With 29 different provisions, the recently passed SECURE Act has been widely praised for its various enhancements to the U.S. retirement system. Two of the most talked about provisions are those related to lifetime income and to Open Multiple Employer Plans (MEPs). While most analysis of these two topics is usually done separately, I actually see a common connection in these seemingly disparate topics. I believe they both point to the evolving role of the plan sponsor and how retirement benefits may be delivered in the future.
There are a few provisions in the SECURE Act that support the focus on lifetime income in Defined Contribution (DC) plans. Perhaps the most consequential is one that provides an important safe harbor to plan sponsors in the selection of an annuity provider, something fiduciaries for a long time have been saying they need in order to feel comfortable adding guaranteed income solutions into their plans.
The Open MEPs provision provides greater ability for unrelated plan sponsors to band together and offer a single common plan. The stated reason for these provisions is to provide efficient solutions for tens of millions of Americans who don’t have access to a workplace retirement plan, typically those who work for small employers, and the self-employed. Yet, many mid- and larger-sized employers may be attracted to such an option if it provides them scale, third-party expertise and fiduciary relief. This will sound familiar to those who are aware of Superannuation Funds in Australia or Master Trusts in the UK.
So how are these two provisions related? To me, the need for these provisions points to something I have long observed: it has become increasingly challenging for employers to implement the necessary innovations that many agree participants need to meet their retirement readiness objectives. Whether it’s institutional investments, tailored advice or retirement income options, plan sponsors face headwinds to innovate, in particular as it relates to perceived fiduciary concerns in a heightened litigious environment.
Ultimately, the next generation of retirement income solutions should include both guaranteed and non-guaranteed components, along with access to a wider and more diversified set of asset classes and greater technological customization. The safe harbor provisions related to lifetime income in the SECURE Act should be helpful, but perhaps we will need more structures like Open MEPs to more effectively bring the needed innovations to American workers. It’s a trend that my colleagues and I will be following with great interest.