Explaining Secure Act 2.0: What you need to know about the new law

Speaker 1 (00:07): Welcome back to Your Thriving Practice, a podcast from Global Atlantic. I'm your host, Dan Corcoran. We're talking today about the Secure Act 2.0, which was first introduced in March, 2021. It was passed in late December of 2022, part of the Major Omnibus Appropriations bill and signed into law by the president just before the end of the year on December 29th. In a podcast last year, we discussed the then pending Secure Act 2.0 and what it was likely to contain. Now we are revisiting the topic to explore how the final version of the act actually turned out. We'll be talking about what's in the bill, how it may affect producers and their clients, and what still needs to be done to enact all provisions in the bill. The original Secure Act essentially allowed more people to participate in employer-sponsored retirement plans and Secure Act 2.0 follows up and builds on that legislation. Like the previous legislation Secure Act 2.0 had solid bipartisan support as Congress continued to look for ways to encourage and enable people to save more for retirement and ultimately relieve some of the anxiety that many Americans are feeling about their retirement. Today we're joined by Rebecca Plowman, director of Compliance and Implementation from the Insured Retirement Institute. Rebecca, thanks for being here. Thanks, Dan. I'm happy to be here today also from IRI is Jason Berkowitz, chief Legal and Regulatory Affairs Officer. Jason, good to have you here.

Speaker 2 (01:41): Thanks so much, Dan. It's great to be here with you today. Looking forward to the conversation

Speaker 1 (01:45): And from Global Atlantic, we have Bill Crane Senior Vice president of market development with us today. Bill, good to have you back. Thanks Dan. It's great to be here today. Both IRI and Global Atlantic have been keeping a close track of the Bill's progress and its potential impact on the retirement landscape. And this discussion gives us a chance to tap into their insights. So in the last year or so, there were several retirement focused efforts in Congress and of course, secure Act 2.0 took more than a year and a half to go through the process. Jason, what was involved in getting it through Congress? What were the sticking points along the way?

Speaker 2 (02:22): Yeah, this was a long, lengthy process in Congress as most legislative processes are these days. There were a number of bills that were put on the table very shortly after the initial secure act was passed at the end of 2019. And over the course of the subsequent three years, a number of those provisions coalesced into the package that was ultimately included in the legislation that was passed at the end of last year and became secure 2.0 in terms of sticking points that there weren't really sticking points substantively, it was really more a question of what sort of political dynamics would need to be in place in order for this to move forward. And I think the question of, uh, whether this would pass or not didn't really center so much on whether members of Congress were supportive of the reforms that are included here, but whether they would get enough support to include it in the year end appropriations package given all of the comings and goings that were involved in that negotiation. So we were very gratified to see that at the end of the day, Congress did come together and find a way to pass legislation that will have really significant and meaningful impact on Americans and their retirement prospects.

Speaker 1 (03:30): Yeah, and those political dynamics can certainly have an impact on just how quickly or slowly the pace of legislation moves. So let's talk about what's in the bill. So Bill, can you run us through some of the top or most important provisions?

Speaker 3 (03:45): You know, we're looking at this, I'm gonna, I'll pick out a top three. And this is not easy. There's 92 new retirement provisions that were passed as part of this legislation. And so it's almost like going to a candy store trying to pick out, you know, what's your, what's your favorite one? There's so many great parts to this, but I will pick my top three. I'm a little biased. I work for an annuity company and so I'm really excited about the Q L A C provision that is a qualified longevity annuity contract. And just really quick, we'll talk about this more and the podcast, but you can take money from a qualified plan that you're not gonna need imminently and move it into a Q L A C annuity and that money will not be included in the RMD calculation. So you can defer that taxation for longer.

Speaker 3 (04:27): And the change here is that last year you were capped at 145,000 lifetime and that's now raised with Secure Act 2.0 to 200,000 lifetime. So a bigger opportunity. Number two, I will go with R M D. That's required minimum distributions. So the government wants their tax money from your qualified plans. So once you reach a certain age, you have to start taking out money. The age when this begins was going to be 72 this year. It was raised effective this year to 73. And in 2033 it's gonna be raised once again to age 75. So always great when you can defer that taxation longer. So good benefit for consumers. And then kind of a fun one I think is the lost and found, this was new to me once this legislation was passed by the house earlier in 2022, I, I looked into this, I had no idea there was a recent CNBC article where 20% of retirement plans are lost, which to me was, was shocking. That's a pretty significant number. So the government is going to work over the next year to create an online database where you can go in, uh, I don't know exactly how it's gonna work, but I assume you can type in your name and some info and see if you have some lost money. So I'll be looking forward to doing that, type in your name in to see if there's any lost money out there. But those are my top three. Rebecca, I'll toss it over to you. What are your favorite provisions in the bill?

Speaker 4 (05:45): Yeah, there are actually a couple that I can touch on here. One that I personally like are the changes that were made to 529 plans. I think this one's gonna be incredibly helpful. You know, when I went to college, I didn't have a 529 plan. And now as someone in the financial industry with two young children, I don't have 529 plans for them yet. But part of my reason for that was always based on the restrictions and potential withdrawal penalties if they decided not to go to college. So for me, these changes provide relief from some of those worries, if they don't go to college. So now I can roll some of that money over into a Roth IRA, if not all of it, depending, you know, on how much is in there. So I think that'll make me reconsider a 529 plan.

Speaker 4 (06:29): Some other ones that IRI was advocating for where some changes that were made to 403b plans, there was some significant changes there which now allow these employers to participate in what are called multiple employer plans or otherwise sometimes are referred to as a map. So this actually will allow them to join with other employers to access more favorable retirement plan investments and less expensive management services. And additionally, the changes provide relief from what the industry refers to as like the one bad Apple rule. So true to the name. Like these plans have multiple employers that band together to form a plan. And if one of those employer's actions would've disqualified that plan in the past, that would've jeopardized all of the employers in that plan. So however, under these changes, only that specific employer, so that one bad apple, only their portion of the plan would be affected.

Speaker 4 (07:22): So that's really significant for 403b plan providers. My third one that I'll touch on is actually for military spouses, it makes it easier for them to save a retirement. So due to the nature of the military, these people aren't often able to stay at a job long enough to be eligible to participate in the retirement plan or meet vesting requirements for employer contributions. So what this provision does is it provides incentives for these smaller employers to shorten those eligibility requirements for these spouses and make them immediately eligible for employer contributions and that they're also immediately 100% vested in. So that'll really help them more easily save for retirement.

Speaker 1 (08:03): It's always good to hear about how people will be affected in their real lives with this real legislation. So Rebecca, you talked about the assets to this legislation, but are there any provisions that you would add to that list from IRI's perspective?

Speaker 4 (08:16): There is one more though. I'll mention. It's actually kind of a combination of several different provisions within Secure 2.0 that allow for penalty-free distributions that can actually be repaid over a three-year period. And those provisions include things like one-time distributions related to certain personal or family emergency expenses. And there's also one that allows distributions for survivors of domestic abuse. So they can take those funds and then use that to help them escape that bad situation or for other needs they might have. And then one of the last distributions that was added was in connection with qualified federally declared disasters. So all of these different distribution provisions will be really great and really helpful, especially because they can be taken penalty free and then also repaid.

Speaker 1 (09:03): And Jason, question for you, were there any provisions left out of this bill that you would've liked to have seen included any good ideas that didn't make it?

Speaker 2 (09:11): Yeah, there were. So you know there, I guess a couple of things I would point out, and these are things that I think are still on the table and that we would look to see potentially included in future legislation at some point. One that we have been very proactively supportive of is a requirement for employers to offer retirement plans to employees. Right now, there is not a requirement and in fact many employers do not make employer-based retirement savings options available to their employees. And we would like to see that changed. There was a bill that was included in President Biden's build back better act that ultimately did not pass, but that would've required all but the smallest of employers to maintain an automatic retirement savings plan where employees would be automatically enrolled and have the ability to opt out of course. And we feel that that would be a significant improvement in terms of making more savings opportunities available to more people and especially for the lower income areas of the country, they could really benefit from that.

Speaker 2 (10:08): One other provision that didn't make it into this bill that we're hoping to see in the future is one that would allow lifetime income products to be offered as a default distribution option in retirement plans. Right now, plan sponsors are able to make these types of products available as an investment option and participants are free to select that as a distribution option when they retire. But we still are seeing far too many employees who are instead taking the lump sum distribution option when they retire and that really exposes them to significant risk that they're gonna run out of money during their golden years. And so we think that by putting this in as a default distribution option, that would encourage more people to at least take the time to think about is this something that would be beneficial to me as a way to protect against longevity risk so that I don't have to worry about running out of money while I'm in my golden years.

Speaker 2 (10:58): So, and then one last that I would identify, just building on what Bill mentioned earlier in in terms of QLACs is while we definitely are thrilled with the changes that were made Secure 2.0 to make QLACs even more worthwhile and valuable to retirement savers, we think more can be done. And in particular we'd like to see the QLAC framework brought in to allow the use of both indexed and variable annuities within the QLAC environment in addition to fixed annuities which are currently authorized as QLACs.

Speaker 3 (11:27): Yeah, that would definitely be an exciting change. There were a few things that I would note as well where there's been some commentary going back to what Jason said about expanding retirement opportunities for more employees. So with regard to auto-enrollment under Secure Act 2.0, the government is requiring that all new retirement plans beginning in 2025 have auto-enrollment. So people will be automatically enrolled that can opt out, but when they start working at a company and are part of this plan, they're automatically going to be enrolled and money will be moved from their paycheck into a plan. What the criticism is on this provision is that it's only for new plans beginning in 2025. So you know, of course if there's a preexisting plan, which there's, you know, many out there that would not be part of it. So thinking about expanding it to all retirement plan to have auto enrollment.

Speaker 3 (12:16): And one other one too is long-term care. So there's a great provision in the law that allows people to take out $2,500 a year penalty free out of their retirement plan to pay for long-term care insurance. What might have been nicer is if there was the potential to take that tax free. So when you take that money, that $2,500 out, you're still going to be taxed on it. Just if you're under 59 and a half, you won't pay that penalty. So having the ability to take that, uh, money out tax free, you know, would've been something that would've been nice, and I think it was considered and perhaps something that can happen in the future.

Speaker 1 (12:50): Alright, let's talk about how effective this act will be. So Bill, we're talking about addressing the core issues of boosting retirement savings. What will individuals, the producers, clients notice most in their daily lives?

Speaker 3 (13:02): This is definitely going to impact people and, and quickly, so a few provisions I think people will notice right away. So RMDs, if you turn 72 this year, you would've been required to take an RMD, you won't because now the age has increased to 73. So that's obviously something that will impact people right away and they'll feel it. The student loan payments, I know that doesn't come into effect immediately. There's some time on the student loan payments that actually goes into effect next year in 2024, but people are paying their student loans. Having a company, if the company wants to, to match that student loan payment with a contribution into their retirement plan is obviously something that you know that people are going to really feel in a real way starting next year when that is implemented. So that's something that is exciting. Jason, Rebecca, do you have any thoughts on things that people will really feel in their daily lives?

Speaker 4 (13:50): I'll just expand on that student loan matching. From my point of view, I graduated college during one of the worst economic recessions in that 2008, 2009 timeframe, and I couldn't find a full-time job. I had student loans, and I was getting married. So once I found a job, I would've loved to have access to those matching contributions while I was paying off my student loans. So I mean, I think this is gonna be really helpful for young graduates entering the workforce, but it's also gonna help anyone really at any time that decides to pursue higher education. And I know it's something that I struggled with, and I wish I could have contributed more, had access to something like that.

Speaker 1 (14:30): So Bill, how will the act affect the strategies that producers discuss and recommend to their clients? How should they communicate with clients about this act?

Speaker 3 (14:39): Yeah, so communication is gonna be key. This act, what it ultimately does, what the ultimate goal here was to create more retirement savers and it's gonna do that. We have 92 provisions that are going to impact everyone. Whether you're young, just starting out at your first job, saving, whether you're older in your sixties, thinking about an imminent retirement, you're going to be impacted. So as a result of this act, there's going to be a lot more people saving. There's gonna be a lot more money out there for financial advisors to handle for people. And so this is going to create an enormous opportunity for financial advisors. And so the competition I think will be fierce. You need to be educated, you need to get out and communicate with your clients. I'll put in a plug for Global Atlantic here. We have an excellent site, your thriving practice.com. We arm you with a lot of information about Secure Act, about retirement information in general. This will really help you to get out there and hopefully put you in the best position with that competition that is gonna be fierce over these new savers.

Speaker 1 (15:38): Yeah, let's drill down on that Bill. Let's talk about opportunities. What business growth and sales opportunities does this act bring for Producers?

Speaker 3 (15:45): We talked about the QLAC. Again, this is an opportunity for clients who have retirement savings that they don't need imminently, they can move it over into an annuity and continue the tax deferral longer. That money that's moved into the annuity will not be calculated as part of their RMDs. So for example, as we've discussed, the RMD age now is 73. So if you move money over into a QLAC, it won't be calculated as part of that RMD when you're 73, you can wait until you're age 85 to include it in the calculation. So this is going to allow producers when they're talking with a client, when a client comes in and they have money they don't need imminently, this is a great way to make an annuity sale. Now I know selling an annuity is never an easy thing, but this is one where it might be easier if you do have that client with money set aside, they don't need it and they can go to great tax advantage with a QLAC, we've talked about 529 plans so once this becomes effective, people who have excess money in their five 20 nines will be able to move it over into a Roth IRA subject to some limitations.

Speaker 3 (16:41): But again, once the money is in the Roth IRA, it's going to need to be managed and it's a great opportunity for a financial professional. Put a plugin for annuities. Global Atlantic, like many annuity carriers, allow annuities within a Roth IRA. So, a great opportunity to sell a Roth IRA. And then finally, long-term care, as I mentioned before, clients now under 59 and a half will be able to access $2,500 a year penalty free from their retirement plans and move that into a long-term care policy. So another great opportunity for a sale for a financial professional to sell long-term care insurance. Obviously a critical need. We have a lot of crises right now in our financial world retirement crisis addressed with secure ACT 2.0 and this also helps long-term care. People are going to need long-term care as cost of care rises as people live longer. And this is a great way to make a good sale for a client.

Speaker 1 (17:44): Let's talk about action from the Global Atlantic perspective. How are the products that are issued by Global Atlantic affiliates positioned to take advantage of the act?

Speaker 3 (17:53): Yeah, so you know, a lot of what we've talked about deals with tax deferral. So RMDs being increased QLAC. We of course, you know, have a large annuity portfolio where one of the main advantages of a, of an annuity is tax deferral. So that all connects here. We do offer QLACs, the QLAC, the change made in the Secure Act 2.0 was to increase the amount you can put into a QLAC from 145,000 lifetime to 200,000. So we of course made that change immediately. And to accommodate this for our clients, we do have annuities within Roth IRAs as I mentioned. So once people are able to move the 529 money into a Roth, they can consider an annuity. We're gonna talk later in the podcast about the RILA Act, which is actually a separate act, but it was part of the same piece of legislation that was passed. And we do have a very competitive RILA as well. So Global Atlantic is very well positioned to help financial professionals as they work with their clients on the secure Act 2.0 changes.

Speaker 1 (18:51): And as you know, Jason, one aspect of the legislation that was signed into law intended to increase pre-tax catch-up contributions by 50% for individuals ages 60 through 63. But it's been reported that a significant technical error of some kind occurred in the drafting process, which revoked the ability for savers to make any such contributions either pre-tax or Roth. Under the current wording, catchup contributions may no longer be allowed starting next year as the bill intends. So how will this be resolved?

Speaker 2 (19:25): Yeah, these things do happen. I think anytime you see major legislation that is lengthy, uh, alike, secure 2.0 and you're gonna have technical errors that need to be corrected. And we fully anticipate that Congress will, during the course of the current session, find a vehicle where they can go through and make the necessary adjustments. We at this point are not really all that concerned that this error will actually stay in place.

Speaker 1 (20:05): And Jason Bill just mentioned RI the Registered Index Linked Annuities Act, which also passed as part of the 2023 Omnibus Appropriations bill. This legislation directs the S E C to streamline RI paperwork, so new products are easier to bring to market. How is this gonna benefit clients saving for retirement? How should financial professionals be thinking about this?

Speaker 2 (20:28): Yeah, this is a really important part of this new legislation as I think many of you know, RILAs, which are also known as buffered annuities or index linked variable annuities or any of a number of other different names, are one of the fastest growing segments of the annuity industry. And one of the things that has inhibited further growth in that space is the fact that right now these products have to be registered on forms that are really designed for use with public offerings of equity securities. Meaning that people who are looking at these products and evaluating whether they might be right for them are having to pour through countless pages of information that's really not relevant to evaluating a lifetime income product that is required by these forms. In addition, the forms that they have to use today, uh, require the use of financial information produced in accordance with generally accepted accounting principles or gap, which are very costly to produce if you don't have any other reason to do so.

Speaker 2 (21:21): And many companies have, we think, stayed out of this space simply because they wouldn't want to incur that additional cost to develop those financial statements. So what this bill does is it actually calls for the s e C to develop a new registration form that is specifically tailored to the RI of product to ensure that consumers have access and are able to easily find the information, uh, that's most relevant to them for determining whether this is a product that can help them meet their retirement objectives. And if the SEC does not get this form completed, uh, within 18 months, then the insurance industry will have the ability to instead start relying on an existing form that's designed for variable annuities in order to register registered index linked annuities. It's not a perfect fit, but it's a significant improvement over the current state of play. But we're hopeful that we'll be able to work with the SEC staff to get this done within that 18-month timeframe.

Speaker 3 (22:15): This is an excellent provision, just building on what Jason mentioned, it definitely helps consumers, they'll be able to much more easily get all the information they need. It also helps, uh, carriers, it'll streamline the process for registering these products. And while consumers are not typically concerned about making things easier for an insurance company, it ultimately will help the consumer because there'll be more products available. And RILAs right now are a very popular product. They're not new, but recently they've increased in popularity and it provides a product where, you know, maybe there's a little more upside potential than your typical fixed indexed annuity. Maybe some more downside risk, but there's a lot of great provisions in these contracts that allow for those risks to be buffered. So a win-win for consumers for the insurance industry. With this addition to the bill.

Speaker 1 (23:03): Let's keep looking into the future. Jason, do you expect to see a secure Act 3.0 in the future?

Speaker 2 (23:10): I think that we'll always anticipate that there'll be future retirement reform legislation that will be taken up. What we've learned over the last three years is that there is significant interest in Congress in the retirement industry, and in passing legislation that can improve the retirement prospects for all Americans.

Speaker 1 (24:02): Let's keep talking about what's next, Rebecca. The provisions in this bill still need to be translated into policy and action through the regulatory rulemaking process. So can you just talk about that process and how IRI is involved?

Speaker 4 (24:17): We're still early on in the compliance and implementation phase right now. Many provisions were effective upon enactment at the end of December and some shortly thereafter, like the RMD age increase, that was effective January 1st. So there's still a lot of work that needs to be done. There are many other provisions that will be effective at the end of this year, and it'll be here before we know it. But there's also provisions that aren't effective until the end of 2024 or even further out. As Bill mentioned earlier, that second RMD age increase to age 75, that's not effective until 2033. But secure two point also includes many provisions that are directives to the treasury, the Department of Labor, and other agencies. So we're gonna see reports and regulatory guidance and other changes in information that'll be coming our way over the next few years.

Speaker 4 (25:07): So not only do we have the current provisions of Secure 2.0 to work through, but these other regulatory items that will be coming will all need to be worked through as well. So, you know, in the meantime, companies should really familiarize themselves with the different provisions, determine which ones will most impact their business and their operations. At IRI, we have a task force that's focused specifically on implementing and complying with Secure 2.0. And this is really just to help our members work through the different provisions, give them the opportunity to have discussion with their peers, and then also just to provide any input that they have on, you know, where we might need future guidance or to help give input on any future rulemaking.

Speaker 3 (26:13): Yeah, Dan, as we've discussed, and as Rebecca mentioned, the dates here for implementation are pretty widespread, which I think is good news. It gives financial professionals time to learn about these, fully understand them and really be prepared to discuss with their clients. And, and some of these things are going to be challenges as well to implement, for example, companies matching student loans with contributions to retirement plans if they want to do that. That of course will be a heavy lift for companies to change their processes and procedures. So it's gonna take time, but as, uh, Rebecca said, it'll come quickly and these changes will be really impactful.

Speaker 1 (26:45): And Rebecca, your final thoughts? Anything you want people to take away from this conversation? The listeners who are hearing us right now,

Speaker 4 (26:52): I think overall Secure 2.0 is gonna provide some really great opportunities for saving for retirement and, you know, there's just a lot to work through here and it'll take time, but we'll get through it.

Speaker 1 (27:01): And Jason, how about you?

Speaker 2 (27:02): I think this bill sends a very clear message that annuities are becoming a much more prominent part of the retirement income discussion. And you know, I know that one of the challenges that we've had in the industry is getting advisors that are resistant to annuities historically to reevaluate that. And I would encourage advisors that are listening to this podcast to recognize that Congress has looked closely at this and seen opportunities for annuities to really benefit your clients, so keep your, uh, options on open, learn more about these products and how they can be beneficial for consumers looking to achieve their retirement goals. The most valuable ideas we get are the ones that come from the folks on the frontline working with American Retirement Savers and how we can help serve them even better. So get your ideas out into the marketplace for of ideas so that we can get them on the table for discussion with Congress.

Speaker 1 (28:05): And Bill, big picture, thoughts from you as we close out this conversation,

Speaker 3 (28:10): Congress came together with bipartisan support and made a significant change here. So it's time now for financial professionals to take advantage of this. Again, another plug, go out to yourthrivingpractice.com and learn these provisions. Work with your clients. As I mentioned earlier, this impacts everybody in some way. There's no one who is left out with this legislation and so there's tremendous opportunities.

Speaker 1 (28:32): Bill Crane, Rebecca Plowman, Jason Berkowitz, thank you all for being here today. Important conversation.

Speaker 2 (28:37): As always. IRI appreciates Global Atlantic Support and we are, uh, here to serve you, so thank you for having us.

Speaker 4 (28:44): Yeah, thank you so much for letting us be a part of the conversation today. It's, it's been great.

Speaker 3 (28:48): Thank you Jason. Rebecca, Dan, it was a pleasure to be here.

Speaker 1 (28:50): And for our listeners, there are many more online resources available for you on this topic. Visit yourthrivingpractice.com or the Insured Retirement institute’s website, IRI online.org. And if you like what you're hearing, be sure to subscribe to the Your Thriving Practice Podcast on Apple, Spotify, or Google Podcast, or visit the podcast page on yourthrivingpractice.com. Until next time, I'm Dan Corcoran for Global Atlantic. Thanks for listening.

Speaker 5 (29:27): The opinions, beliefs and viewpoints expressed by the guests on this podcast do not necessarily reflect the opinions, beliefs, and viewpoints of Global Atlantic Financial Group. Global Atlantic Financial Group, global Atlantic is the, the marketing name for the Global Atlantic Financial Group, LLC and its subsidiaries, including Forethought, life Insurance Company and Accordia Life and Annuity Company. Each subsidiary is responsible for its own financial and contractual obligations. These subsidiaries are not authorized to do business in New York.