Legislative Update – SECURE, the budget deal, and a new Secretary of Labor
In this article we review the chances of passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, how the recent budget deal may affect those chances, President Trump’s choice of Eugene Scalia as the new Secretary of Labor, and the possibility (e.g., if SECURE doesn’t pass) of regulatory action on some of the key sponsor issues dealt with in SECURE.
In this article we review the chances of passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, how the recent budget deal may affect those chances, President Trump’s choice of Eugene Scalia as the new Secretary of Labor, and the possibility (e.g., if SECURE doesn’t pass) of regulatory action on some of the key sponsor issues dealt with in SECURE.
Passage of the SECURE Act this year unlikely
There had been optimism that the SECURE Act – which passed the House in May by an overwhelming (417-3) majority – would pass the Senate before the August recess under unanimous consent rules. It appears, however, that holds placed on the bill by at least two Senators (Cruz (R-TX) and Toomey (R-PA)) are making that easy path to enactment difficult if not impossible.
Advocates continue to lobby key Senators, but time is running out. A month-long recess begins (for Senators) August 5, and there will be a limited number of legislative working days left when they return.
Plan B – inclusion in year-end spending bills
Plan B is the possibility that SECURE, or at least critical provisions of it, could be included in one or more of the round of appropriations bills that will be taken up after the August recess.
On July 22, 2019, Congressional leadership and President Trump entered into a Bipartisan Budget Agreement modifying spending caps. The deal includes a provision that the year-end spending bills may include “nonappropriations measures” that are “agreed to on a bipartisan basis by the four leaders [i.e., the Speaker of the House and the House Minority Leader and the Senate Majority and Minority Leaders] with the approval of the President.” Given the “nearly” unanimous support for the SECURE Act, it is certainly a viable candidate-for-inclusion in these spending measures.
So – there is still a possibility of Congressional passage of the SECURE Act, or critical provisions of it, this year, but it is by no means certain. Plan C – discussed further below – is possible agency action on critical SECURE Act proposals.
We discuss the SECURE Act in more detail in our April 2019 Legislatve Update.
Scalia picked as new Secretary of Labor
On July 18, 2019, President Trump announced that he would nominate Eugene Scalia to replace Alexander Acosta as Secretary of Labor. Mr. Acosta stepped down on July 19, 2019, and DOL is currently being run by Acting Secretary Patrick Pizzella.
Mr. Scalia (the son of late Supreme Court Justice Antonin Scalia) was Solicitor of DOL for 12 months during the George W. Bush Administration. More recently, he represented the Chamber of Commerce in the lawsuit against DOL Secretary Acosta, successfully challenging the legality of DOL’s Fiduciary Regulation before the Fifth Circuit Court of Appeals.
Mr. Scalia’s nomination may signal a change in direction for DOL, which thus far has moved cautiously (or not at all) on a number of areas of concern to sponsors, e.g., guidance on advice to retirement plan participants in the aftermath of the Fifth Circuit’s decision vacating the Fiduciary Rule and an update of current restrictions on the use of electronic participant communications.
Elements of the SECURE Act that could be moved through regulation
Indeed, a number of the more important provisions of the SECURE Act seek to modify DOL or IRS regulations/rules and could, legally, be modified by the agencies themselves, acting through the regulatory process.
Of most interest to plan sponsors would be:
DC annuity fiduciary safe harbor: The SECURE Act’s proposal, generally to defer to state insurance regulation with respect to the issue of the financial condition of the annuity carrier selected by a plan fiduciary to offer annuities under a DC plan, could be adopted by DOL as an expansion of its current DC annuity fiduciary safe harbor.
Authorization of DC Open MEPs: Last October, DOL proposed a (marginal) relaxation of its multiple employer plan (MEP) “nexus” requirement. That proposal would, for instance, allow employersin the same region of a single State or metropolitan area to adopt a MEP. DOL has, in the past, expressed concern about eliminating the nexus requirement entirely, without putting in place the sorts of rules that are included in the SECURE Act’s Open MEP provision. A new (and conceivably more aggressive) Secretary of Labor might test the limits of that concern.
Mandatory lifetime income disclosure: In 2013, DOL released an “Advance notice of proposed rulemaking” describing a new lifetime income disclosure requirement it was considering for DC benefit statements. A number of plan sponsors raised concerns about this requirement – and about a similar requirement included in the SECURE Act. If DOL wanted to, it could pursue this issue via regulation, reviving its rulemaking project.
Closed group relief: For some sponsors, the most important provision of the SECURE Act is a proposal to address the nondiscrimination problems presented by “closed groups” (e.g., a limited group of participants who get grandfathered benefits under a DB plan or make-whole benefits under a DC plan). The bill would allow DB plans to be aggregated with DC plans and tested on a benefit accruals basis, without having to satisfy (burdensome) threshold conditions (sometimes referred to as gateways) if certain conditions are met. The current (and problematic) nondiscrimination rules that the SECURE Act would “fix” were strictly the creation of IRS, developed in 2001 to address what it believed were certain “cross-testing” abuses. There is nothing to prevent IRS from tweaking those rules to provide an accommodation for closed groups similar to the one included in SECURE.
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We will continue to follow these issues.