A panel at the Oct. 22 opening session of the 2023 ASPPA Annual Conference expressed agreement with the notion of closing the coverage gap but also evinced great concern over the effect legislation that would create a federal retirement savings program could have on the private-sector retirement industry.
Panel members were Brian Graff, American Retirement Association (ARA) CEO; Will Hansen, ARA’s Chief Government Affairs Officer; Allison Wielobob, ARA General Counsel; and Kelsey Mayo, Partner at Poyner Spruill LLP and ARA Director of Regulatory Affairs.
Retirement Savings for American Act
The Retirement Savings for Americans Act (RSAA), introduced on Oct. 19, is actually a reintroduction; Hansen noted that it is the same version as that which had been proposed in 2022. The bill, whose sponsors in both chambers of Congress hail from both major political parties, would create a federal retirement plan run by the Treasury. All uncovered or excluded employees would be auto-enrolled at a 3% contribution rate. The program would be available for individuals making $150,000 per year or less, meaning that 80% of working Americans are eligible. Its limits would be comparable to those set for IRAs.
An especially great concern is the provision in the bill that would provide a safe harbor match, Hansen indicated. He said the legislation could severely affect the private-sector retirement industry, especially if there is a match.
“It just doesn’t make any sense” for the federal government to be getting into the retirement coverage business, said Graff.
CITs in 403(b)s
Collective investment trusts (CITs) in 403(b)s are “unfinished business” from the SECURE 2.0 Act; they had been dropped from inclusion in the measure at the last minute.
There is legislation in the House—H.R. 3063, the Retirement Fairness for Charities and Educational Institutions Act of 2023—that would allow 403(b) plans to offer CITs and separate account insurance contracts as investment options.
The House Financial Services Committee amended and passed the bill in May; however, it has not reached the floor of the House, nor is there a companion bill before the Senate. Nonetheless, Graff said that the ARA is “very confident” that something will be done about this at some point.
Graff highlighted the significance of the matter, noting that 15 million participants in 403(b)s would benefit. This is “a top priority for us,” he added.
Allowing Annuities as Default Investments
There is legislation before the House—H.R. 3942, the Lifetime Income for Employees Act— that would amend ERISA Section 404(c)(5) to allow covered annuity contracts with less liquid investments to be offered in retirement plans as a qualified default investment alternative (QDIA). Graff expressed concern regarding the language requiring liquidity only for a certain period. Panelists consider the chances of passage, in this Congress at any rate, to be “not very high.”
ERISA Investment Bans
H.R. 4008, the Protecting Americans’ Saving Act, has been before the House since June 2023. It would amend ERISA Section 404(a) to block ERISA plans from making new investments in companies based in, or controlled by, a sanctioned entity or foreign adversary entity. It also would amend ERISA Section 103 to require additional disclosures for ERISA plans to list all investments in sanctioned entities and/or foreign adversary entities.
There is “quite a web of effects this could have,” said Wielobob, calling it an “ambulatory document,” the countries to which it applies shifting over time. Panelists expressed concern that it would be impossible for small business plan sponsors to know which companies they should or should not invest in.
Auto Reenrollment
Hansen noted that the issue provided an opportunity for not only bipartisan but also bicameral action. There are bills before both chambers of Congress that would amend QACAs and EACAs to allow automatic reenrollment into the plan at least one time every three years; the legislation is before committees.
Spousal Consent
The House and the Senate have legislation that would require spousal consent for nearly all distributions from individual account plans. There would be exceptions, however—for distributions from required minimum distributions (RMDs), QJSAs, and if 50% of account balances are transferred to a spouse.
Graff said that this is “not a new idea” and that it is “not going away.” He noted that there are many examples in which people being forced to get spousal consent could be detrimental. This is “a very emotional issue for a lot of people,” he said.
New Legislative Ideas
The panel also discussed new matters that legislation could address, including:
- a start-up credit for non-profits;
- allowing rollovers from Roth IRAs to 401(k)s; and
- lowering the ERISA coverage rules age threshold to age 18 and treating participants age 18-21 in the same manner as long-term, part-time employees.
IRS Pre-Examination Pilot Program
In this new IRS enforcement program, 100 401(k) plans were selected in 2022 and received a letter giving them 90 days to review their plans for compliance with Internal Revenue Code Section 415. If errors were identified, they could use the SCP or VCP to correct them.
Mayo reported that the vast majority of letter recipients responded; those that did not were audited. It was not a one-shot deal, Mayo indicated—she said that there will be another pilot program and that once again it could target 401(k) plans. This is at least in part because she says that the IRS seems unsure how such a program would work in the defined benefit plan market.
Coming Soon
Panelists discussed regulations and forms of guidance that are in the works.
RMDs. The proposed RMD regulations the IRS is considering are much broader than the provisions of SECURE 2.0 concerning RMDs, Mayo said. She told attendees that the IRS expects to finalize them soon.
LTPT. The IRS says guidance concerning LTPT employees will be coming out “soon” and that it is aware that the matter is a priority.
VFCP. An update to the Department of Labor’s VFCP was proposed in late 2022, Wielobob noted, and that the ARA had submitted a comment letter on the matter. She said that the DOL aims to further expand the program.
Fiduciary Rule. The DOL will be issuing a draft of a revised fiduciary rule soon, Wielobob said. “It remains to be seen” what will be in it, she said but told attendees that a “rollover piece” is likely. There are “very important issues here,” Graff said, especially in light of the expectation that hundreds of new plans will be adopted in the next few years.
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