SURVEY SAYS: The SECURE Act and Retirement Income Adequacy

Among provisions of the SECURE Act are those that would allow unrelated plan sponsors to band together in pooled employer plans, otherwise known as “open” multiple employer plans (MEPs); change the age participants have to start taking required minimum distributions to 72; and provide a new safe harbor for plan sponsors to select a lifetime income provider in order to offer annuities within their retirement plan.

Last week, I asked NewsDash readers whether they think these provisions will improve the retirement income adequacy of Americans.

More than six in 10 (62.5%) of responding readers work in a plan sponsor role, while 18.75% each were advisers/consultants and TPAs/recordkeepers/investment managers. Nearly all (93.7%) reported they have heard about the Setting Every Community Up for Retirement Enhancement (SECURE) Act, but 6.2% said they had not.

Respondents generally did not feel any of the SECURE Act provisions asked about would improve the retirement income adequacy of Americans. As for the ability for unrelated plan sponsors to participate in an open multiple employer plan, 40.6% indicated it will improve the retirement income adequacy of Americans, half said it would not, and 9.4% were not sure or had no opinion.

Only 21.9% of respondents think changing the age retirement plan participants are required to take a minimum distribution from 70 1/2 to 72 will improve the retirement income adequacy of Americans, while 62.5% said they don’t think it would and 15.6% chose “don’t know/no opinion.” Asked if they think a new safe harbor for plan sponsors to select a lifetime income provider in order to offer annuities within their retirement plan will improve the retirement income adequacy of Americans, 31.2% said yes, 59.4% said no, and 9.4% were unsure or had no opinion.

Many readers who left comments pointed out that no legislation will help if Americans are not willing to participate and save in retirement plans. Since financial wellness is key to Americans being able to save for the long-term, a couple of readers suggested the legislation should include required financial wellness education in schools. Generally, respondents feel the legislation will have a minimal effect on improving retirement income adequacy. Editor’s Choice goes to the reader who said: “At the end of the day, it comes down to the participant and their savings ability to defer and to not touch the money they are saving.”

A big thank you to all who participated in the survey!

Verbatim

Open MEPs will be a nightmare for both sponsors and recordkeepers. There is no need to add an annuity offering to a plan because participants can currently select an annuity provider of their own chose to roll their distribution to. Raising the RMD to 72 will only allow the wealthy to defer the RMD longer.

It depends on the participant education that is provided regarding the new and existing regs. That’s the key to improving retirement income adequacy. Keep It Simple!

There are always unforeseen consequences. The SECURE Act is at least an attempt to recognize the reality that DC plans will be the primary source of retirement income for most Americans.

Just more political posturing.

This will not get most employees to contribute enough, or anywhere close, for a secure retirement

Unless Americans are willing to save substantial amounts of their income for their retirement, legislation is not going to improve retirement income adequacy.

Moving the RMD age to 72 makes sense. The original age 70-1/2 requirement was set at a time when life expectancies were shorter than today. Also, many people are working longer than during previous generations. The age 72 RMD allows more time for accumulation of the assets necessary for a longer payout period.

I like the nondiscrimation/minimum participation relief for closed DB plans, and putting the annuity numbers on DC statements. I hate the proposed 10-year limit on “stretch IRAs.”

People know all about retirement programs – IRAs are no mystery. But many CHOOSE not to participate. This may be a good idea for businesses to band together to achieve economies of scale – but I doubt it will inspire many to participate now when they have chosen not to in the past.

Ultimately it is up to the individual to save for retirement. The secure act may make it easier for companies to offer plans but it is still up to the individual to save.

While I did select “yes” for all of the questions, those changes will help only minimally. Why not eliminate RMDs altogether? I wish that the Act included more significant changes.

Good intent, but piecemeal and tedious regs. Best idea: require a core financial education class in high school to get everyone started right.

Once again no one can see the forest for the trees. They are spending all of this time on lifetime income products, but missing the real problem. Americans aren’t saving enough. No annuity will help you if you don’t have enough money in the plan. Raise contribution caps. Provide education to high school students on the importance of saving. Remove regulations and make plans simple for any employer to offer. Design a “safe harbor” simple plan that any employer can pick up and use. No attorneys or consultants needed. That would be a big step in the right direction.

Unless we allow those who want to save to be able to save more in qualified plans and force those who opt out or just don’t sign up to start saving at an appropriate rate people will not be prepared to retire with an adequate income. The MEP’s may allow a few more people into retirement plans but it does not change the fundamental issue of people do not save enough to be prepared.

Americans don’t have enough money for housing and food, let alone retirement. And honestly, the industry is really misleading people into thinking they will actually be able to retire someday. Though the act seems to help on the surface, it just makes things more complicated for administrators.

At the end of the day, it comes down to the participant and their savings ability to defer and to not touch the money they are saving….

I’d better get researchin’!

What most Americans need to be “SECURE” is education and follow-through on living within their means, which includes planning for the future by saving. They need to stop buying houses, vehicles, electronics and other toys they can’t afford. Just because they can make the payment doesn’t mean they can afford it. OK, I’ll get off my soapbox now! 🙂

Like many other issues, continuing to do nothing just because we have not yet done anything cannot be an option.

May provide minor improvement for those with adequate retirement assets. Won’t help those who need more help. “Safe harbor” for annuities is inadequate to push annuity adoption.

Let’s get it secured into law!

Yes, no, and don’t know are, quite simply, choices that are too simplistic. I don’t think MEPs will do much, though they’ll certainly impact the retirement security of providers and advisers (I don’t think that was what you were getting at), the extended RMD is a help, but it’s not really a game changer (unless you’re the IRS), and don’t even get me started on the lifetime income disclosure nonsense – though I suspect it will have a favorable impact on the retirement security of some in the plaintiffs’ bar. While I doubt SECURE will do much, it will have some modest positive impact – and wouldn’t it be nice to see Congress do something bipartisan for a change??!

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.