The Setting Every Community Up for Retirement Enhancement Act is not only the first major retirement legislation signed into law by Congress in the past decade, it is also a powerful opportunity for retirement plan advisers to help small firms establish 401(k) plans where previously they had no access.
Provisions of the legislation will, for the first time, allow businesses of different sizes and from different industries to combine to offer multiple-employer retirement plans. That could spark an explosion of plans — and work for retirement plan advisers.
But to quote Winston Churchill: “With opportunity comes responsibility.”
A separate aspect of the SECURE Act is expected to increase the number of annuities available in workplace retirement plans.
Today only 9% of 401(k) plans offer annuity options because many business owners worry about their fiduciary duty of ensuring that these are appropriate investments.
The SECURE Act has changed the process that employers use to pick an annuity provider and shifts the fiduciary liability of doing so. Under the new rules, the fiduciary worries will now fall on the insurance companies that sell the annuities.
And that’s why we’ll likely see more annuity options within 401(k) plans.
But that could leave employees who select an annuity option at risk if those plans come with high setup or surrender fees.
These investments are complex, and RPAs who help companies set up retirement plans should be prepared to provide extra guidance around whether an annuity option makes sense.
RPAs should embrace the extra responsibility of making sure employers are educated about the overall restrictions and benefits of annuities, and actively help them evaluate the best one for the company’s plan.
And employers should be made to understand some of the nuances around these complicated investments – for instance, that 401(k) funds are already tax-deferred – so there is no tax advantage to be gained by rolling those dollars over into an annuity.
RPAs should be ready to help firms determine the value in offering annuities in workplace retirement plans and help them identify annuity providers with solid track records.