Compliance November 5, 2019

Corporate America Pushes for SECURE Act Passage

It’s not just the financial services industry pushing for passage of the Setting Every Community Up for Retirement Enhancement Act; chambers of commerce, consumer advocacy groups and major U.S. corporations are also voicing support.

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A group of more than 90 CEOs and senior executives from leading American corporations and business groups has issued a public letter calling on the U.S. Senate to pass the Setting Every Community Up for Retirement Enhancement Act, commonly referred to as the SECURE Act.

The plea, addressed both to Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer, comes some six months after the U.S. House passed its version of the SECURE Act with a nearly unanimous and bipartisan vote. Since that time and for a number of reasons, the SECURE Act has remained stalled in the Senate, despite the fact that the vast majority of Senators have voiced support for passage of the bill in its current form.

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In their letter, American business leaders suggest that, if the SECURE Act is not signed into law, more than 700,000 small business workers will not be able to save for retirement at work; more than 4 million workers in private-sector pension plans will be at risk of losing future benefits; 1,400 religiously affiliated organizations will be at risk of losing access to their defined contribution retirement plans; and more than 18,000 children and spouses of fallen service members will continue to be economically disadvantaged by unfair taxation on their survivor benefits.

The full text of the letter runs over six pages, the last five of which include a long list of well-known signatories. Many of the executives signing the letter work in the insurance, advisory and asset management industries, but other sectors of the economy are represented as well: Michele Stockwell, executive director of Bipartisan Policy Center Action; Joseph Annotti, president and CEO of American Fraternal Alliance; Jess Roman, CEO of the Arizona Small Business Alliance; Glenn Hamer, CEO of the Arizona Chamber of Commerce and Industry; Annette Guarisco Fildes, president and CEO of the ERISA Industry Committee; Shirley Bloomfield, CEO of the Rural Broadband Association; and Gary Ludwig, president and chairman of the board for the International Association of Fire Chiefs.

Important to note, sources tell PLANADVISER the SECURE Act’s holdup is more logistical than substantial. That is to say, with the GOP’s clear focus on making appointments to the judicial branch, there is actually a great premium on floor time for the remainder of this year.

This is why the Senate leadership initially pushed first for the SECURE Act’s passage under a technical loophole known as “unanimous consent.” In short, if a bill enjoys unanimous consent among every Senator, it doesn’t require the standard procedure of debate—i.e., no floor time.

At this juncture, it appears three GOP Senators are refusing to allow the bill’s passage under unanimous consent: Ted Cruz, Mike Lee and Pat Toomey. Senator Cruz has concerns about certain 529 college savings plan provisions. Senator Lee has concerns about a provision that provides some relief for small community newspapers. And Senator Toomey has primarily voiced concerns about certain technical tax corrections that impact retailers, which he wants to see addressed through floor debate and amendment.

Client Service November 5, 2019

The Case for Automated Emergency Savings Accounts

They are seen as a hedge against retirement plan participants taking loans or hardship withdrawals.

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At any given time, 20% of retirement plan participants have an outstanding loan from their workplace retirement plan, according to the National Bureau of Economic Research.

“Loan overutilization  is one of the biggest problems plaguing retirement plans,” says Michael Webb, vice president of Cammack Retirement Group in New York City. “Many people are living paycheck to paycheck and have no emergency savings. Plan sponsors are concerned about this and don’t really know how to deal with the problem. Their starting point is to restrict the number of loans their workers can take out, but that is a ‘stick’ approach. People still have the need to create an emergency savings account so that they don’t take out the loans.”

Indeed, a recent survey by PNC Financial Services Group found that 38% of people in the so-called “sandwich generation” do not have an emergency savings fund, and among those who do, 31% have an emergency savings fund that would last less than six months.

This is why Webb is calling for retirement plan sponsors to create automated emergency savings accounts, either by buying a service from a retail provider or asking their recordkeeper to create sidecar accounts.

“Technology that automates after-tax savings has come a long way,” Webb writes in a recent blog, “Automated Emergency Savings Funds: Why Plan Sponsors Should Consider Offering Them.” “From rounding up all purchases and saving the difference, saving when a raise is received or monitoring  spending patterns and automatically saving more when there is more money in an individual’s checking account(s)—there are far more options to save than simply deducting dollars form an account each month.”

Webb says he is beginning to discuss automated emergency savings accounts with his clients and that “large plan sponsors are already taking this seriously.” However, he says the number actually offering them is akin to those offering student loan repayment programs—in the single digits.

The benefits are real, Webb says. “Individuals with emergency funds are far more likely to use those funds in an emergency, instead of borrowing or withdrawing from their retirement plan,” he says. Further, “individuals with emergency funds are in a better financial position to save into the retirement plan, and the automation for retirement plan savings and after-tax savings [into an emergency fund] is similar. Thus, participants who are acclimated to one process are more likely to participate in both.”

Besides depleting individual’s much-needed retirement savings, defined contribution (DC) plan loans are detrimental to a plan’s overall health because they lower the assets in the plan, and, thus, a plan’s leverage to bargain for lower fees, Webb says. Loans are also very complicated for recordkeepers to oversee, he adds.

As to whether participants should be saving into an emergency savings fund while participating in their retirement plan, Nancy Hite, president and CEO of The Strategic Wealth Advisor, based in Boca Raton,Florida, strongly believes that creating an emergency savings fund that would cover six month’s worth of spending should be people’s first priority.

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