House overwhelmingly passes bipartisan retirement bill

In the House's final vote before the Memorial Day break, a bipartisan majority overwhelmingly approved on Thursday a retirement reform package, 417-3.

The legislation, the Setting Every Community up for Retirement Enhancement Act of 2019, referred to as the SECURE Act, includes provisions that make it easier for smaller employers to join open multiple-employer plans, eases non-discrimination rules for frozen defined benefit plans and adds a safe harbor for selecting lifetime income providers in defined contribution plans. It also increases the automatic-enrollment safe harbor cap to 15% from 10%.

The bill was introduced in late March by a bipartisan group of Ways and Means Committee members, including Chairman Richard Neal, D-Mass., and Kevin Brady, R-Texas, the committee's ranking member.

"With passage of this bill, the House made significant progress in fixing our nation's retirement crisis and helping workers of all ages save for their futures," Mr. Neal said in a statement. "The SECURE Act is a bipartisan success, filled with commonsense proposals authored by members from both sides of the aisle."

The retirement industry widely hailed the bill's passage.

"Fidelity applauds the House of Representatives for advancing bipartisan legislation to improve retirement security for American workers," said Dave Gray, head of workplace retirement solutions for Fidelity Investments, in a statement. "We believe enacting this legislation will deliver low-cost, high-quality solutions for millions of small business workers."

Phil Waldeck, president of Prudential Retirement, called the bill "the most significant legislation aimed at bolstering America's retirement system in more than a decade."

If signed into law, Roger W. Ferguson Jr., president and CEO of TIAA-CREF, said the legislation "will holistically improve the retirement landscape for millions of retirees now and in the future. It will ensure that retirement plans cover more Americans and that they can save enough in such plans to fund sufficiently their retirement."

Attention will now turn to the Senate as it contemplates the Retirement Enhancement Savings Act, which was introduced earlier this year and features many of the SECURE Act's core provisions. Chuck Grassley, R-Iowa, chairman of the Senate Finance Committee, and Sen. Ron Wyden, D-Ore., the committee's ranking member, introduced RESA and will lead the effort to work out what a final bill will look like. the SECURE Act has not been introduced in the Senate.

One difference between the House and Senate bills is when participants will be required to begin taking distributions from their retirement plans. The House bill increases the required minimum distribution age to 72 from 70 1/2, while the Senate bill makes no change.

"Passage of RESA remains a top priority for Sen. Wyden and me," Mr. Grassley said at a committee hearing on May 14. "I hope that the House will send its version of RESA over to us at some point this month, and I'll continue to work closely with Sen. Wyden and other committee members to reconcile the differences and get this important bill to the president."

Retirement industry stakeholders are already urging the Senate to move on this issue. "The House has taken a tremendous step forward in helping Americans achieve retirement security, and the Senate must now act quickly," said Kevin Hogan, CEO of AIG Life & Retirement, in a statement.

While still supporting the larger SECURE package, plan sponsor groups have criticized its Lifetime Income Disclosure Act provision, saying it creates needless confusion, additional costs and stifles innovation in the way sponsors communicate with participants on the importance of saving for the long term. LIDA requires quarterly benefit statements furnished to plan participants to include, at least once a year, a statement of the lifetime income stream the accrued assets would provide.

Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee in Washington, a group that takes issue with LIDA, said that the bill is "an important first step and we look forward to continue working with all interested parties to bring additional flexibility and modernization into the private retirement system."

While both Republicans and Democrats generally praised the bill, Thursday's vote was not without a few criticisms lobbed across the aisle.

Republicans opposed the removal of provisions that would have allowed 529 plans to be used for home schooling costs and supplies for students K-12. "It is incredibly troubling that special interests, in this case teachers' unions, forced changes on our bipartisan bill for absolutely no good reason at the 11th hour," Mr. Brady said prior to the vote.

Democrats criticized the Republican's Tax Cuts and Jobs Act of 2017, and through the SECURE act, repealed a portion of the tax legislation.

Following the passage of the tax bill, Gold Star families — those who have lost a family member in military service — saw a tax increase on the federal benefits they received. The Senate on Tuesday passed the Gold Star Families Tax Relief Act and that bill was added to the SECURE Act prior to Thursday's vote.

Under new legislation, benefits put in the name of a child of a deceased service member will be taxed as earned income, which would put them under the income tax bracket of the child's surviving parent or guardian, according to a bill summary on Sen. Mark Warner's, D-Va., website. The 2017 tax bill had defined the benefits as "unearned income," subjecting it to higher estate tax rates.

But on the whole, Thursday's vote demonstrated vast agreement on improving retirement security for American workers.

"I encourage the Senate to follow our lead and swiftly pass this important bill that goes a long way in helping American families prepare for a financially secure retirement," Mr. Neal said.

In the Senate, RESA is "also is riding a bipartisan wave of support and swift action on these proposals lays the foundation for Congress to begin working on the next round of pension reform," said Empower Retirement President and CEO Edmund F. Murphy III.