Secure Lifetime Income Through Secure Act 2.0

Even during a contentious election year in Washington, Republicans and Democrats can agree on at least two things: retirement policy and a shared enthusiasm for lengthy acronyms.

That's good news for retirement savers, as both chambers of Congress have been quietly working on a bipartisan package of retirement policy reforms they hope to pass later this year.

This spring, the House overwhelmingly passed the Securing a Strong Retirement Act (SSRA) by a vote of 414 to 5.

Over the summer, two Senate committees followed suit and advanced similar bills.

The Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (Rise & Shine) Act was reported favorably by the Senate Committee on Health, Education, Labor, and Pensions.

Shortly after this, the Senate Finance Committee advanced the Enhancing American Retirement Now (EARN) Act, a package of tax policies designed to promote savings.

Collectively dubbed Secure Act 2.0 by stakeholders, these bills include a wide variety of policy changes to enhance retirement security, building on progress made by the enactment of the Secure Act in 2019.

Of the many important policy changes in these bills, one common area of focus is facilitating lifetime income solutions as part of a retirement strategy — something that is incredibly important given the economic challenges and uncertainty facing savers today.

Lifetime Income Provisions

The House SSRA and the Senate EARN Act both include key provisions to enhance the features and availability of annuities for retirement savers and retirees.

For example, they allow for exchange-traded funds (ETFs) to become investment options for variable annuities, and they streamline regulations for qualifying longevity annuity contracts (QLACs), which are deferred income annuities where payments begin at an advanced age, offering protection against outliving savings in retirement plans.

The bills also remove certain barriers for annuities in required minimum distribution (RMD) regulations, allowing for an acceleration of annuity payments of up to 5% each year and lump-sum return of premium death benefits.

However, unlike the House legislation, the EARN Act eliminates a penalty on partial annuitization in retirement plans.

Under current law, RMD payments are bifurcated when there is a partial annuitization, with annuity payments only counting as RMDs for the portion of the plan holding the annuity, sometimes resulting in higher RMDs. The EARN Act would eliminate this penalty by allowing annuity payments to count toward RMDs for the total balance of the plan.

Unfortunately, the bills do not include some notable bipartisan proposals that would expand access to annuities even further, such as legislation from Reps. Donald Norcross, D-N.J., and Tim Walberg, R-Mich., to allow 401(k, plan sponsors to incorporate annuities into default investment options for employees.

The bills also exclude a bipartisan proposal from Sens. Ben Cardin, D-Md., and Rob Portman, R-Ohio, to allow indexed and variable annuity contracts with guaranteed benefits to be QLACs — a change that would make QLACs more attractive for many consumers.

Despite these exclusions, the House and Senate Secure 2.0 bills include significant steps in the right direction to expand access to guaranteed lifetime income.

Pathway to Passage

Given its strong bipartisan support, advocates of Secure 2.0 hope to see Congress attach the package to a catch-all spending package at the end of this year, which is how the original Secure Act passed in 2019.

In order to position Secure 2.0 for inclusion in year-end legislation, the House and Senate must first reach a consensus on the differences between their versions of the package.

Secure 2.0 still has hurdles to clear before it reaches the finish line, but it has come a long way thanks to an impressive showing of bipartisanship in both chambers of Congress. At this point, the question does not seem to be if Congress passes another retirement package, but when. This is great news for those seeking the security of lifetime income.

Tyler Brown is director of governmental affairs at Sammons Financial Group.