Prospects dim on clear sailing for SECURE Act

Concern and criticism are intensifying over a sweeping retirement security package that overwhelmingly passed in the House and has stalled in the Senate, but proponents are still hopeful it will move this year.

Passage of the Setting Every Community up for Retirement Enhancement Act of 2019, referred to as the SECURE Act, looked like a foregone conclusion after the House's 417-3 vote on May 23. Senate leaders fast-tracked the bill in an attempt to move it via unanimous consent. However, three Republican senators — Mike Lee of Utah, Ted Cruz of Texas and Pat Toomey of Pennsylvania — each put holds on the bill, blocking its passage via unanimous consent, sources said.

"I'm disappointed that it's gotten such strong, bipartisan support and yet still lingers out there in a sort of legislative limbo," said Christopher Spence, senior director of federal government relations for TIAA-CREF in Washington.

And that delay has given critics of the bill time to make their concerns heard. "It's easier to kill a bill than pass a bill, and the longer that any bill sits out there, the more critics come out of the woodwork," said Melissa Kahn, Washington-based managing director of retirement policy for State Street Global Advisors' defined contribution team.

A provision that would reshape the way individual retirement accounts are distributed to non-spouse beneficiaries upon the death of the account holder is drawing the most complaints of late. Currently, those beneficiaries can take distributions throughout their lifetimes, but the SECURE Act would cut the distribution timeline to 10 years.

The provision is known as a pay-for, meaning it would likely bring in increased tax revenue to help offset costs of other provisions, like raising the age for required minimum IRA distributions to 72 from 70½.

Some in the investment adviser community, like Peter T. Palion, founder of Master Plan Advisory Inc., an East Meadow, N.Y.-based financial planning firm, said it's unfair for lawmakers to collect increased tax revenue on the backs of clients who have planned to leave their children an inheritance through an IRA.

"The aim of the law is to help people save for retirement, right?" Mr. Palion said. "Why would the government favor a person who has to save money from scratch as opposed to one who inherits it? The government shouldn't care how its people get money for retirement."

Jeffrey Levine, Garden City, N.Y.-based CEO and director of financial planning at BluePrint Wealth Alliance, said the provision is a "fairly reasonable way" of trying to close budget gaps in the bill.

"As a planner it's disappointing because you've had people for years preserve and protect their wealth and any acceleration of taxation erodes that wealth," he said. "But the pragmatist in me has a hard time arguing against" funding other provisions to enhance retirement security. "It's hard to argue that you need a retirement account when you're dead," he added.

Bill proponents said the SECURE Act's positives outweigh concerns over a single provision.

"There has to be somewhere where (the government is) sort of clawing back the deferment of taxes, and the ability to save for one's own retirement is a larger American crisis than potentially passing on wealth for longer periods of time for multiple generations," said Amy Ouellette, New York-based director of retirement services at Betterment for Business, a provider of automated 401(k) services. "There always has to be give and take and I think, based on the focus of this bill, that there is more to gain than there is to lose from that one provision."

There is hope in the retirement community that the SECURE Act will be attached to a piece of must-pass legislation, like a spending bill when the Senate returns in September. Before its August recess, Congress passed a bill that raised the debt ceiling, but no other bills were attached.

"I think there's a feeling among many on the Hill that they would have liked to gotten SECURE done in July, but they still supported the debt limit bill without SECURE. The hope among some on the Hill is that the continued need for SECURE and the fact that it was not done in July are taken into account as decisions are made in September, but the situation is still fluid," said Kent Mason, a partner with law firm Davis & Harman LLP in Washington.

Passing the bill via unanimous consent seems impossible at this point; sources said the three Senate holds aren't going away anytime soon.

"Ultimately, I think what all three (senators) would like to see is the bill brought to the floor so it can be debated and they can offer amendments based on the concerns that they have," Mr. Spence said, adding Senate Leader Mitch McConnell, R-Ky., has no plan to bring the bill up for debate.

"Ultimately, I think what all three (senators) would like to see is the bill brought to the floor so it can be debated and they can offer amendments based on the concerns that they have," Mr. Spence said, adding Senate Leader Mitch McConnell, R-Ky., has no plan to bring the bill up for debate.

Mr. Toomey has a hold because he doesn’t like the process by which the bill reached the Senate; he wants to see the bill debated on the floor, a source said.

In the past few months, proponents were hopeful the holds would be released if a deal were made behind the scenes. Mr. Cruz objects 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, according to sources.

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

But sources said the strongest hold is Mr. Lee's. In an email, Conn Carroll, Mr. Lee's communication director, said there are "some newspaper pension bailouts in the bill that Sen. Lee would like to vote on."

The SECURE Act would provide pension funding relief for community newspapers. Sources said Mr. Lee takes issue with the bill singling out one industry for help on this front.