Three things in particular struck me about the SECURE Act:
- First was the lack of immediate, significant impact on the employer maintaining plans. There are a number of details which their vendors-and the regulators- need to address soon, but for most plan sponsors? It really is a big ho-hum.
- Second was the sheer number of novel concepts that was introduced by the Act: PEPs, Groups of Plans, Birth and Adoption Rules, Portability of lifetime Income, lifetime Income disclosure, and several other new concepts that simply did not exist before the Act. Unlike the vast majority of retirement laws being passed in the past couple of decades which modified existing rules; SECURE brings new concepts in, wholesale.
- Third, and perhaps most important, is the volume of small, odd, technical details to which attention needs to be paid. This statute is a technocrat’s dream. So much in there actually raises fundamental infrastructure issues of the sort we rarely see. We are all familiar with the 80/20 rule, with the caution of not letting perfection become the enemy of good. Well, these “oddities” raise the exact inverse of the 80/20 rule: through my long years in retirement product development, the highest risk of failure arises from the lack of understanding of how the smallest of details can tank a multi-million dollar project. The “80” may sound good conceptually and structurally, but it is in the implementation of the detail in the “20” which will determine the success of the project. The SECURE Act is rife with such detail.
I use two of the “details” to make the case. The first has to do with the portability of lifetime income options, something which is not exactly a “hot topic” for most plan sponsors yet. But it IS important for those developing products in this space. One little mentioned detail in these rules is the fact that “insurance” is not required for portability, even though that is the only way currently to “guarantee” lifetime income. This opens the door to innovative lifetime income products such as tontines (yes, that of Michael Caine’s and Dudley Moore’s movie “The Wrong Box,” on the nefarious side of this topic; and I first mention tontines in an old blog) and other innovative products now being seriously considered by some “disrupters.” This minor detail may eventually provide one of the key elements necessary for an entire new industry.
The second example is of importance to those currently considering the development of a PEP for the beginning of next year. In another little mentioned detail, the trustee of the PEP must be “responsible for collecting contributions to, and holding the assets of, the plan and require such trustees to implement written contribution collection procedures that are reasonable, diligent, and systematic.” This is actually a big deal. Directed trustees, insurance companies and other custodians have, for years, been pushing back against efforts by the DOL to make them somehow accountable for monitoring late elective deferrals from employers, and to engage in some sort of notice or collection procedure against recalcitrant employers. This new detail appears now to make a PEP trustee responsible for actively enforcing the timeliness of deposits of elective deferrals from those employers participating in a PEP. That responsibility will be “table stakes” if one is to establish a PEP, and the seriousness of this obligation should not be overlooked.
There is much in the SECURE Act like these two examples; there are a number of stories behind the words of the statute which will make for interesting “telling” as they are implemented.