Too much has now been written and said about the SECURE Act and the fact that it is the “most substantial piece of retirement plan legislation in the last decade.” While true, it’s akin to saying I’m the tallest man in my house… I live with three women.
What is true about the SECURE Act is that it has created a competition for the hearts and minds of small employers who currently don’t provide retirement benefits to their employees. The single largest flaw with the current private defined contribution system continues to be coverage. According to the Bureau of Labor Statistics’ National Compensation Survey for 2018, only 54% of full- and part-time workers are covered by an employer retirement plan.
We have been tracking for some time the efforts of many states to address the coverage gap.
This year we have seen many presidential candidates propose the extension of the state-run model to a federal model.
Much of the SECURE Act is focused on the same problem of retirement plan coverage, but with private sector solutions.
The lines have been drawn for reducing the coverage gap for retirement plans, and it is the typical debate as to whether private or public solutions will most effectively solve the problem. While the state-run programs have a head start with at least eight states with mandatory state-run programs for small employers, the SECURE Act is extending significant tax-credits to incentivize the adoption of private plans.
Additionally, guidance has been provided to allow smaller employers to pool more easily through Multiple Employer Plans (MEPs) and Pooled Employer Plans (PEPs). Add to that well-resourced financial service companies across the country are pushing aggressively to create new “bundled” small employer solutions to compete for the 46% of the labor force not currently covered by their employer.
Since the birth of the Employee Retirement Income Security Act in 1974, defined contribution plans have been relatively immune from the vagaries of politics. However, whether you look at the history of the Fiduciary Rule (and its possible rebirth) or the proliferation of state solutions to address retirement coverage, that appears to be changing. Retirement plans are now firmly a part of the political landscape.