The House of Representatives’ overwhelming passage last week of the Securing a Strong Retirement Act (H.R. 2954, a.k.a SECURE 2.0) helps set the stage for action by the U.S. Senate later this year, Brian Graff explained at the April 3 opening session of the 2022 NAPA 401(k) Summit in Tampa, FL.
“It passed by an overwhelming vote of 414-5, which in Washington these days, doesn’t happen very often. And that bodes well for Senate consideration because with something that is supported so overwhelmingly, it’s hard for [members of the Senate on] the other side of the Capitol to not get their attention,” Graff said.
Graff, who serves as CEO of the ARA as well as Executive Director of NAPA, was joined by Drew Crouch (photo below), senior tax and ERISA counsel for the Senate Finance Committee, and Preston Rutledge, Founder and Principal of the Rutledge Policy Group and former Assistant Secretary of Labor for the Employee Benefits Security Administration (at right in photo above).
Graff, Crouch and Rutledge engaged in a back-and-forth discussion in which they addressed key provisions of the SECURE 2.0 legislation, along with what might come out of the Senate following action by the Senate’s Finance and Health, Education, Labor and Pensions (HELP) Committees, which have jurisdiction over tax and ERISA issues, respectively.
Graff also advised the packed room of Summit attendees that the House Education and Labor Committee will be marking up another retirement bill, but that it is not expected to be a bipartisan endeavor and will likely pass along party lines. He noted, however, that some provisions which emerge from this bill may be added to a forthcoming Senate bill, but added that he hopes lawmakers keep the bill as bipartisan as possible.
Crouch, who spoke with the caveat that his comments reflect only his viewpoints, explained that the Senate Finance Committee will be marking up a retirement bill, perhaps before the end of May. The Senate HELP Committee is also expected to mark up a bill within a similar timeframe, Crouch noted.
Once the retirement security legislation moves out of committee, Crouch noted that Senate floor time is at a premium and that we are more likely to see the legislation added to a must-pass year-end omnibus appropriations bill after the November elections. That would probably be the first opportunity for actual enactment, he noted.
Rutledge observed that just because Congress doesn’t act on legislation right away doesn’t mean that it’s not going to happen. He explained that it can takes months and sometimes years before legislation is enacted, even when there is broad bipartisan support for it. Rutledge also noted that the outcome of November’s congressional elections is not likely to affect the chances for passage of the retirement security legislation.
Addressing the Coverage Gap
Crouch noted that the Senate Finance Committee is still drafting its retirement bill, but emphasized that one priority will be trying to incentivize smaller businesses to start plans. In doing so, he cited data from the American Retirement Association showing that individuals are 12 times more likely to save when covered by a retirement plan at work.
Graff emphasized that once an employer puts a plan in place, they are likely to stick to it. “Once they have it in, they realize it’s not that hard to do and that employees like it. So the key is just getting them through the door and giving the employees the opportunity to save in the first place,” Graff emphasized.
Rutledge observed that bipartisanship in Congress is strongest on the policy provisions of helping to establish plans in order to boost coverage, but the battle lines are drawn around the “carrot versus stick” approach. For instance, providing a start-up credit for establishing new plans is one area that has strong support because it takes the position of providing a tax incentive rather than a mandate.
Effective Date Shifts
The panelists noted another issue to be on the lookout for: There could be some additional shifts in the effective dates of the various provisions that were included in the SECURE 2.0 bill. This, Crouch noted, is because some of the provisions have immediate effective dates and some are proposed to take effect at the start of 2023, but final passage of the legislation probably will not occur until the end of the year. “It would set up a sort of situation where folks might have days or only weeks in which to try make these changes. The policy staffers are well aware that that's not ideal, and so, you’ll see some attention paid,” he noted.
E-Delivery Rules
One issue that is of concern to the American Retirement Association is a provision in the SECURE 2.0 bill that would roll back the Department of Labor’s e-delivery regulation permitting electronic disclosures, requiring at least one notice a year in paper form. Rutledge, who helped oversee the development of the e-delivery regulation as head of EBSA, shared an interesting observation: that the regulation provided an “accidental policy improvement” in terms of helping with missing participants.
“The best way to deal missing participants is don’t lose them in the first place, and if you’re sending an electronic notice out to somebody to an electronic address, the rule says if it bounces back, you have to get that resolved right away.” That doesn’t happen with paper, however, where it can be years before you determine that it was undeliverable—but with email, you know right away, Rutledge explained.
Graff noted that with ARA's help, he hopes this issue is resolved before final passage of the legislation.
Other Issues
Graff, Crouch and Rutledge discussed a number of other proposals, including differences between the SECURE 2.0 bill in the House and legislation in the Senate sponsored by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD). The Portman-Cardin bill will probably serve as a starting point for action by the Senate Finance Committee, which is currently evaluating some of the differences, such as the provision to boost the Saver’s Credit, as well as a proposal in the Portman-Cardin bill that would implement a stretch match safe harbor. The Finance Committee is also looking at ways to improve auto-portability, the panelists noted.
Meanwhile, as more states enact legislation requiring employers to have a plan, a new proposal has surfaced in the Senate that Graff hopes will gain some traction: the Starter 401(k) legislation introduced by Sens. John Barrasso (R-WY) and Tom Carper (D-DE), who sit on the tax-writing Senate Finance Committee. “We obviously want to work with the committee to hopefully fold this into their version of SECURE 2.0,” explained Graff, who noted that he believes the legislation will go a long way toward closing the coverage gap and is very simple for employers to implement.
Why’s the Fiduciary Rule Rewrite Taking So Long?
And for those who may be wondering why it seems to be taking so long for the Department of Labor to propose a revised fiduciary rule, Rutledge pointed to the Biden administration’s climate change initiatives and the two executive orders that were issued by the White House directing federal agencies to take action on climate change. “That’s why you see the ESG proxy rule of the Department of Labor moving so far so fast,” Rutledge explained.
Most recently, the DOL requested information about protecting retirement savings and pensions from risks associated with climate change. “If this goes to the next stage, which would be a proposal, and then the next stage, which would be a final, you might find yourself having to report climate-related financial information on Form 5500,” Rutledge explained.
“We’re very concerned about that,” added Graff. “We’re definitely going to be weighing in. In our opinion, that is not a good option—we don’t think that one economic issue should be front and center versus every other economic issue,” Graff explained.
Revenue Raisers Resurface?
Even though the SECURE Act 2.0 legislation does not include the revenue raisers that were included in the Build Back Better Act—such as eliminating backdoor Roth conversions and limiting so-called mega-Roths—those provisions are not necessarily going away. According to the panelists, there is a possibility that Congress will act on a separate tax bill as part of the budget reconciliation process, and those changes are being eyed as revenue raisers to help offset the cost of the bill.
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