By Randy Myers
SECURE 2.0, the retirement savings legislation that passed in December 2022, includes more than 90 provisions designed to make it easier for employers to offer retirement plans and improve retirement outcomes for American workers. At the 2023 SVIA Fall Forum, senior staff members from Capitol Hill said rollout of the legislation is going well despite its complexity.
“It’s a complicated bill, about 400 pages of text, and we’re working on technical corrections,” said Drew Crouch, senior tax and ERISA counsel for the Democratic staff for the Senate Finance Committee. “The good news is there’s not a lot of them, and everyone’s getting along—all eight staffs of the four committees involved are working together. I think at some point later this fall we’ll be able to unveil what those technical corrections will look like.”
“People are really trying to make sure we get it right,” agreed Michael Sinacore, pensions policy director for Republicans for the Senate Committee on Health, Education, Labor & Pensions.
Kendra Isaacson, a former Hill staffer who is now a principal with public policy advisory and advocacy firm Mindset, said she’s eager for SECURE 2.0’s implementation regulations to be released but agreed that the rollout of the legislation is going well. Prior to joining Mindset, Isaacson served as pensions policy director and senior tax counsel for Senate President Pro Tempore Patty Murray (D-Wash.) and the Senate Committee on Health, Education, Labor, and Pensions.
In a wide-ranging discussion led by Michael Leonberger, stable value investment manager with Invesco Fixed Income, the panelists also agreed that retirement legislation is likely to continue to enjoy bipartisan support moving forward but cautioned that not much new is likely to happen on that front in 2023 and 2024.
“We did (just) pass a fairly large bill, so I think this Congress will be a little quiet,” Crouch said. He speculated that 2025 could be a big year for legislation in the tax space, though, including the retirement space, because many provisions of the Tax Cuts and Jobs Act of 2017 applicable to individual taxpayers will expire that year.
Even if there’s little new retirement legislation coming from Congress in the next year or so, the panelists stressed that there are several provisions in SECURE 2.0 that should help lower-income taxpayers become better prepared for retirement. Beginning in 2024, for example, employers will have the option to match some of their employees’ student loan repayments and direct those matching contributions into their employees’ retirement accounts.
Also beginning in 2024, SECURE 2.0 will make it easier for employers to offer pension-linked emergency savings accounts (PLESAs) to plan participants. Knowing they can access their money for an emergency expense, Isaacson said, should make lower-income workers more comfortable participating in their retirement plans. Isaacson noted that this feature of the legislation also has a potential stable value component, since a PLESA must be invested in either cash, an interest-bearing account, or an investment product designed to preserve principal and provide a reasonable rate of return.
Finally, beginning in 2027, the federal tax code will be changed to replace the current Saver’s Credit with the Saver’s Match. With that change, eligible taxpayers won’t receive a credit paid in cash as part of a tax refund but instead will receive a federal matching contribution into an individual retirement account or workplace retirement plan.
Asked by Leonberger whether there are any prospects for resolving an issue sidestepped by SECURE 2.0—legislation to allow 403(b) retirement savings plans to invest in collective investment trusts—Isaacson said the idea has support in the House but that supporters of the idea are still “looking for a vehicle in the Senate.”
Leonberger also asked the panelists if there is any appetite on Capitol Hill for revisiting the rules for what qualifies as a qualified default investment alternative (QDIA) in defined contribution plans. Sinacore said legislators and their staffs are always open to new ideas, and that as ERISA prepares to mark its 50th anniversary next year Congress, the Employee Benefits Security Administration, and other stakeholders need to be thoughtful about how retirement plan participants can spend down their savings in retirement—and, if appropriate, access lifetime income options to support that effort. But Isaacson pointed out that revisiting the definition of a QDIA is a “tough issue” fraught with potential discrimination issues and unintended consequences.
Isaacson noted that while she was working for the Senate she and her colleagues looked at the QDIA issue “for quite some time.” During that period, she said, a number of companies lobbied for tweaks to the QDIA rules to allow lifetime income options to be included in a QDIA. So far, they have not gotten the relief they are seeking. Isaacson explained that if legislators and regulators revised the QDIA definition it would be hard for them to keep up with new product developments and ensure that they were not codifying a monopoly for any one product.
“It’s really hard to start balancing that and make legislation that would be flexible enough to accommodate a lot of innovation in the QDIA space without going too far,” she said.
Nonetheless, Isaacson noted that U.S. Rep. Donald Norcross (D-N.J.) earlier this year reintroduced the Lifetime Income for Employees Act, which would allow annuities to be a default investment option in 401(k) plans.
“So, there is a lot of interest,” she concluded, “and the Hill can really rely on your expertise if you have a good idea. People are always listening, especially if it (the idea) is product neutral.”
Isaacson noted that there also are bills floating around Congress related to incorporating environmental, social and governance (ESG) issues into investment decisions in retirement plans, but said her preference is to allow plan fiduciaries to decide how they want to proceed on that issue and “keep Congress out of it.”
Finally, Leonberger asked the presenters whether they think Congress will change the tax incentives that exist today for retirement saving. Crouch said that while Congress may pursue moderate, incremental changes over time to improve plan coverage rates and bolster retiring savings for moderate- and lower-income workers, he suspects that current tax incentives for retirement saving will largely remain intact. Of course, he noted, what happens will depend to some degree on future election results.
“I do think what happens in the (next) election will matter immensely,” Isaacson agreed. “If one party gets full control again, I think it’s likely that tax reform will be done through a reconciliation vehicle, which has to be budget neutral.
“In that case, it becomes a numbers game,” she said, alluding to the fact that tax breaks for retirement saving are a huge expenditure for the federal government.
While Isaacson said she wouldn’t anticipate big, wholesale changes, the sheer cost of the current tax breaks suggest “there is some wiggle room there.” Conversely, she said that if the House, the Senate and the White House aren’t controlled by one party after the next election “retirement saving (tax treatment) is probably okay” in its current form.