Further Retirement Policy Reforms Possible in 2022

Among the bills to watch is the Lifetime Income For Employees Act, or the LIFE Act, for short.

As the director of policy at Principal Financial Group, Lance Schoening has spent a substantial portion of his professional life in Washington, D.C., including on Capitol Hill, although he did recently return to the firm’s headquarters in Des Moines, Iowa.

While he is no longer walking the halls of Congress daily, Schoening is still tracking the latest legislative developments and engaging in advocacy for the retirement industry reforms his company believes in. During a recent interview with PLANSPONSOR, Schoening pointed to multiple pieces of legislation already on the table and suggested more proposals could come ahead of the midterm elections—all in time for passage during the lame-duck session at the end of the year. 

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“I’m sure my colleagues would agree, it is gratifying to work in an area where true bipartisanship is possible,” Schoening says. “Members of Congress realize that retirement, 401(k) plans and pensions are kitchen table-type of issues for their constituents. Broadly, I think many members are focused on retirement security and financial wellness. That was proven by the success of the [Setting Every Community Up for Retirement Enhancement Act]. That was such a great bipartisan accomplishment.”

Among the bills Schoening is watching is the Lifetime Income For Employees Act, or the LIFE Act, for short. Its supporters, led by Reps. Donald Norcross, D-New Jersey, and Tim Walberg, R-Michigan, say the legislation would allow annuities to be part of a default investment in an employer-provided 401(k), with the stated goal of supporting workers as they seek to build a steady, guaranteed income stream during retirement.

Specifically, the LIFE Act addresses certain requirements in the qualified default investment alternative regulatory safe harbor that prevent some employers from including annuities as a component of their retirement plan’s default investment. Schoening agrees with Norcross’ and Walberg’s suggestion that the LIFE Act builds upon the SECURE Act provision that enhanced the safe harbor on which plan sponsors rely when choosing an annuity provider for their retirement plan.

While the enactment of this improved safe harbor was a significant step, Norcross and Walberg say, the LIFE Act will take the critical next step and ensure more savers have access to annuities as a matter of default.

“I think the collaboration between Congress and the private industry has been very positive in recent years,” Schoening comments. “The leading members of Congress who are very active in this area, they are very collaborative, and they are cognizant of what the private sector can bring to the table. We have been able to work with them in great detail and dynamically on policy proposals.”

Reflecting on his own advocacy work, Schoening says members of Congress, broadly speaking, now understand the pros and cons of annuity investing and the role annuities can play as part of the 401(k) plan system. For context, data provided by the Investment Company Institute shows that assets in individual retirement accounts are now in excess of $12 trillion, while defined contribution plan assets are in the realm of $10 trillion. Schoening says these figures, combined with the fact that annuities are not yet commonly embraced on retirement plan menus, show a clear need for policy innovation that addresses Americans’ need for stable sources of retirement income.

“I would say that the benefits of annuitization are being appreciated by members of Congress, and I think that’s an important thing,” Schoening says. “We are feeling encouraged and optimistic—it’s guarded optimism, of course. As the events of even just the last week have shown us, the tenor and direction of the Congressional agenda can always change very quickly. One point of optimism is that several leading members of Congress who are focused on these issues are themselves going to retire, so they have an incentive to get another policy victory sooner than later.”

Schoening’s experience suggests the staff of multiple key committees in the U.S. House are now collaborating behind the scenes and “hashing out” a way to advance retirement reform legislation.

“My impression is that they are exploring the ways that multiple committees could move in a coordinated way to create a consensus framework or a piece of legislation that could, for example, move in the lame-duck session after the midterm election,” he concludes. “The SECURE Act followed that same timeline, if you remember.”

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