Senate Committee Advances Julie Su’s DOL Nomination—Again

Su advanced to the full Senate by an 11 to 10 vote for the second time in almost a year, while the Senate HELP Committee also ponders bringing back defined benefit plans.

The Senate Committee on Health, Education, Labor and Pensions advanced Julie Su’s nomination to be Secretary of Labor to the full Senate late Tuesday by an 11 to 10, party-line vote. Su has served as acting secretary since March 2023, having been confirmed as deputy secretary in July 2021.

The hearing was initially scheduled as a public hearing for Wednesday. Senator Bernie Sanders, I-Vermont and the chair of the HELP Committee, did not explain during a separate open committee on Wednesday why the vote was changed to a closed session. In the closed session, the committee also approved Moshe Marvit to be a member of the Federal Mine Safety and Health Review Commission and Stephen Ravas to be inspector general of the Corporation for National and Community Service.

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Su was previously approved by the HELP Committee in April 2023, also by an 11 to 10 vote. Her nomination stalled and never received a full Senate vote. She has continued to serve in an acting capacity since previous Secretary of Labor Marty Walsh resigned in March 2023.

Senator Bill Cassidy, R-Louisiana and the ranking member of the HELP Committee, was critical of the hearing that took place “behind closed doors” on Tuesday. He said that, due to “bipartisan opposition, she would not be confirmed.” He was also critical of Su’s “troubling record” and said Su would “promote large labor unions at the expense of worker’s freedom and economic growth” and is focused on “dismantling the gig economy,” a reference to independent contractor rules approved under her tenure as California’s secretary of labor and her tenure as acting Secretary of Labor at the federal level.

The Senate has not scheduled a full vote to confirm Su.

HELP Discusses DB Plans

The HELP Committee’s public hearing on Wednesday morning considered how expanding defined benefit plans could help improve the retirement savings gap. Sanders spoke to the importance of expanding Social Security and advocated for lifting the cap on income that is subject to FICA payroll taxes, currently $168,000, “You make a billion dollars a year, you make $168,000 a year, you pay the same amount. Does that make sense?” Sanders asked rhetorically.

Cassidy described promoting DB plans as “an agenda that is outdated and a little disconnected.” Cassidy emphasized the flexibility that defined contribution plans offer because they are more portable than DB plans.

Dan Doonan, the executive director of the National Institute on Retirement Security, called this a “chicken and egg thing,” in which the decline of DB plans leads to lower retention, and higher turnover in turn leads to higher demand for DC plans.

Doonan said that “the move away from pensions is a major culprit in the nation’s retirement crisis.” Though he acknowledged that DC plans have value, “they are just not designed to replace pensions,” and “pensions are user-friendly for workers.”

Though the hearing was intended to focus on DB plans, Senators and the witnesses also spoke about Social Security and retirement security more broadly.

Senator Tommy Tuberville, R-Alabama, suggested that some of the tax collected by Social Security should be invested in some securities. For someone who paid about $1 million into Social Security, Tuberville said that “I could have put my Social Security money in the market, and it’d be worth $8 or $10 million today,” but instead, “the federal government wasted it.”

Rachel Greszler, a senior research fellow at the Heritage Foundation, concurred in part later in the hearing. She said she would support lowering benefits for higher earners, increasing benefits for lower earners, while tying benefits to life expectancy and a more accurate measure of inflation. She added that, “I think workers need an option for something that has a positive rate of return” as an alternative to paying into Social Security.

‘Exploding Market’ for 401(k)s May Help Shrink Coverage Gap

SECURE 2.0, state mandates, PEPs and engaged financial advisers can all help boost qualified plan offerings, according to providers.

According to research released Tuesday by payroll and small workplace plan retirement provider Paychex Inc., less than half (37.6%) of U.S. employers offer a retirement plan.

That figure considers all businesses in the U.S. and varies by industry. Manufacturing, for instance, offers near half of its workers (49.5%) retirement plans, with leisure and hospitality at the bottom at just 22.2%.

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While those numbers are dispiriting for many, some in the retirement industry see opportunity to close that gap, particularly with relatively new opportunities stemming from provisions in the SECURE 2.0 Act of 2022, state mandates, pooled employer plans and advancements in technology that can help advisers sign up more clients with small businesses.

One thing retirement providers, advisers and the industry overall are “aligned around” is “solving the coverage gap,” says Jason Crane, head of core retirement for Ascensus, which offers options ranging from tax-advantaged solutions via advisers through institutional partnerships with firms such as the Vanguard Group, to plans created via banks, credit unions and small businesses via Simplified Employee Pension plans or Savings Incentive Match Plan for Employees—SIMPLE individual retirement accounts.

“To us, fortunately, because we are relatively agnostic as to the vehicle … we want to find a way to reach as many of these employers as possible,” Crane says. “Then we want to present them with solutions that help to diminish the foremost reasons for why they haven’t created plans in the past—and those would be the administrative burden and the expense of doing so.”

Some of that plan creation has already been ramping up speed. In 2021, the 401(k) market included 621,473 plans, a figure that jumped to 720,902 in 2022, according to the 2023 PLANSPONSOR Recordkeeping Survey. PLANSPONSOR, like PLANADVISER, is owned by ISS STOXX.

Even so, that figure is poised to grow substantially, according to comments made by representatives of Paychex and partner Broadridge Financial Solutions Tuesday during a webinar regarding small plans.

“A lot of times, in the past, recordkeepers didn’t want to recordkeep small plans,” said Timothy Slavin, a senior vice president of retirement at Broadridge. “Technology has changed all that. The old cop-out that ‘I can’t make money on small plans because of the expense and technology’ is gone.”

Slavin spoke to three key areas he sees as driving plan growth:

  • The labor market needed to attract and retain employees;
  • Incentives created via SECURE 2.0 for both employers and employees; and
  • The increase in state retirement mandates for businesses.

“It’s a perfect storm for an exploding market,” Slavin said.

Adviser Know-How

Michael Nash, a channel manager for retirement for Paychex, noted on the call the opportunity for financial advisers to provide 401(k) opportunities to clients with small businesses. He highlighted SECUR 2.0 tax incentives that can make a plan free for the first three years, along with state mandates that are driving plan need and growth not just in those states, but as a knock-on effect in other states, according to Paychex data.

“This is an opportunity for you as advisers to really go out there and hold [the plan sponsor’s] hand through this process,” he said. “For advisers who don’t offer small-plan services, clients may start looking elsewhere.”

Both Paychex and Broadridge were selling their small plan solutions and services to advisers on the call.

But Crane of Ascensus likewise noted the importance of financial advisers in boosting small plan creation and uptake. The retirement executive said many of Ascensus’ efforts are going toward driving awareness of and information about areas such as SECURE 2.0 to advisers to show them the value of adding retirement plan options and information to their practices.

“Many of the advisers we work through are primarily wealth management advisers, not retirement-centered advisers,” he says. “They are counseling the small business owner and might not yet be familiar with the virtues of any number of defined contribution plans, let alone cash balance and other vehicles that would allow their owner-clients to save more in a tax-advantaged environment.”

PEP Potential

Crane, recently named to head the firm’s core retirement group in a restructuring, also stressed the role of PEPs, which were created through the Setting Every Community Up for Retirement Enhancement Act of 2019, in furthering plan growth.

“We’ve been really pleasantly surprised by how accelerated the interest, awareness, comfort and, ultimately, adoption of those vehicles has been,” he says. “We essentially doubled our business from 2022 to 2023 in pooled plans and expect to nearly double it again in 2024.”

That growth, he says, comes in part from mitigating both cost and fiduciary liability for plan sponsors. But it is also due to the efficiency and ease with which advisers can distribute the vehicle to small employers.

“There’s a single, pre-fabricated fund lineup, there’s a single cost structure, there’s typically some variability in plan design, but not so excessive that they need to have extensive counseling sessions with plan sponsors around provisional adoption,” Crane says. “As a result, it’s a balance of the virtues that it affords to the employer, but also the virtues that it affords to the adviser to help them grow their retirement practice.”

It’s not all just about plan startups, however. Crane notes that success will also depend on participants being enrolled and engaged with retirement plans and other benefits. Some of that will be done through automatic provisions that default people into plans. The added engagement will come in part through using new features, some authorized by SECURE 2.0, such as student debt payment matching in 401(k) plans or enabling employer contributions as Roth savings.

“There are more and more things that we are building toward and promoting that we think will not only enable employers to establish plans but, more importantly, inspire employees to join and invest in those plans,” he says.

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