How the SECURE Act Could Change the Landscape for Retirement Plans and IRAs – Perspectives for Employers, Asset Managers and Insurance Companies

Ropes & Gray LLP
Contact

Ropes & Gray LLP

On December 20, 2019, President Trump signed into law the fiscal year 2020 spending bill, which included the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act makes significant changes to the operation of private retirement plans, including: (i) allowing for unrelated employers to join together to offer a multiple employer retirement plan (referred to as an “Open MEP”); (ii) easing plan sponsors’ ability to offer in-plan annuities (and making it simple for those same annuities to be transferred to another eligible retirement plan) and (iii) allowing certain part-time workers to be eligible to participate in 401(k) plans.1

Although the SECURE Act is primarily focused on helping small employers offer retirement savings vehicles for their workers, the legislation could potentially change the way that employers of all sizes structure their retirement plans. The SECURE Act also presents significant business opportunities to plan sponsors (big and small), asset managers and insurance companies. In the coming months and years, these stakeholders should look to leverage the SECURE Act to devise new types of arrangements that facilitate growth in retirement saving among workers, while harnessing economies of scale.

Open Multiple Employer Plans (Open MEPs)

Stakeholder Implications
Employers / Plan Sponsors (all sizes)
Asset Managers
Insurance Companies

The SECURE Act includes a long-awaited provision that will allow two or more unrelated employers to join together to sponsor a qualified retirement plan for their workers without limitations, known as an “open multiple employer plan” or “Open MEP”. Most importantly, MEP participation no longer requires participating employers to share a common nexus, such as the same industry or geographic area, outside of the retirement benefit they are jointly providing via the MEP. This requirement had prevented many employers from participating in MEPs, leaving them little choice but to maintain a separate plan or not offer a retirement savings vehicle at all for their employees.

The SECURE Act allows different employers lacking a common nexus to participate in an Open MEP, which would be administered by a third party “pooled plan provider,” such as a financial services firm. The pooled plan provider would be required to acknowledge in writing that it is the plan’s named fiduciary under ERISA, and the plan administrator responsible for performing all duties reasonably necessary to ensure that the pooled plan provider complies with the applicable Internal Revenue Code requirements and ERISA. Each participating employer in the Open MEP would be treated as the plan sponsor with respect to the portion of the plan attributable to that employer’s employees (or beneficiaries of such employees). This means that the participating employers’ only responsibility would be the selection and monitoring of the pooled plan provider.

The effect of this change could be enormous. The Open MEP framework allows a sponsor to (i) consolidate and outsource fiduciary functions (including higher risk activities like investment menu design), (ii) gain access to cost-efficient institutional investment options and (iii) reduce plan administrative expenses. Given the recent spate of class actions alleging claims of imprudent investing and excessive fees, the Open MEP framework could appeal to employers of all sizes looking to shield themselves from ERISA fiduciary liability. Eventually, the Open MEP framework could mirror the private sector health insurance system where the pooled plan provider is analogous to a health insurance carrier, maintaining benefits and providing administrative services to employees of hundreds (if not thousands) of different employers of various sizes.

For asset managers, insurance companies, record keepers, and other plan advisors, the opportunity to act as a pooled plan provider could be a major source of new business. As a first step, however, the Department of Labor must issue guidance on the SECURE Act’s implementation. These rules will need to address issues, such as the types of transactions that will be permitted for pooled plan providers, and how pooled plan providers must deal with conflicts of interest.

Lifetime Income (LTI) Arrangements – Fiduciary Safe Harbor; Portability

Stakeholder Implications
Employers / Plan Sponsors (all sizes)
Insurance Companies

The shift away from defined benefit plans to defined contribution plans over the last few decades has resulted in Social Security retirement benefits becoming the primary source of guaranteed retiree lifetime income (LTI) for many people. Annuities and other LTI options are generally not offered through defined contribution plans, in large part because the pre-SECURE Act law made the selection of an LTI provider (i.e., an insurance company) a high risk ERISA fiduciary act for plan sponsors.

The SECURE Act addresses this uncertainty by specifying optional measures a plan fiduciary can take with respect to selecting an insurer and a guaranteed retirement income contract that will assure the fiduciary has exercised its duties in accordance with ERISA’s prudent expert requirement. These measures provide an optional safe harbor, but do not establish minimum requirements or the exclusive means for satisfying the prudent expert standard. Moreover, the legislation specifies that nothing in these requirements is to be construed to require a fiduciary to select the lowest cost contract. Accordingly, a plan fiduciary may consider the value, including features and benefits of the contract and attributes of the insurer (such as the insurer’s financial strength) in conjunction with the contract’s cost. In a key change from prior law, a fiduciary that satisfies the requirements of the safe harbor will not be liable for any losses that the participant or beneficiary incurs due to the insurer’s inability to satisfy its financial obligations under the terms of the contract following the distribution of, or the investment by or on behalf of a participant or beneficiary pursuant to, the selected guaranteed retirement income contract. This should mitigate plan sponsors’ fear of being exposed to litigation if the insurance company or annuity provider they select becomes insolvent (a risk which plan sponsors may not be capable of fully assessing).

In addition to this key fiduciary clarification and safe harbor, the SECURE Act makes it easier for participants to transfer their in-plan assets, including annuities, to an IRA without paying taxes on those amounts. The new law will now allow distributions or rollovers by providing that if an LTI investment is no longer authorized to be held as an investment option under a qualified defined contribution plan, 403(b) plan, or 457(b) plan, the plan may allow (i) qualified distributions of a LTI investment, or (ii) distributions of a LTI investment in the form of a qualified plan distribution annuity contract; provided, that the distribution is made within the 90-day period ending on the date when the LTI investment is no longer authorized to be held as an investment option under the plan.

Between the fiduciary safe harbor and the increased portability of LTI options, Congress has made clear that defined contribution plans represent an important and viable market for annuities. This position is backed by market research that suggests offering annuities as part of a defined contribution plan is beneficial to participants because it pools longevity risk and allows participants to transition more easily from accumulation of financial assets to reliance on those assets later in life. Moreover, research indicates that participants with LTI in their portfolios generally save more than the average plan participant, are more likely to maintain their strategic asset allocations even during equity market downturns and are better able to manage their spending patterns.

Mandating Long-term Part-time Worker Eligibility for 401(k) Plans

Stakeholder Implications
Employers/Plan Sponsors (all sizes)

For plan years beginning after December 31, 2020, the SECURE Act requires non-collectively bargained 401(k) plans to permit any employee who has worked at least 500 hours per year with the employer for at least three consecutive years and has met the age requirement by the end of the three-year period to make elective deferrals under the employer’s retirement plan. In other words, long-term part-time employees can no longer be excluded from a plan because the employee has not completed a year of service, which is generally defined as having completed at least 1,000 hours of service during the year. Once a long-term part-time employee meets the age and service requirements, such employee must be able to commence participation no later than the earlier of (i) the first day of the first plan year beginning after the date on which the employee satisfied the age and service requirements or (ii) six months after the date on which the individual satisfied those requirements.

The legislation permits 401(k) plans to exclude long-term part-time employees from participating in the design-based safe harbors (including the automatic enrollment safe harbor), as well as from being eligible for employer non-elective and matching contributions, if they haven’t otherwise completed a year of service (the 1,000 hours of service during the year as described above). Moreover, employers would receive nondiscrimination testing relief, including permission to exclude these employees from top-heavy vesting and top-heavy benefit requirements.

For sponsors who currently exclude part-time employees from participating in their plans, these changes will require amendments to plan documents, allowing this class of newly-eligible employees to make elective deferrals in the future.

Conclusion

The SECURE Act represents a major step to address the retirement crisis facing thousands of workers in the United States. The changes it makes could have broad implications for employees, employers, financial institutions and insurance companies. In particular, its provisions pertaining to Open MEPs and LTI arrangements could potentially alter the landscape for how defined contribution plans operate and the types of investment products they offer.

  1. This Alert focuses on the portions of the SECURE Act that have the most direct impact on plan sponsors, asset managers and insurance companies; however, there are many other significant provisions of the legislation, which are not addressed in this Alert, including: changes in the maximum age for IRA contributions, extension of the start date for required minimum distributions, and changes to the functioning of certain inherited or “stretch” IRAs. The SECURE Act also offers incentives for small employers to establish retirement plans and allows for higher automatic deferrals for employees.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ropes & Gray LLP | Attorney Advertising

Written by:

Ropes & Gray LLP
Contact
more
less

Ropes & Gray LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.