On May 23, the House of Representatives passed a bill purporting to expand and preserve retirement savings. Buried in the bill’s language is the bill’s true purpose: to expand and preserve annuity sales.
The Setting Every Community Up for Retirement Enhancement Act (SECURE) would change a number of laws related to retirement plans, many of which are, on whole, positive or reasonably unobjectionable. Among other things, it would eliminate the age restriction on contributing to a retirement plan and would defer required minimum IRA distributions until age 72, rather than the current 70½. There are some weird provisions designed to specifically help a small number of newspapers and one for the Boy Scouts.
But the real purpose of the bill is to make it much easier to sell annuities within 401(k) plans. Period. It is a piece of insurance company legislation jokingly masquerading as something to help the little guy. In reality, it does the exact opposite. It makes the least sophisticated investors more susceptible to some of the most expensive, complex and illiquid financial products ever created.
Specifically, the SECURE Act (a joke of an acronym) would provide legal protection for sponsors of corporate retirement plans if they include annuities as investment options within 401(k) plans. Without this legal protection, employers could be held liable for egregious annuity expenses, performance and insurance company safety.
The insurance industry even managed to have the bill require (yes, require) plan sponsors to essentially include an annuity advertisement in annual participant statements. This “lifetime income disclosure” would project how much money a person might receive if he moved all his 401(k) assets into an annuity. The bill also provides legal protection for employers if (Surprise! Surprise!) those projections prove to be overly optimistic.
The media didn’t know what is in the bill; most articles published the day of its passage focused on the sleight-of-hand apple pie provisions described in the press release. House members almost certainly didn’t know what was in the bill; it passed 417-3.
Two people who do know what is in the bill are the ranking members of the House Ways and Means Committee, where the legislation originated. I’m sure it is just a coincidence, but the largest contributors to the campaigns of Richard Neal (D., Mass.) and Kevin Brady (R., Tex.) are the insurance and the securities/investment industries – the companies that stand to profit from the Act.
The grotesque irony is that in an effort to protect investors from high fees and unnecessarily complex and restricted investments, the Department of Labor has been trying to effectively ban the sale of most annuities to IRAs. The SECURE Act does the exact opposite: encouraging their use in 401(k) plans.
David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.