Saving for retirement just got easier
Congress has done the right thing for working Americans. By approving the Setting Every Community Up for Retirement Enhancement (SECURE) Act, legislators have succeeded in helping millions of Americans pursue their retirement goals.
This is a great way to end the year, and it’s cause for celebration. Some policy watchers feared the SECURE Act had fallen by the wayside. Instead, it was attached to the year-end spending bill with very little change from the House-approved version.
Its passage provides a hopeful signal that Congress is serious about increasing access to workplace retirement plans for working Americans.
Retirement savings plans such as 401(k)s and 403(b)s and IRAs help Americans prepare for a better future. SECURE builds on these strong workplace retirement savings programs and gives millions more working Americans the opportunity to enjoy those same benefits. This includes allowing unrelated small employers to band together to achieve economies of scale and lower their costs when sponsoring workplace retirement plans, expanding tax credits that reduce the costs for small employers, and encouraging investment options that provide a lifetime income stream.
As with any major piece of legislation there are always concerns about unintended consequences. That holds true for SECURE.
SECURE includes a provision that requires a plan to provide each of its participants with an annual lifetime income disclosure that converts their account balance into an income stream at retirement. This requirement feels like an attempt to offer a one-size-fits-all solution to a complex problem. Modern workplace savings plans — such as 401 (k), 457 (b) and 403 (b) plans — have advanced beyond the point of simply showing savers their accumulated balances.
At Empower we are strong advocates of modern types of projections — and we’re not the only ones. In the past decade, many retirement plan providers have built models for lifetime income projections that take into account age, salary, savings rates and other factors and allow workers to see today what their potential monthly income might be tomorrow.
When people can see how much money they could have each month in retirement, we believe it’s a powerful motivator for increased savings.
Unfortunately, as written, the SECURE provision does not take advantage of the latest technologies related to such projections.
The Department of Labor will be called upon to provide guidance on how these new rules should be applied.
Giving lifetime income projections a chance to evolve with technology and adjust with modern plans designed by providers would be a significant improvement on an already great piece of retirement legislation.
(Editor’s note: See Ed Murphy’s Investment News op-ed on the need for innovation in lifetime income disclosures here.)
We know SECURE is not the end of retirement policy reform. I am confident lawmakers will continue to refine, reform and consider the changing demographics and dynamics of working Americans.
I assure you, we in the industry are not complacent. We know there’s always room for improvement, and we’ll continue to advocate for better legislation to help retirement savers all across the country.
Cheers to Congress and to all Americans saving for retirement.
We believe doing the right thing means understanding, supporting and leveraging the inherent differences that make each of us unique and valuable.