With bi-partisan backing growing, lawmakers look to iron out the details
by Roberta HessMs. Hess is co-chair for public relations committee of the Spark Institute, a Washington DC research firm for the financial services industry. Visit https://www.sparkinstitute.org/
Retirement security is one issue that nearly everyone in Congress can agree on. When it comes to bipartisan retirement legislation, there is a good chance we will see the passage of the SECURE Act 2.0 before the end of 2021.
Although it still has a long way to go before reaching President Biden’s desk, House Ways and Means Committee Chairman Richard Neal (D-MA) and the Committee’s Ranking Member, Rep. Kevin Brady (R-TX), have already advanced their SECURE 2.0 bill (formally called the Securing a Strong Retirement Act) through the Committee on a unanimous bipartisan vote. Previously, Neal and Brady teamed up to help pass the SECURE Act in 2019. Senators Ben Cardin (D-MD) and Rob Portman (R-OH) have also reintroduced their Retirement Security and Savings Act, which largely overlaps with the House bill and includes other positive features.
Both proposals have gained the backing of various members of the retirement savings community, including the SPARK Institute — but lawmakers must first iron out what provisions everyone can agree on.
On behalf of the retirement industry, the SPARK Institute developed a list of legislative and regulatory priorities. We refer to these priorities and goals whenever we meet with policymakers in Washington. The SPARK Institute’s voice speaks for the retirement industry and for the hard-working Americans they represent. Our members cover a broad-based cross section of retirement industry service providers that serve over 100 million American workers in 401(k) and other defined contribution plans. Our mission is to promote the important benefits of employer-sponsored retirement plans, which are critical to the financial security of Americans saving for retirement.
The SPARK Institute’s goals are simple:
Preserve & Expand Incentives For Retirement Savings
With any spending coming out of Congress, a source of revenue is required to make up for that spending. SPARK seeks to preserve the current tax incentives for retirement savings and opposes any efforts to reduce or eliminate these tax incentives. Some proposals under consideration in Washington include a financial transaction tax that would harm retirement savers. Rather than penalize American workers saving for their retirement, SPARK supports efforts to expand coverage through expanded tax incentives so that more workers have access to, and utilize, employer-sponsored savings vehicles.
The current proposed bills in Congress contain several incentives to expand coverage and increase the incentive for American to save. One such change would create a new level of catch-up contributions for certain workers over the age of 60. While there are different ages proposed in the House and Senate versions, in principle we support enhanced opportunities for people over 60 to save for retirement.
E-Delivery & Electronic Administration: Modernizing Retirement Plan Communications
The SPARK Institute fought for many years to allow plan sponsors to select electronic delivery as a default for many retirement plan documents, empowering employees with access to real-time retirement benefits information and online tools to assist them with retirement planning. The 2020 Department of Labor E-Delivery Rule struck an appropriate balance between expanding default e-delivery and consumer protections. Additionally, the SPARK Institute supports the expansion of default e-delivery to harmonize rules across federal agencies, including at the Treasury Department/IRS, as well as a nationwide remote notarization standard. Our goals include the elimination of unnecessary notices.
However, the House bill now under consideration partially reverses the progress made with last year’s Department of Labor E-Delivery Rule. Fortunately, the Senate proposal does not reverse these gains. We remain hopeful that American workers can continue to rely on electronic delivery to better assist them in managing their retirement accounts.
Financial Wellness: Meeting The Holistic Financial Needs Of Retirement Savers
SPARK members realize that retirement savings are part of an array of financial needs and challenges that plan participants face. With sensible changes to federal rules, employers and service providers can do more to help improve the financial wellness of all employees. They can also implement policies that support each employee’s participation in retirement savings plans while meeting their existing financial obligations, such as student loans, emergency savings, and even workplace 529 college savings plans. Accordingly, the SPARK Institute supports efforts to integrate these additional important financial wellness services and savings vehicles into workplace benefits.
Many younger and lower-paid employees want to start saving for retirement in their 401(k) plan but say, “I have a $600/month student loan to pay off, so that isn’t possible.” Both the House and Senate bills would allow employers to help their employees pay back student loans while also saving for retirement. The premise is to support individuals who elect to pay down student debt by making them eligible for the employer match in their retirement plans, just as if they had made the contribution directly to the plan.
Advancing Common-Sense Simplification
Although our retirement system has resulted in tremendous wealth accumulation, it was built over many years through various pieces of legislation and needs streamlining. Simplifying and modernizing the rules and regulations that govern retirement plans will make it easier and less expensive for employers to offer retirement plans so that more Americans can enjoy a financially secure retirement.
SPARK supports efforts to streamline retirement plan operations, including plan design simplification, notice consolidation, testing relief, and easier reporting requirements. A good common-sense change, for example, would allow 403(b) plans to invest in collective investment trusts (CITs), just as 401(k) and 457 plans can. Fortunately, both the House and the Senate SECURE Act 2.0 bills would permit 403(b) plans to offer CITs.
Lifetime Income: Encouraging Innovative Ways To Generate Income In Retirement
Our industry exists to ensure that everyone has the lifetime income they need to enjoy a comfortable retirement. To realize this goal, more retirement savers need access to lifetime income options in their retirement plans. This means both offering lifetime income investments during the accumulation phase as well as lifetime distribution options at retirement. The diverse needs of American workers require a robust market where plan fiduciaries can choose what best meets the needs of their participants. We need rules that support, not impede, innovative solutions.
Additional Legislative Proposals
There are other features in the proposed retirement legislation that are not directly addressed by the SPARK Institute’s goals. One is the increase in the required minimum distribution age. Both the House and Senate bills raise the starting age people must take a mandatory distribution from their defined contribution plans. The original SECURE Act increased the required minimum distribution age to 72, up from 70 1/2. The new bills propose to raise it further over time to age 75.
Lawmakers say this is justified because people are living longer. This change would allow people to continue to grow their nest eggs for a few extra years if they do not need to withdraw those funds immediately. For retirees worried about outliving their money, this would be a welcome change.
Another proposal focuses on lost or missing plan participants; specifically, employees who have separated from their employers and left balances in their retirement plans who can no longer be located because of out-of-date contact information. This is a problem for participants who have lost track of their retirement savings and also when plan sponsors must make required minimum distributions from participants’ accounts. Both the House and Senate bills would create an Office of Retirement Savings Lost and Found that would, among many things, establish an online registry for separated employees to identify lost retirement accounts through a national database. SPARK appreciates Congress’s focus on missing participants and would like to collaborate using technology and creative thinking, to ensure retirement savers never lose track of their savings, without adding undo costs or complexity to our existing systems.
Advocating for Retirement Security
The SPARK Institute believes that retirement security is a shared responsibility among individuals, employers, and the government – as well as the providers, consultants, and advisors that serve them. Building on the successful enactment of the SECURE Act in 2019, the SPARK Institute is committed to working with Congress and federal regulators to advance solutions that will make it possible for more American workers to achieve life-long financial security as easily and effectively as possible.