SECURE Act Passes House, Bringing Calls for Senate Collaboration

Reflecting on the much-anticipated House vote, Kevin Walsh, principal with Groom Law Group, said today is an important day for the retirement industry, but it’s not the end of the story.

In a long-awaited vote held Thursday morning, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act, commonly referred to as the “SECURE Act.”

The bipartisan bill passed by a practically unanimous margin of 417 yeas to 3 nays (with 12 non-votes), and was hailed by House members, retirement industry lobbyists and advocates, and grassroots organizations as a significant victory for the average American worker.   

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

The debate preceding the vote was mainly amicable and saw House members on both sides of the aisle celebrating the bipartisan process that brought the legislation to the floor. One point of contention, though, was found in the fact that the SECURE Act as passed does not permit workers to use 529 college savings accounts to pay tuition for K-12 schools.

While the retirement industry immediately reacted positively to the House vote, it is important at this stage to point out that the path ahead for sweeping federal retirement reforms remains uncertain. This is because the Senate has focused more on legislation called the Retirement Enhancement and Savings Act (RESA). Industry advocates say the opportunity for rectifying House and Senate bills is supported by the fact that both the SECURE Act and RESA (and various other bills pending in Congress) enjoy broad support from the retirement plan and asset management industries—and from more grassroots advocates, including independent small-business owners, members of the gig economy and part-time workers.

Reflecting on the mid-morning House vote, Kevin Walsh, principal with Groom Law Group, said today is an important day for the industry, but it’s not the end of the story. As Walsh pointed out, it is important now to ask about the path forward. Passage of the SECURE Act is an important step toward sweeping federal retirement reform, but the House is only half of the Congress.

“It feels a bit like Groundhog’s Day for many of us,” Walsh added. “Last year we were very optimistic for a House and Senate agreement, and it just didn’t shake out. But so far it still certainly looks like both Democrats and Republicans want to pass retirement reform legislation, and lawmakers have been able to pass similar bills in both chambers.”

Walsh says he still feels and hears a lot of optimism that the SECURE Act and the Senate’s Retirement Enhancement and Savings Act can be rectified.

“The job now comes down to the leaders of the key committees in the House and Senate,” Walsh said. “Can they compromise? This brings on a test of Congressional mediators. A lot of good ideas are moving through both chambers, and now it’s time to see if they can be put together. Typically, we think of a Republican-Democrat divide. Here, it is more of a House and Senate divide. Both chambers have popular bills and it will take work to bring them together.”

Debate turned sour on one issue

Broadly speaking the House debate on the SECURE Act was friendly and non-political. For his part, Representative Mike Kelly, R-Pennsylvania, called the passage of RESA “providential.”

Several issues did raise the ire of some members, however. Most notably, there were several Republican House members that voiced disappointment in the fact that the SECURE Act had been amended after committee passage to prevent the use of 529 college savings accounts for the payment of K-12 school tuition. Originally, the SECURE Act would have permitted parents to use 529 college savings accounts to pay for K-12 tuition at public, private, religious or home schools.

There was also some politically charged debate about the fact that the SECURE Act fixes an error programmed into the recent tax cuts, which unintentionally increased the tax burdens of Americans collecting benefits connected to family members killed in the line of military duty, as well as the tax burdens of inheritors of wealth in certain Native American groups. 

What’s in the SECURE Act?

At a high level, the lawmakers said, the SECURE Act contains many popular measures to help Americans.

Besides making it easier for employers to offer lifetime income products in defined contribution plans, the SECURE Act includes provisions to remove restrictions on small employers’ ability to band together in a multiple employer plan (open MEP).

Related technical changes to the tax code will ensure the portability of lifetime income products, and another provision will help savers make more-informed decisions regarding their finances by providing lifetime monthly income estimates on benefit statements.

The SECURE Act would increase opportunities for workers to save by enhancing automatic enrollment and escalation features, for example by removing the auto-enrollment safe harbor cap and increasing the cap for automatic escalation of employee deferrals. Among other provisions, the SECURE Act includes measures to require employers to allow long-term, part-time workers to participate in their workplace 401(k) plan, and a measure which would increase the current required minimum distribution (RMD) age limit to 72.

DOL Anticipates Proposing Another Fiduciary Rule This Year

The item on the Department of Labor’s (DOL)’s regulatory agenda has moved from a final rule expected in September to a notice of proposed rulemaking in December.

A look at the Spring 2019 regulatory agenda for the Department of Labor (DOL) shows the agency is expecting to issue a notice of proposed rulemaking (NPRM) for “Fiduciary Rule and Prohibited Transaction Exemptions” in December.

On April 8, 2016, the DOL replaced the 1975 definition of “fiduciary” with a new, far more expansive definition that would have caused many more advisers and brokers to become fiduciaries to retirement plan participants under the Employee Retirement Income Security Act (ERISA). However, this new definition was vacated in 2018 by the 5th U.S. Circuit Court of Appeals. After declining to appeal that ruling to the Supreme Court under the Trump Administration, the DOL later signaled in its Fall 2018 regulatory agenda that it intended to issue additional regulations in this area in September of 2019.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Of note is the change from the fiduciary rule being in the “final rule” stage in the Fall 2018 agenda to being in the “proposed rule” stage in the Spring 2019 agenda.

During a hearing in early May by the Committee on Education and Labor of the U.S. House of Representatives, Secretary of Labor Alexander Acosta was questioned about whether the DOL is effectively collaborating with the Securities and Exchange Commission (SEC) to tamp down on conflicts of interest in the advisory industry. “The DOL is working with the SEC, which was asked by Congress to come up with appropriate responses to protect these individuals. We are communicating with them, and based on our collaborative work, we will be issuing new rules in this area,” Acosta said. However, he did not at that time give a time-frame for either when the SEC or DOL will take the next steps in the process.

Reflecting on this process, Kevin Walsh, principal at Groom Law Group, said the DOL seems to be taking on a more ambitious agenda than it has previously under the Trump Administration. Apart from watching for any developments on the fiduciary rule front, he said, retirement industry stakeholders have also been waiting to see what the DOL may do around electronic disclosures of plan information and investment fees. 

“I think there is a real hint coming from DOL that these things are coming sooner rather than later,” Walsh said. “You can also look at the statements coming from the Securities and Exchange Commission, with their Regulation Best Interest, and make the argument that it’s increasingly likely the DOL and SEC will put out connected rulemaking before the end of the year. There will likely be coordination between what the SEC does and this DOL effort.”

The SEC has published a proposed Regulation Best Interest, which it indicates it intends to make final in September. SEC Chairman Clayton has said this rulemaking package picks up where the DOL’s defeated approach left off, but critics say the disclosure-based approach taken by “Reg BI” (as opposed to an actual prohibition-based approach) is too weak to make a real difference for investors dealing with bad-apple advisers and brokers.

«