Compliance June 14, 2022

Retirement-Focused RISE & SHINE Act Clears Senate HELP Committee

Backers of the bill say it will improve retirement security by creating additional protections for workers and retirement savers at all stages of their retirement timelines.

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The Senate Health, Education, Labor and Pensions Committee has voted to advance the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act, known as the RISE & SHINE Act.

Supporters of the bill say it will improve retirement security by creating additional protections for workers and retirement savers at all stages of their retirement timelines. As passed by the HELP Committee, the bill includes many interrelated provisions. Among these are measures to expand plan coverage for part-time workers and a new rule allowing employers to set up automated payroll deduction emergency savings accounts for their workers.  

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Passage of the RISE & SHINE Act comes some three months after the House of Representatives passed a comprehensive retirement bill with an overwhelming bipartisan vote. The House bill, known as the Securing a Strong Retirement Act, similarly seeks to expand access to workplace retirement plans and protected lifetime income products. It would also expand automatic enrollment by requiring 401(k), 403(b) and SIMPLE plans to automatically enroll participants upon becoming eligible, with the ability for employees to opt out of coverage.

While it covers some of the same areas as the House’s bill, the RISE & SHINE Act is a distinct measure. It is also different from additional retirement legislation expected to be taken up in the near future by the Senate Finance Committee.

Some features in the RISE & SHINE Act include new permissions for plan sponsors to auto-enroll their workers in salary deferral emergency savings accounts, with a maximum auto-enrollment contribution of 3%. Another portion of the bill would require that certain part-time employees who have served 500 hours or more in the prior two years be made eligible for participation—though such workers could still be excluded from plan eligibility for reasons other than their part-time status.

According to a statement from Wayne Chopus, president and CEO of the Insured Retirement Institute, the HELP Committee measure is expected to be combined with the Finance Committee measure into one Senate bill. Per the statement, the combined Senate bill would then need to be reconciled with the House-passed legislation before a final bill can be voted on by both chambers of Congress and sent to President Joe Biden for signature. Chopus said this outcome will require a substantial amount of work by legislators over the coming weeks and months, but he believes Congress can get the job done and build on the legacy of 2019’s Setting Every Community Up for Retirement Enhancement Act.

“This is a critical milestone toward addressing the anxiety and insecurity that many of America’s workers and retirees have about achieving a financially secure retirement,” Chopus said in the statement. “We appreciate the leadership and hard work of Committee Chair Senator Patty Murray [D-Washington] and Ranking Member Senator Richard Burr [R-North Carolina] to craft and pass this important bipartisan measure.”

Eric Pan, CEO of the Investment Company Institute, says in a written statement that the unanimous vote to advance the RISE & SHINE Act shows that the Senate is working hard to join the House in passing much-needed legislation to expand access to retirement savings plans and improve Americans’ ability to save. Per the statement, the ICI looks forward to the Senate Finance Committee adding to the legislation, and the group hopes to see consideration by the full Senate of a bipartisan retirement-savings reform package “as soon as is practicable.”

In addition to the RISE & SHINE Act, the HELP Committee also advanced the Increasing Small Business Retirement Choices Act. As passed by the HELP Committee, the legislation would make it easier for small businesses to offer more comprehensive retirement benefits to their workers by reducing administrative expenses. According to the bill’s supporters, currently, employers who offer 401(k) retirement plans and want to consider a plan design change, such as the implementation of auto-enrollment or auto-escalation, must pay out-of-pocket administrative costs upfront, even if such changes might help employees save more money. The bill would change existing law to allow small business employers to use retirement plan funds to pay expenses associated with retirement plan design changes, potentially lowering the cost of providing better plans to workers.

Chopus said he remains optimistic that Congress will send a retirement bill to President Biden this year, noting that Tuesday’s legislative action means Congress is “more than halfway through the process, and momentum is on our side.”

Public comment letters from retirement security organizations—including the ERISA Industry Committee, Insured Retirement Institute, Pension Rights Center and U.S. Chamber of Commerce—broadly support the RISE & SHINE Act.

The text of the legislation is available here.

Compliance June 14, 2022

PSNC 2022: Washington Update

From shifting compliance deadlines to growing debate on ambitious retirement reform legislation, there is a lot happening in the nation’s capital for retirement plan fiduciaries to be aware of.

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During the 2022 PLANSPONSOR National Conference in Orlando, a pair of experts shared their perspectives on the legislative and regulatory outlook for the retirement plan industry, suggesting there is significant room for optimism about the passage of helpful reforms.

The speakers included Jodi Epstein, partner at Ivins, Phillips & Barker; and David Levine, principal and co-chair of the plan sponsor practice at Groom Law Group. In addition to discussing the legislative outlook, the attorneys addressed the evolving regulatory picture and the emergence of key trends in retirement plan litigation.

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Overall, they said, it is a challenging time to be a retirement plan fiduciary, but opportunities to improve the retirement plan system—concerning both inclusivity and outcomes—abound.

Still Waiting for Regulations

As the panel spelled out, the retirement industry is still working to interpret and put into practice prior reforms that were established under the Setting Every Community Up for Retirement Enhancement Act, affectionately known as the SECURE Act. One of the main regulations the industry is watching for, Epstein said, involves the SECURE Act’s requirement that certain part-time workers be made eligible for retirement benefits.

As of the start of 2021, the SECURE Act defines these workers as employees who in each of the past three consecutive years worked between 500 and 999 hours. As such, the first year that any long-term, part-time employee may enjoy mandatory eligibility is 2024, although plans can allow entry earlier.

According to Epstein and Levine, it is important for plan sponsors to track the hours worked by their part-time staffers, so that they can be in a good position for compliance with the part-time eligibility rules by the time 2024 arrives. This is particularly important in cases where a plan sponsor is moving between recordkeepers, making an acquisition or experiencing another potentially disruptive business event.

Employees who are required to be covered by the SECURE Act’s expansion may receive, but are not required to receive, matching employer contributions. Furthermore, they can be excluded for nondiscrimination testing purposes.  

“There are still some places where we hope to get clarifying guidance, but, for now, the bottom line for employers is to prepare for 2024 by starting in 2021 to track part-time employees’ hours,” Levine said.

SECURE 2.0 Raises Questions

As Epstein and Levine explained, there are provisions in a new legislative framework, the Securing a Strong Retirement Act, which is referred to by some in the industry as SECURE 2.0, that could impact the part-time eligibility rules. Namely, the proposal currently envisions reducing the eligibility window from three years to two, which could further complicate plan sponsors’ efforts to comply with any forthcoming regulations. There is also the possibility that the rules around required minimum distributions could again be modified, with the expectation being that the RMD age could be pushed back to 75, though this is far from given at this stage in the legislative process.

“There is a whole lot in SECURE 2.0 and all the related bills floating around,” Levine said. “In English, the legislative package is about making things better by creating new plan features and new levels of access to the retirement plan system. It is also important to note that the House has passed its version of the legislation by a wide margin, but the Senate is continuing to work on two parallel pieces of legislation. All is yet to be cobbled together, and so we are in a wait-and-see posture with our clients.”

Other features of the legislation package would provide support to workers with student loans by allowing employers to match their loan repayments with retirement account contributions, and there are provisions aimed at simplifying the fiduciary process involved in the provision of guaranteed lifetime income options within DC plans.

Epstein explained that many of the provisions in the legislative package enjoy substantial bipartisan appeal. More challenging is the fact that some parts of the bill will “cost revenue,” meaning they are not budget neutral and may require new tax revenues, which always makes legislation more difficult to pass in a closely divided Congress.

The Regulatory Front

Levine and Epstein said retirement plan fiduciaries should expect a busy year in terms of the development of regulations that impact institutional investors and retirement plans.

For example, in May, the Securities and Exchange Commission extended the comment period for its proposal to make key rule amendments that would require domestic or foreign registrants to include certain climate-related information in its registration statements and periodic reports, such as on the Form 10-K. Examples of the information to be disclosed by securities issuers include climate-related risks and their actual or likely material impacts on the registrant’s business, strategy and outlook. Other information to be disclosed includes the registrant’s governance of climate-related risks and relevant risk management processes, as well as the registrant’s greenhouse gas emissions.

Levine and Epstein said they expect the final version of the regulation to closely resemble the proposal.

According to the attorneys, the SEC’s leadership has clearly signaled its intention to work to improve ESG-related disclosures, and they can be expected to factor ESG themes into multiple rulemaking actions. Since its original proposal, the SEC has already followed up on the broad ESG disclosure package with two additional regulations, one aimed at mandating similar types of disclosures on the part of registered investment advisers and fund managers and the other restricting and regulating the use of the ESG label in fund names.

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