly working with employers that they have currently who might be, has small employers that might be to offer these types of arrangements and if they can, you know, put together a package that allows certain economies of scales that provides opportunity for limiting the administrative burdens and some of the concerns around fiduciary liability. I think that there is a good opportunity in that market. But you know, going back, we have been trying to, to solve this problem for a long time, so I'm not going to go out and say that this is the silver bullet that's going to cure the, the coverage issue once and for all. But I do think it could be at least a step in increasing coverage, particularly in the small employer market.
Rick Unser: 21:30 Yeah. And I agree with you there. I think that something needs to be done. I certainly don't think this is bad. I don't think this is a like moving us in the wrong direction. But yeah, I think that a, for people that don't recognize the fact that we do have a coverage issue, meaning not people that aren't participating in a plan, but people that just don't have access to make a salary deferral into a workplace retirement plan. I mean I think the numbers are sort of different depending on who you talk to, but I think they range anywhere from 30% to 50% of the workforce that is not afforded that opportunity by their company. I think something needs to be done and I think the map side of things, the state plans, I think a lot of these are taking different steps, steps in different ways to try to rectify that. And what we'll see, obviously we'll see how things play out, but I'll be really curious to see how many new employers a few years from now are reportedly coming into the plans versus again, just kinda some trading back and forth between smaller plans may be shutting down and, and or being merged into these, these map arrangements.
Bob Holcomb: 22:43 And I think that's a completely fair analysis, Rick. And then there's some opportunity to hear the question is how, how broad is the opportunity.
Rick Unser: 22:51 So coming back to the employer who's looking at this and maybe listening to what we've been talking about and saying, wow, it seems like there's a lot going on here. What are some of the effective dates? What are some of the priority items that they would need to be focused on or would need to be thinking about to stay in compliance versus some other things that are maybe coming down the road or optional in nature?
Bob Holcomb: 23:16 That's a great question. You know, as we talked about earlier this, this was a bit of a whirlwind, a bit of a roller coaster ride at the end of the year and for secure to actually get signed into law. It was it was signed into law on December 20th and a number of the provisions became effective then on January 1st of 2020. So the span of 12 days between when the law was enacted and when provision becoming effective and clearly a week and a half is not a sufficient amount of time to incorporate all the various changes. So I would preface this by saying that a lot of us in the industry trade associations, we're reaching out to the department of treasury, the IRS and requesting a guidance and enforcement release relief as far as implementing some of these provisions. But if you look at the provisions under secure, I like to put them into three big buckets.
Bob Holcomb: 24:21 There's one bucket that contains provisions that will be effective sometime in the future. And some of the provisions that are, are in this bucket include the open MEPS, the pooled employer plans that we were just talking about. Those provisions that don't become effective and till a plan years beginning after December 31st of 2020. There's also the requirement that plans cover longterm parttime employees. And those, as we mentioned earlier, are the employees who have worked at least three consecutive years with 500 hours of service in each year. Now, that doesn't become effective until plan years beginning after 1231 of 2020. But here's an important kicker, important caveat on that. You don't begin counting the years of service until 2021. So you don't have to take into consideration any years prior to 20, 21 for determining whether or not they've, they've met that three consecutive year requirement.
Bob Holcomb: 25:29 So that means that, you know, we're really not looking at adding employees under the longterm part time requirement until 2024. Another big provision that isn't effective immediately is the requirement to provide that lifetime income projection and that that won't become effective until 12 months after. The department of labor gives us guidance on how it works, which frankly I think many of us in the industry are glad to hear because not that we don't want, don't like projections, but we think that the way the language is crafted, we really want to work with the department of labor as they, as they come up with their guidance.
Rick Unser: 26:16 And what's the concern on that? Is it that, Hey, I as a provider who are producing the statements tell an employee or a participant that, Hey, you're projected to have $6,000 a month in retirement income and they get to retirement and they have $2,000 a month in retirement income. I mean, is that the issue that people are concerned about or am I missing the Mark?
Bob Holcomb: 26:43 Well, I think that was the concern that the legislation was intended to address and what the legislation would do would create a safe Harbor that says if you make your protection in this manner, then it won't be deemed to be a guarantee. But frankly, I think the current department of labor guidance on you know, what constitutes education already add had provided a means of making these sort of projections without them being deemed to create any kind of fiduciary liability or any kind of promise if that's what you're going to have. Really, I think what some of the industry concerns for centered more around how you arrive at this calculation. For example, the way the legislation is written, it doesn't appear to take into account any future earnings on the account balance or any future contributions that the participant might make. It appears to just focus on what is my account balance today and what would that balance translate to when I reached retirement age.
Bob Holcomb: 27:50 So if I'm, if I'm 64 years old and planning to retire next year, that's going to give me a fairly accurate representation. But if I'm 20 years old or 21 years old, I've been in the plan for six months, I have an account balance of $500. That's, that is not going to be an accurate reflection of what my retirement savings might be. Another, another thing that we're concerned about is the ability to aggregate assets. So I want to, not only when I look at my retirement picture, I don't want to just look at what I have in my company's 401k plan. I want to also take into consideration IRAs I have or my my spouse's retirement savings and get a, get a broad picture of, of what my retirement readiness is. Rather than looking at just a sliver of the pie. So those are the things that we want to work with them. We're big advocates of these lifetime income projections and we think they're great tools to help encourage positive retirement savings behavior and help participants understand where they're at. But we want to make sure that whatever rules and guidance that we receive from the department of labor, they're broad enough and flexible enough that they allow us to continue to innovate and come up with better ways of providing these projections.
Rick Unser: 29:11 Perfect. So what I guess is, is coming down the pipe, cause it sounds like there's, there's definitely some, some meaty stuff that's coming. Are there any, you know, hot potatoes that planned sponsors, employers need to be thinking about or changing policies or plan documents to stay in compliance with or make sure that they're not missing something that could come back to bite them.
Bob Holcomb: 29:36 Sure. And you know, this goes back to your earlier question on you know, around effective dates. So, you know, we, we talked a little bit about things that are effective in the future, but then there are the things that became effective on the first of the year. And once again, I would put those into two different buckets. Things that are mandatory and things that are optional now. In that optional bucket are items such as providing the inservice withdrawal provisions for birth or adoption of children. You know, that's something that a plan sponsor, at least our understanding, we've requested guidance fund. This is this is something that a plan sponsor does not have to implement. This is something that they may implement if they wish. So, you know, that gives 'em that gives sponsors and their providers some time to make sure that you know, they can, they can handle these provisions and roll them out in an orderly fashion.
Bob Holcomb: 30:42 There are other things that are absolutely mandatory. One of them was that stretch IRA RMD that applies to anyone who who passes away after December 31st of 2019. They will fall under those, those new rules that would require that with the exception of certain beneficiaries, balances have to be drawn down within 10 years. Another thing that I would really highlight is the change. So the required minimum distribution age you know, in the past we were doing doing those distributions. After an individual turned 70 and a half, that's announced 72 and really planned sponsors, they need to look at December 31st, 2019 as a, as a dividing line. If you turn 70 and a half on or before that date, you're under the old rules. So your distributions begin after you turn 70 and a half and they continue on and your payment status and nothing changes.
Bob Holcomb: 31:43 If you turned 70 and a half on January 1st you're in the new rules. So someone who turned somebody and a half on January 1st of 2020 won't turn 72 until sometime in 2021 and that is when they would begin receiving their required minimum distributions. So we're, we're effectively going to have a gap period in 2020 when there will be known new RMDs. Well we'll continue to pay out the old ones, but we won't be generating any new required minimum distributions this year. The complication I think for plan sponsors and providers is you know, making sure that we're providing accurate tax information, particularly at the end of the year but also during the year as well for those plan sponsors and one of the items that we're reaching out to treasury and IRS for for some additional guidance and relief on.
Rick Unser: 32:49 And I guess on the required minimum distribution piece, I think one thing that gets some people tripped up is, well, will these changes affect current employees or do these changes to required minimum distributions effect terminated employees or both?
Bob Holcomb: 33:07 Both. Both. It's anyone who would be required to take a required minimum distribution is affected. And so if you fall under the RMD rules, the only change is whether or not you now get to wait until 72 or 70 and a half. That's the only change. And once again, you're looking at December 30, first of 2019 and that's your deadline as you're drawing line, you know, 70 half on or before old rules data's quo as it was last year. After that date, then you fall into the new rules and you don't have to begin until age 72.
Rick Unser: 33:45 But typically for RMDs to be required with some very limited exceptions for ownership and things like that, typically you have to be terminated to be required to start taking an RMD. Like if you're still an active employee in your 75 years old, you're good in a 401k meaning you don't have to, you don't have to start taking RMDs.
Bob Holcomb: 34:07 No, that's true. But I mean, the, the, the rules as far as who's required to take an RMD haven't changed. The only thing that's changed is when the beginning date is
Rick Unser: 34:19 Perfect. And then I wanted to come back to one other thing you said about the, the birth and adoption and, and allowing for withdrawals. And it's funny. I guess one thing that struck me with a couple of recent things that we've seen is, you know, we constantly hear about how people don't have enough money saved and how we need to protect retirement savings and encourage people to save more and blah, blah, blah, blah, blah. But this is now the second time I'm seeing this. You know, we saw the change in the hardship withdrawal provisions, which said, okay, well you don't have to take a loan anymore. You can just take a hardship distribution. I mean, to me that seemed like it was lessening the barrier to withdrawing money from your account. Now again, Hey, birth is fantastic. I have three kids, so I'm certainly not, you know, poo-pooing that adoptions in an amazing thing. It's all not poo-pooing that, but it seems like the people that are, that are making the rules are kind of talking out of both sides of their mouth where it's like, Hey, retirement savings is important, but at the same point in time, we're going to make it a little easier for you to get access to your money. I don't know, just an observation.
Bob Holcomb: 35:33 I certainly see your point. You know, a couple of things I point out on the birth or adoption provision, it is limited to $5,000. So I mean there's an absolute cap and the way the legislation was written, that's not a subject to indexing. And then secondly, there's there's a provision that would allow that amount to be repaid back to the plan and it's you don't have the limitations that you would have as far as the rollover. There's no 60 day limit to get that money into the plan. So there are those provisions that, you know, I think kind of offset a little bit the access to the money. But you know, I think from a broader standpoint there is this part of the idea that if, if participants don't view that they are going to have some way to reach that money in the event of an emergency, they're going to be least likely less likely to participate in the plan. Or if they're expecting a child and feel that they need and save money for the birth, then perhaps they stop participating altogether. So I, I think that's what it's there to address. But I do agree with you, I like to see retirement savings accounts use for retirement and not as a, a way to save money for the purchase of house or, or other expenses.
Rick Unser: 36:59 Yeah. And, and I will again agree with you that, that I think that you're, you're 100% right and this is, you know, way back when I kind of first came into this world of retirement plan, spent a lot of time talking to employees and certainly with younger employees, the idea of you have the ability to take a phone, you know, you're in your 20s. Yeah, we're talking about retirement, which is probably inconceivable at this point. So I see that side of it and, and I'm glad to hear there's some limitations to it, but I also feel like it's, I don't know the idea when money leaves retirement accounts, except for like in loan provisions. And we can even talk about, you know, how many loans default and that's a whole nother, you know, conversation. But I guess the, the, the concern I have in the grander scheme of things is, you know, when you see that money go out, my personal experience, I don't see a lot of it making its way back in into to repay that or re contribute that, that's probably not even the right word, but I'm sure, you know, people make future contributions get future match, but you know, $5,000 or up to $5,000 coming out for things like that.
Rick Unser: 38:05 Again, all good stuff, but just, just an observation that, that I had that seemed like it was a little bit talking out of both sides of the mouth.
Bob Holcomb: 38:12 I think that's fair. And you know, the other thing I would add was this was not a provision that was originally, you know, we talked about Risa being the predecessor to secure this was something that was added to secure as it made its way through the house. And it was not originally a part of, of RESA. You know, that came out of the Senate and I think some of these provisions, actually their Genesis as part of the Republican tax bills back in back in 2017 when they were looking at some potential pension provisions and those were carried over. When chairman Neil and, and ranking member Brady were pulling together the package that they wanted to give through the house and make sure that it had bipartisan support.
Rick Unser: 38:59 So coming back to our conversation about what employers should be focused on, is there anything that we've missed or haven't talked about relating to secure that would be good to hit on before we pivot slightly?
Bob Holcomb: 39:14 You know, I think we've covered, you know, some of the big issues. I mean there's the provisions that will become effective in the future that we have a little bit of time on. And I, it wouldn't be my top concern. I would really just be focusing on you know, some of the provisions around a required minimum distributions and then working with providers is the rollout, some of those optional provisions such as in service withdrawal for birth or adoption.
Rick Unser: 39:44 Perfect. All right. We've got the super bowl coming up here. Just like machine
Bob Holcomb: 39:50 City chiefs.
Rick Unser: 39:50 There you go. Good for you guys for the hometown, the hometown team there. I swear as soon as somebody wins the super bowl within 30 seconds, who's going to win it next year? So know in that vein, I guess, Bob. All right, awesome. We've got legislation. We haven't had any major legislation in 12 years or more. What's next?
Bob Holcomb: 40:10 Well, and that's, that's a great question then as I'm, you know, we discussed that at the top of the podcast. I hope we don't have to wait another 13 years before we get some major legislation because I think there's some, there's some good stuff that's being worked on right now. And we, we mentioned Rob Portman and Ben Carden. They're both in the Senate now. You know, there have long been champions of, of pension reform and you know, trying to get good positive changes through. They have excellent staff that they work with and they have to build that they had introduced last year the retirement security and savings act and it has a number of things I think that really builds on what we saw in secure and can even take it a step further. Probably the big ticket item in, in apartment garden is an expansion to saver's credit.
Bob Holcomb: 41:10 You know, currently we have a savers credit that says if I make a contribution to an IRA or to a 401k plan, if my income is below a certain level, I get a tax credit that will offset some of the taxes I owe. Now the problem with the, with this tax credit is that for a number of individuals who are eligible to receive it, they're either little, if any, taxes, so the credit really isn't worth that much Portman and card and would make this a refundable credit. They would say that it would have to be directly deposited into either a plan or an IRA. It would be a Roth contribution, but the money would go directly into some sort of retirement savings vehicle. And they would also expand the income levels that individuals could receive these at, you know, some of the other changes that I really like in important and Carden.
Bob Holcomb: 42:06 It makes it a lot easier for employers to make matching contributions on student loan payments. And you know, we heard a lot about that in the last year or so. The idea of that you know, millennials or new employees or just out of college and just beginning their working career, making student loan payments, feeling like they can't contribute to a 401k plan, this would allow the employer to make matching contributions into the plan so that the new employee is actually building building up some retirement savings. And it also, I think once they get past their student loan, would encourage them to continue to participate in the plan. So those are good things. One thing that I think is very positive is they make some changes around the rules regarding qualified longevity, annuity contracts, kulaks they make it easier to offer these types of arrangements by addressing some of the concerns about whether or not they're included for RMD purposes, as well as expanding the amount of the account balance that can be invested and acute lack.
Bob Holcomb: 43:20 But then one of my personal favorites is they provide for higher ketchup contributions for individuals. Once they reach age 60 Portman Carden would allow that to move up to up to $10,000. So this is Portman and Carmen I think is, you know, something that generates some broad bipartisan support if we could get Congress to prioritize it. We also have a proposal that Richie, Neal the chairman of the house ways and means committee has had out there for a while. It says automatic retirement plan act. And I think this is actually a very bold piece of legislation or a very bold proposal. It would require all but the very smallest or very newest employers to sponsor some type of a workplace retirement savings arrangement. You know, whether there's 401k plan a 43 B plan, a automatic IRA, they would have to provide some type of workplace savings arrangement.
Bob Holcomb: 44:23 And it would have to have automatic enrollment. It would have to have automatic acceleration. There would be requirement that it wants at once every three years. Individuals who are not participating or participating below the default level of contribution would be automatically re-enrolled. And you know, going to the discussion we had earlier around a lifetime income, it contains provision that says at least 50% of the account balance in these new plans would have to be available in the form of some type of lifetime income stream. So it really hits on how can we address coverage and how can we address some of these accumulation stuff. Now, unfortunately, I don't think that there's a lot of Republican support for mr for chairman Neil's proposal. But I do think that this is one of the bolder proposals I've seen for a while.
Rick Unser: 45:20 Got it. So we're not done yet, but who knows when some of the stuff will hit the surface.
Bob Holcomb: 45:25 Well, one thing I feel pretty confident saying is that it's not going to be in 2020
Rick Unser: 45:30 [Inaudible]
Bob Holcomb: 45:31 It's, it's hard to get something like this through during an election year. And the fact that we just passed some pension reform at the end of 2019 I think is kind of push everything to the back burner as far as pension reform is concerned.
Rick Unser: 45:45 So on that note, as you said, it's an election year. I think there's a lot of different ways you can attack that question. But as it relates to retirement policy, how do you think the election may be going one way or the other, has any impact on what we might see in the future or the appetite we might see for changes in our current retirement system, et cetera?
Bob Holcomb: 46:14 Well and work, I'd preface this by saying that, you know, while you and I, and I'm sure many of your listeners consider retirement and policy and pension reform to be one of the key issues or one of the top priorities, unfortunately then does not a universal view. And you don't always see a lot of the candidates taking you know, very concrete positions regarding retirement policy. Now, you know, if we look at some of the top Democrats folks like Pete Buddha, judge Joe Biden Bernie Sanders, Elizabeth Warren, and, and you know, perhaps Amy Klobuchar, each of them have touched on the topic. Mayor Pete had come out with a position paper last year that really covered dignity in retirement. Now, the majority of that was really dealing with longterm healthcare, but he did have a proposal in there that would create some sort of a public option 401k arrangement where employees could opt in to saving and then their employers would be required to make some sort of a matching contribution.
Bob Holcomb: 47:29 You know, mandates are not popular less less clear proposals from Joe Biden. Bernie Sanders or Elizabeth Warren. One thing I would point out is I think should we get a Democrat in office that could definitely change the agenda in the regulatory agencies. I mean, we could see, you know, we would, we would see changes in leadership over at treasury and over at the department of labor. And I would certainly imagine that a president Warren or president Sanders would take a different view on a certain issues than a president. Trump has a notably perhaps fiduciary standards. Elizabeth Warren was a strong advocate of the original DOL fiduciary rule and you know, I could see her trying to push or putting people at DOL who would try to go back to that kind of a position. So I think the change in president would have more of an impact from a regulatory standpoint. I think that we've got some good pension legislation that's perculating right now. And I think we have, are, are strong advocates within Congress around pension reform. And I, I would think that if we can get the bipartisan support that some of these provisions would be taken and signed into law by whoever's in the white house.
Rick Unser: 48:59 No, I appreciate you sharing that and certainly we're in the way too early to tell phase of some of this. So I appreciate you connecting some dots there and given some, given some of your thoughts on how this could maybe look a little different depending upon what happens in November and beyond. Before we wrap, one thing that we hit on briefly that you know as it relates to the secure act that that I just wanted to come back to is the retirement income piece. And I guess if I'm an employer and I've been chomping at the bit to offer retirement income to my employees and I've just been waiting on a little more protection to do so. Do I have it now? I mean, do I now feel confident saying if I want to offer some type of guaranteed minimum withdrawal benefit or if I want to offer an annuity window or if I want to design an investment option that would have an annuity as a component of it, whether it's in a target date fund or, or something else. Should I feel good that I can go ahead and do that at this point or am I still waiting for something to help me move forward comfortably?
Bob Holcomb: 50:13 You know, I think that you should feel good about that and I would actually argue that you should have felt good about that for some time. Now. I think it's more a question of making sure that there are products out in the marketplace that address your needs, the, the changes that were made and secure in dressing, the portability issue, the selection of annuity providers. Safe Harbor I think are good and I think that they help, you know, alleviate maybe some of the underlying concerns that a plan fiduciary might have as far as, am I going to be on the hook from a fiduciary standpoint during the selection process. So I think those are good positive things. I think, you know, a lot of it is you know, just making sure that plan sponsors are aware of what's out there in the marketplace and how that would meet their their particular employees and participants needs.
Rick Unser: 51:03 Awesome. And you and your team at empower put out a ton of great information. If someone's looking for current updates or more information on secure or other things that are going on in the retirement world that might be legislative or regulatory in nature, is there a good way that they can either stay in touch or find information that you're putting out?
Bob Holcomb: 51:30 Oh, absolutely. They can always go out to our website. It's a power and that will give them links and, and ways to get into information. And in addition, you know, we're, we're always you know, happy to reach out to people. So you know, I would just, I'd just say visit our website and then you'll be able to you know, click through and find the information that you need to hopefully
Rick Unser: 51:53 Perfect. And I'll include some links in the podcast notes, so if anybody's looking for that, they can find them there as well. Very good. Bob, thank you so much for joining me and it was great to have you back. It had been a little while, so I felt like this was what better lucky than good, I guess. Cause we scheduled this before the secure act even even happened. But Hey, every now and then, like you said, you get lucky. But it was great to have you.
Bob Holcomb: 52:18 Yeah. Made for a good time or a good topic and yeah, of course, Rick, it's it's always a pleasure and you know, look forward to doing this again in the future.
Rick Unser: 52:28 There you go. You stole my line from me. Thanks again, Bob, and all the best and we'll talk to you soon.
Bob Holcomb: 52:33 Take care.
Recap, Highlights, and Thoughts
Despite the divisiveness in our government right now, they were able to get things together and bring us the SECURE Act, arguably the most significant retirement legislation in over a decade. Today, my guest & I, Bob Holcomb, Vice President of Legislative and Regulatory Affairs at Empower Retirement, discuss how this came back from the dead, this significance for employers and employees, and much more. We dive into new retirement income provisions, multiple employer plans, the new concept of a long-term part-time employee, changes to required minimum distributions, and the introduction of birth and adoption distribution provisions. Also, Bob and I debate the effectiveness or impact some of these changes could have. As we wrap-up, we take a look into the future of what could be coming down the road and how the 2020 election could impact retirement plans.
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