Senate takes up SECURE Act, but bill still in limbo

All eyes have turned to the Senate to pass a retirement security package after the House approved a bill on May 23 in a 417-3 vote.

The Senate had a bill similar in scope to the House's Setting Every Community up for Retirement Enhancement Act of 2019, referred to as the SECURE Act. Many in the retirement community thought the Senate would try to pass its own bill, the Retirement Enhancement Savings Act, and bridge any gaps between the two bills in conference.

But shortly after the House vote, Senate leaders decided to forgo passing RESA and "hotlined" the SECURE Act in an attempt to move it via unanimous consent.

"It was a bit of a surprise that they decided to take up the SECURE Act, mostly that they decided to take it up so quickly," said Christopher Spence, senior director of federal government relations for TIAA-CREF in Washington. Likely, he added, Senate leaders saw the landslide vote in favor of the SECURE Act and decided it made sense to move on it directly.

If no senator were to object to the unanimous consent offering, the bill would simply pass as is. However, sources said Sen. Ted Cruz, R-Texas, and likely others, placed a hold on the bill, objecting to the removal in the House version of provisions that would have allowed funds in 529 college savings plans to be used for home schooling costs and supplies for K-12 students, among other objections.

As of now, the bill remains in limbo as Senate leaders try to quell the objections. Since holds can be placed anonymously, sources said it's difficult to tell how many senators are blocking the bill and what their concerns are.

Mr. Cruz's office did not respond to a request for comment.

While supporters of the SECURE Act are still confident it will pass, concerns are growing with each passing day.

"My hope is they do this sooner rather than later because as we've seen in the past, the provisions in the SECURE Act are not new; they've been around for the past couple of years" in previously introduced bills, said Srinivas D. Reddy, senior vice president of retirement and income solutions at Principal Financial Group in Des Moines, Iowa, and chairman of the ERISA Advisory Council. "The longer it takes ... the more the likelihood it doesn't pass."

Mr. Spence said the retirement community would prefer the Senate pass the bill via unanimous consent as soon as possible.

"The longer it hangs out there, the more uncertain and nervous it's going to make everyone,” he said.

If the unanimous consent route doesn't work, the Senate may attach the bill to a piece of must-pass legislation, like a spending bill, in the fall, said Kent Mason, a partner with law firm Davis & Harman LLP in Washington. However, he noted that going through “regular order” to pass the bill would take much longer, which is why Senate leadership is trying to pass it via unanimous consent.

The SECURE Act features wide-ranging provisions, including ones that make it easier for smaller employers to join open multiple employer plans, ease non-discrimination rules for frozen defined benefit plans and add 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%.

House lawmakers added a provision to the bill repealing a portion of the Tax Cuts and Jobs Act of 2017 that raised taxes on federal benefits received by Gold Star families — those who lost a family member in military service. The SECURE Act, in part, rectifies that issue by taxing the benefits as earned income rather than unearned income subjected to higher estate taxes.

Melissa Kahn, managing director of retirement policy for State Street Global Advisors' defined contribution team, said the Gold Star provision could give “these senators something to think about” when objecting to the bill as a whole.

Some in the retirement community also take issue with portions of the bill, though still support its passage. Of note, plan sponsor groups have criticized the bill's Lifetime Income Disclosure Act provision, saying it creates needless confusion, additional costs and stifles innovation in the way plan sponsors communicate with plan 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.

“While we are disappointed that the LIDA provisions does not include more flexibility for plan sponsors, we continue to have discussions and look for opportunities to expand these provisions to allow for more tailored estimates that are more useful to participants and that plan sponsors are currently providing,” said Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee in Washington.

And while the SECURE ACT still hasn't crossed the finish line, some believe there is enough momentum to do more on retirement security this Congress. Phil Waldeck, Hartford, Conn.-based president of Prudential Retirement, said the bill before the Senate would vastly improve the retirement landscape by giving greater access to workplace retirement plans. “This is legislation that we're really optimistic on, and I think is a great step forward that we'll be able to build on,” Mr. Waldeck added.

If the SECURE Act and RESA are considered round one of retirement security reform, round two would likely center around the Retirement Security and Savings Act of 2019. That bill, reintroduced in the Senate last month by Rob Portman, R-Ohio, and Ben Cardin, D-Md., features more than 50 provisions aimed at improving coverage for small employers and among part-time workers. The bill would also reduce barriers to in-plan lifetime income options and allow employees to keep retirement savings in qualified plans until the age of 72, and eventually 75, before having to withdraw a minimum amount, beyond the current age limit of 70½.

U.S. Rep. Richard Neal, D-Mass., chairman of the Ways and Means Committee, introduced a bill in the last Congress — the Retirement Plan Simplification and Enhancement Act of 2017 — that includes provisions to establish a new safe harbor to get employers to defer more than the automatic deferral floor of 3% of salary in the first year and exempt retirement savings below $250,000 from complicated required minimum distribution rules.

Mr. Neal has yet to reintroduce the bill this Congress but has expressed his desire to do more on retirement security.

“We can make a lot of progress on round two in 2019,” Mr. Mason said