With the SECURE Act clearing the House of Representatives this afternoon and headed to the Senate for a vote as part of a legislative package to fund the federal government, investment advisors and the financial services industry are likely to have a treasure trove of new opportunities to unpack for the holidays.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which President Trump is expected to sign into law before he departs for Mar-a-Lago for Christmas break, is the most comprehensive retirement security legislation in more than a decade.

Of special note to advisors, the bill makes it easier for employers to offer lifetime income annuities to employees. Specifically, the bill removes a requirement that previously required employers to assess an insurer’s ability to make payments years down the road. The SECURE Act allows employers and their consultants to instead rely on financial evaluations by insurance commissioners.

The Role Of Advisors

Since the question of what to do with a retirement plan drives at least some investors to hire their first advisor, what happens if a lifetime income annuity makes a 401(k) rollover less necessary?

“Obviously, you can look at this as a challenge for advisors, but I look at it as an opportunity,” said Melissa Kahn, the managing director for retirement policy at State Street Global Advisors.

“There will absolutely be a very important role for advisors. There’s a steep learning curve with annuities for both plan sponsors as well as participants,” she said.

“Plan participants report they don’t understand annuities and think they’re too expensive and that they lose control. I think advisors will continue to be very important from the education point of view.”

To the extent that an annuity will only be part of a participant’s qualified plan, “advisors will have to help them structure the portfolio,” she added. “I think that advisors will play a very important part overall, but even more with longevity annuities. I think it’s an opportunity and not a challenge at all.”

Advisor Dan Moisand, of Moisand Fitzgerald Tamayo in Melbourne, Fla., said he’s not concerned about the implications of the act on retirement plans, beyond the preservation of advisors’ fiduciary conduct, the policing of distributor behavior and the quality of the products. “Financial planning is far broader than 401(k) rollovers,” he said. “The added choice may even increase demand for objective and accountable fiduciary advice.”

While the SECURE Act requires that all 401(k) plans include a lifetime guarantee annuity as an investment option, the products are required to be portable and without surrender charges when an employee either changes jobs or retires.

The law also requires plan participants to receive an illustration of how much monthly income their retirement savings will provide, which is likely to be an automatic boon for lifetime income annuities.

Small business owners who up until now have vetoed creating a 401(k) plan may also need their advisor thanks to new choices and tax perks. The legislation significantly increases the tax credit for new plans from the current cap of $500 to a more realistic $5,000. Small employers that implement an automatic enrollment feature in their retirement plan design would also be eligible for an additional $500 credit.  

Also noteworthy, the SECURE Act would ease the existing rules restricting multiple employer plans (MEPs) and allow two or more unrelated employers to join a pooled employer plan, producing economies of scale that can expand access to plans and lower both employer and plan participant costs.

Victory Lap

Insurance industry trade groups are, not surprisingly, taking a victory lap for what can only be termed a very long, creative and successful lobbying campaign to get the SECURE Act across the finish line.

“We’re pretty proud of the work we’ve done and looking forward to seeing it through to the president signing it,” said Paul Richman, chief government and political affairs officer of the Insured Retirement Institute.

“We think it will create more opportunities and demand for financial advice and offer far more employees the opportunity to save, even longtime, part-time employees. The creation of more open MEPs plans is estimated to create 700,000 new retirement accounts,” he said. “Giving employees more retirement options, including a lifetime income option, means they will need and appreciate advice much earlier,” Richman said.

Judi Carsrud, assistant vice president of government relations at the National Association of Insurance and Financial Advisors, said the annuities provisions in the bill are a “wonderful change that are critical to those who need guaranteed income. This makes it easier for them to fund that during employment.

“It will be interesting to see how the marketplace responds,” added Carsrud. “I personally think that advisors work in their investors’ best interest and they won’t double up on fees for rollovers in kind. The marketplace will adjust.”

In fact, Carsrud said, she personally believes the likelihood of a higher volume of pretax dollars flowing into annuities contracts will lead to lower annuity prices overall.