SECURE Act Passage May Hinge on Budget, Debt Ceiling Negotiations

After passing the House of Representatives with 417 yea votes and just three nays, the Setting Every Community Up for Retirement Enhancement Act, commonly referred to as the “SECURE Act,” remains stalled in the Senate.

Washington insiders point to several Republican senators as the main roadblocks to near-term Senate passage of SECURE, among them Texas’ Ted Cruz and Pennsylvania’s Pat Toomey. The pair have placed what are called “holds” on the Senate leadership’s resolution to pass the bill under “unanimous consent,” which would allow the bill to be passed without the usual process of debate and amendment by the full Senate.

According to one source familiar with the ongoing Congressional deliberations, Senator Cruz has openly explained his opposition to the SECURE Act. Among some other concerns, he dislikes that the final version of the House was amended to no longer include a provision that would allow people to use tax-advantaged savings in 529 college savings account to pay for home school expenses.

It is less clear what Senator Toomey’s issues with SECURE Act may be. He has said publicly that he would prefer the Senate to bring the bill—and others—to the floor and allow debate. In this way, it seems his objections are more about the process than the issues baked into the SECURE Act. However, after the publication last week of a much-discussed Wall Street Journal editorial that criticized a provision in the SECURE Act to require certain beneficiaries of unspent individual retirement accounts (IRAs) to take distributions within 10 years, Senator Toomey indicated publicly that disagrees with the changes to the “stretch” IRA. 

For context, under current law, if a retiree dies before IRA funds are spent, the remaining funds can be passed to named beneficiaries, who can then withdraw from the accounts over their life expectancies. In changing this standard, the SECURE Act still provides a number of exemptions to the 10-year rule, for example by allowing for tax-free distributions to continue for an account owner’s surviving spouse and child until they reach the age of 18.

Advocates for the SECURE Act say this change to the rules for the treatment of inherited IRAs was included in the final House version of the bill as a fiscally responsible measure to pay for provisions that will increase access to employer-provided retirement plans. They also point to the fact that Congress originally designed IRAs to deliver retirement income to the account owner—not to serve as a powerful estate planning tool for the wealthy.

With this debate hanging in the air, supporters of the SECURE Act bemoan the fact that one or two seemingly minor issues are holding up the most expansive retirement legislation in a decade that would make it easier for small businesses to pool together to offer workers a retirement plan. The bill also would expand access to lifetime income products within workplace retirement plans and require plans to provide workers with an illustration of how much monthly income their account would provide.

Looking forward, Congress is quickly headed toward its August recess, after which the nation’s (and lawmaker’s) focus will increasingly turn to the 2020 election cycle, making the passage of even popular legislation that much more challenging. The House is scheduled to leave Washington on Friday and the Senate is expected to start its recess next Friday. Meanwhile, Congress and the Trump Administration are trying to work out a budget deal and negotiate a new debt ceiling, leading SECURE Act advocates to push their Congressional allies and leadership to consider adding the SECURE Act to the must-pass budget/debt legislation.