Legislative Update — House passes SECURE Act by 417-3 vote

In this legislative update we review House of Representatives passage, on May 23, 2019, of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (H.R. 1994) by a 417-3 vote. We then briefly review other legislative developments, including the re-introduction of Portman-Cardin legislation, considered part of the next round of bipartisan retirement policy reform.

House passes SECURE Act

The SECURE Act, which is sponsored by Ways and Means Chairman Neal (D-MA) and cosponsored by Ranking Member Brady (R-TX) and Representatives Kind (D-WI) and Kelly (R-PA), pulls together proposals from a number of other bipartisan retirement policy reform efforts (including the Senate’s Retirement Enhancement and Savings Act of 2019 (RESA 2019)).

We provided detailed coverage of SECURE in our April Legislative Update. Highlights include:

DC annuity fiduciary safe harbor: This proposal would generally defer to state insurance regulation with respect to the issue of the financial condition of the annuity carrier selected by a plan fiduciary to offer annuities under a DC plan.

Closed group relief: To address the nondiscrimination problems presented by “closed groups” (e.g., a limited group of participants who get grandfathered benefits under a DB plan or make-whole benefits under a DC plan), this proposal would allow DB plans to be aggregated with DC plans and tested on a benefit accruals basis, without having to satisfy (burdensome) threshold conditions (sometimes referred to as gateways) if certain conditions are met. 

Authorization of DC Open MEPs: Generally, the bill would authorize “Pooled Plan Providers”to offer defined contribution plan “Open” multiple employer plans (MEPs) by eliminating the current DOL “nexus” rule and providing a solution to IRS’s “one bad apple” rule for qualifying plans (“Pooled Employer Plans”), subject to certain conditions.

Mandatory lifetime income disclosure: The billwould require DC plan administrators to annually provide participants a description of the monthly “income stream” they would receive if their account balance were paid in the form of a single life annuity and joint and surviving spouse annuity, based on assumptions specified in DOL guidance. The bill instructs DOL to issue model disclosures. The proposal would also provide protection against sponsor and plan-fiduciary liability.

Require coverage of long-term part-time employees: The bill would generally require sponsors of 401(k) plans to cover employees working more than 500 but less than 1,000 hours per year for three consecutive years. Internal Revenue Code nondiscrimination and top-heavy rules would, however, generally not apply to these employees, and the rule would generally not cover collectively bargained employees.

This legislation will now be taken up by the Senate. Many believe the overwhelming bipartisan support for SECURE in the House makes early passage of a final bill by the Senate more likely. In the current context, however, risks to final passage remain.

Portman Cardin re-introduced

On May 14, 2019, Senators Portman (R-OH) and Cardin (D-MD) introduced the Retirement Security and Savings Act of 2019. The bill generally tracks legislation the Senators introduced last year, and many of the proposals included in it are expected to be part of the _next_bipartisan retirement policy reform effort (after SECURE/RESA).

Among the new provisions in the 2019 bill: elimination of ongoing plan disclosures to unenrolled DC plan participants (e.g., a “participant” who has elected not to make contributions to and has no balance in a 401(k) plan), so long as the participant receives an annual notice of her eligibility to participate; and extension through 2029 of the period during which certain surplus DB assets may be transferred to an Internal Revenue Code section 401(h) retiree medical account.

Of particular interest in the current context: the bill would generally allow a plan to treat a student loan repayment (subject to certain limits) as “match-able” pursuant to rules similar to those applicable to “regular” 401(k) employee contributions (aka “elective deferrals”). The loan repayment itself, however, would not be considered an employee contribution (e.g., for purposes of ADP testing).

Other highlights include: proposals to expand coverage and increase savings, including a new 401(k) ADP nondiscrimination testing safe harbor, an increased small plan startup credit, and an expanded Saver’s Credit; a relaxation of the rules for the correction of inadvertent errors and expansion of Treasury’sEmployee Plans Compliance Resolution System(EPCRS); and an increase in the flexibility of the required minimum distribution (RMD) rules.

Other developments

New PBGC head confirmed: On April 30, 2019, the Senate confirmed Gordon Hartogensis as the new Director of the Pension Benefit Guaranty Corporation, replacing Obama-holdover Thomas Reeder. In connection with Mr. Hartogensis’ nomination, the White House described him as “an investor and technology sector leader with experience managing financial equities, bonds, private placements, and software development. He holds a B.S. in Computer Science from Stanford University and an M.S. in Technology Management from Columbia University.”

Secretary of Labor Acosta testimony before the House Education and Labor Committee: On May 1, 2019, Secretary of Labor Acosta testified before the House Education and Labor Committee. Representative Fudge (D-OH) questioned him on what his plan was to protect workers against biased investment advice; Acosta responded that DOL is collaborating with the SEC in its broker-dealer/investment advisor rulemaking projectand that “we will be issuing new rules in this area.” He did not provide any details on what those rules would be or when they would be issued, but there are reports that DOL is at work on guidance with respect to conflicted investment advice.

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We will continue to follow these issues.