An idea that experts said would have reshaped the country's
retirement landscape by requiring employers that don't offer retirement plans
to automatically enroll employees in individual retirement accounts or
401(k)-type plans has been stripped out of Democrats' Build Back Better Act,
but the idea remains a priority for a powerful congressman.
And while the focus in Washington has been on a bipartisan
infrastructure bill and the Build Back Better Act, the social spending bill
Democrats have been negotiating for months, retirement industry members are
still hopeful another major retirement security package, dubbed SECURE Act 2.0,
with dozens of provisions to help workers increase retirement savings, gets
passed this session.
House Ways and Means Committee Chairman Richard Neal,
D-Mass., will be a leading figure on both the automatic retirement plan
proposal and SECURE Act 2.0 fronts. It was he who added the automatic
retirement plan proposal to the Build Back Better negotiations and his
committee that advanced it on Sept. 9. But when President Joe Biden on Oct. 28
unveiled the Build Back Better framework, the auto-retirement plan proposal had
been removed.
The framework for the $1.75 trillion bill, cut from the
original $3.5 trillion price tag, would make investments in clean energy,
expand Medicare and establish universal prekindergarten, among other items.
Many provisions under consideration were dropped to lower the cost.
Another provision that did not make the final cut was a
proposal to make the saver's credit — a federal tax credit designed to
incentivize lower-income working Americans to save for retirement — refundable
so people without any income tax liability are eligible to receive the benefit
in the form of a contribution to their retirement account.
"As time went on and as the negotiators were obviously
having to cut the size of the bill, it always became an issue as to whether or
not the retirement provisions would stay in," said Melissa Kahn,
Washington-based managing director of retirement policy for State Street Global
Advisors' defined contribution team.
Tough decisions
When a bill gets pared down to the extent Build Back Better
did, tough decisions are necessary, said Bradford P. Campbell, a Washington-based
partner for Faegre Drinker Biddle & Reath LLP and former assistant
secretary of labor for the Employee Benefits Security Administration during
President George W. Bush's administration. "Everyone's got good stories
about why what they wanted should've been in there, so they had to make hard
choices," he said. "It's entirely possible that these provisions just
didn't have the political capital, so to speak, behind them that some of the
other things they decided to spend money on did."
For most members of Congress, universal retirement plan
coverage and expanding access to the private retirement system isn't a top
priority, said Michael P. Kreps, Washington-based principal and co-chairman of
the retirement services practice at Groom Law Group. "So it's not all that
surprising to see those provisions fell out because they cost money," he
said. "And there are just other priorities Democrats have as a
caucus."
Mr. Kreps noted that Mr. Neal has been pursuing universal
retirement plan coverage for many years — he proposed the Automatic Retirement
Plan Act in December 2017 — and isn't likely to drop the issue. Moreover, Mr.
Neal got Democratic leadership and his committee to agree to add the proposal
to Build Back Better, at least initially.
Added Mr. Campbell: "I would say we haven't heard the
last of these ideas and the chairman of the Ways and Means Committee is a
powerful guy who is able to drive some debate."
During a Nov. 2 interview at the Securities Industry and
Financial Markets Association's annual meeting, Mr. Neal said he hasn't given
up on the idea. "Both SECURE 2.0 and the retirement provisions I initially
thought could be part of this package (Build Back Better) remain top priorities
of mine, so I'm going to continue to look for opportunities to advance them as
swiftly as possible," Mr. Neal said.
SECURE Act 2.0
The "SECURE 2.0" Mr. Neal referenced is a major
focus for retirement advocates in Washington.
In May, Mr. Neal and Ways and Means Committee Ranking Member
Kevin Brady, R-Texas, reintroduced the Securing a Strong Retirement Act of 2021
and during a hearing the same month, committee members on both sides of the
aisle commended the bill and approved it unanimously via voice vote.
The bill, a version of which was originally introduced in
October 2020 during the previous congressional session, includes dozens of
provisions aimed at boosting retirement security. It builds on the Setting
Every Community Up for Retirement Enhancement Act, known as the SECURE Act,
which Congress passed and was signed into law in late 2019.
The Securing a Strong Retirement Act, also being referred to
as SECURE Act 2.0, includes provisions that would require new 401(k), 403(b)
and SIMPLE plans to automatically enroll participants, with some carve-outs,
like for employers with 10 or fewer employees; allow 403(b) plans to
participate in multiple employer plans and invest in collective investment
trusts; create a national online database of lost retirement accounts to reduce
the number of missing participants; and make changes to qualifying longevity
annuity contracts, or QLACs, by removing the 25% cap — currently retirement
savers can spend up to 25% of their account on a QLAC.
The bill's auto-enrollment provision initially enrolls
participants at a floor of 3% of pay, and that contribution is then increased —
unless the participant opts out — by 1 percentage point each year until it
reaches 10%.
There are also similar bills introduced in the Senate that
could form the basis of a SECURE Act 2.0 package, but whether lawmakers have
the willingness, the time and the legislative vehicle to pass it remains to be
seen.
Still optimistic
In 2019, the SECURE Act passed after it was attached to a
year-end spending bill and a 2.0 version will likely have to be attached to
some must-pass legislation in order to move as well, sources said. In order to
get the minority party in Congress, currently the Republicans, to work with the
majority, there must be external pressure demanding action on a certain issue,
Mr. Kreps said. "Whether it passes has a lot to do with what the final
product looks like and how much industry support there is," he said.
"You've got to have people asking for it, otherwise Congress will just
never do it."
Mr. Kreps added: "I'm not sure we have that for SECURE
2.0, at the moment at least."
Although retirement security is usually a bipartisan issue
in Washington, Republicans on the Ways and Means Committee, wary of imposing
requirements on business owners, opposed Mr. Neal's auto retirement plan
measure.
But while there was some public discontent between
Republicans and Democrats over the auto retirement plan proposal, retirement
industry sources expect the two sides to come together in advancing a SECURE
Act 2.0 package.
"Even if you get a little bit of friction there, I
don't think it comes to something where Republicans and Democrats want to
torpedo the bill," Mr. Campbell said.
Ms. Kahn is "still optimistic" a SECURE Act 2.0
will pass this Congress, but with the midterm elections looming in November 2022,
time is of the essence. "Obviously the further we get into the year, the
closer we get to the midterms, and I think anything becomes more challenging
(then)," she said. But "because generally retirement legislation is
bipartisan, I'm hoping that this is something that can get attached to
something and pass next year."
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