They say the “third time’s a charm.” Hopefully that will be the case in the Senate with the SECURE ACT/RESA.
On May 23, 2019 the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the basis of which is the Retirement Enhancement and Savings Act (RESA), which has been introduced in the Senate three times. The SECURE Act takes a step in solving the retirement security problem, and the Senate should move on this legislation. Here is why.
American workers are in a retirement crisis because of the lack of opportunity and will to save for retirement. In real numbers, the Employee Benefit Research Institute (EBRI) found that 40.6% of all U.S. households, where the head of the household is between ages 35 and 64, are projected to run short of money in retirement. According to EBRI, the aggregate retirement deficit for this group is $3.83 trillion. However, EBRI found that eligibility to participate in a defined contribution plan played a significant role in reducing the gap. For example, the average retirement deficit for individuals ages 35-39 with no future years of eligibility in a defined contribution plan is $78,046 per individual, which is more than five times for someone with access.
There is a significant gap in retirement plan coverage and participation. According to the Bureau of Labor Statistics, as of March 2018, 74% of all full-time, private sector workers had access to a defined contribution plan, but only 56% participated. For part-time workers, the numbers were significantly worse, with only 34% having access and 18% participating. For workers in smaller businesses, the numbers were not much better. Only 48% of workers at businesses with less than 50 workers had access to a defined contribution plan and only 33% participated. The percentage was slightly up for business with less than 100, with 62% having access, but yet only 42% participating.
In short, Americans, especially those working for a small business or part-time, need access to retirement coverage, and it needs to be easier for employers to offer such coverage. The SECURE Act is a step in solving this problem.
The SECURE Act is a compilation of recent bipartisan and bicameral retirement legislation aimed at increasing coverage and easing administrative burdens. As noted above, the basis of the SECURE Act is RESA, which has been introduced in both the House and Senate in the current and past Congresses. In fact, RESA has been introduced in the Senate in the 114th, 115th and 116th Congresses. A number of SECURE Act provisions that were not in RESA were previously introduced, such as the provisions that would allow for open multiple employer plans, allow for long-time, part-time employees to participate in 401(k) plans, increase the required minimum distribution age to 72, and provide alternative minimum funding rules for community newspapers.
The SECURE Act will increase coverage and savings through:
- Allowing unrelated businesses to band together to offer a retirement plan to their workers and provide coverage for thousands of individuals who work for small businesses;
- Increasing the 10% cap to 15% for the auto-enrollment safe harbor;
- Providing small business startup and auto enrollment credits; and
- Providing coverage for long-term, part-time employees.
The SECURE Act will reduce administrative burdens by:
- Simplifying the notice requirements for 401(k) safe harbor plans;
- Allowing for trust-to-trust distributions of lifetime income products;
- Increasing the required minimum distribution age to 72;
- Easing the nondiscrimination rules for closed plans to protect the benefits of older workers with longer service;
- Allowing for combined annual reporting for certain related plans; and
- Providing a fiduciary safe harbor for the selection of lifetime income products.
Does the SECURE Act solve all of America’s retirement problems? No. Is it a start? Yes. The U.S. House of Representatives passed the SECURE Act by a vote of 417 to 3. In addition, on June 17, 2019 over 22 organizations signed onto a letter urging the Senate to act.
It is time for the Senate to take this rare opportunity in this divided system to act on a piece of bipartisan legislation that has been introduced three times in the Senate and will benefit all Americans by helping them build a more secure retirement.