House Ways and Means Committee members introduced bipartisan legislation Thursday that hopes to encourage more small businesses to create employee retirement plans. It does so by offering safe harbors for plans that want to offer lifetime-income annuities. The legislation is also designed to promote multiple-employer plans (MEPs), which allow two or more businesses to use a single plan.

The act, known as “The Small Businesses Add Value for Employees Act of 2017” (the “SAVE ACT,” H.R. 4637) was introduced by Rep. Ron Kind (D., Wis.) and Rep. Dave Reichert (R., Wash.). It is designed to bolster the creation of small business retirement plans and extend plan benefits to a greater number of employees.

The legislation “provides practical solutions for Americans’ retirement security challenges,” said Dirk Kempthorne, president and CEO of the American Council of Life Insurers, which is supporting the bill. “They need education about their savings and access to lifetime income solutions.”

Provisions in the SAVE bill include the following:

It would facilitate lifetime income disclosure in employee retirement plan statements. The bill would require “benefit statements furnished to plan participants to include, at least once a year, a statement of the lifetime income stream the accrued assets would provide,” a spokesperson for Rep. Kind told Financial Advisor in an e-mail. This fits with the nudge theory, she said (for which behavioral economist Richard Thaler won a Noble prize in economics this year), “which shows that this sort of information increases plan participation and savings rates,” she said.

The legislation would clarify the current annuity selection safe harbor for employers. The bill reduces fiduciary and liability concerns that have made smaller companies reluctant to offer annuity (i.e., lifetime guarantee) products in their retirement plans. Under the Safe Act, if a state insurance regulator approves an insurance company to sell in a state, employers will be given a safe harbor for offering that insurer’s annuities. “When evaluating insurance companies to provide an annuity to a plan, employers will be able to rely on specific representations from the insurer regarding state insurance regulator oversight and review, the ACLI said.

It would expand multiple-employer plans (MEPs). The bill would make it easier and less expensive for unrelated small businesses to offer employees a retirement plan through a MEP by removing the U.S. Department of Labor requirement that companies have a “common bond.” Removing the “common bond” requirement would enable small businesses to pool together to offer a single plan, regardless of their industry, Kind said in a statement. Currently, the DOL subjects each employer in an open MEP (without a common bond) to separate Form 5500 filings, annual audit requirements and potentially separate ERISA bonding requirements, things that undermine the cost-saving benefits of using a multiple-employer plan. The bill “encourages and helps employers not yet prepared to sponsor their own retirement plans … to achieve economies of scale and receive advantages with respect to plan administration,” the ACLI said.

Employees with access to employer-sponsored workplace retirement savings accounts are more likely to save for retirement, according to a recent ACLI study, “Assessing Americans' Financial and Retirement Security” (available at https://www.acli.com/Industry-Facts/Retirement-Assessment).

The legislation has been referred to the Ways and Means Committee and to the Education and the Workforce Committee for deliberation, most likely in 2018, according to a legislative source.

With potential Social Security shortfalls looming, closing the retirement shortfall is becoming an increasingly important policy goal for a number of lawmakers. Currently, 45% of Americans are on track to retire with financial security, 20% need to take modest actions to get on track, and the remaining 35% of households need significant help, the ACLI study found.

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