Behind the Curtain: Retirement Planning Changes in the SECURE ACT

MATTHEW OKRENT: Behind the veil of impeachment, an overwhelming supermajority in Congress passed the SECURE Act, which will lead to dramatic changes in retirement planning for holders of IRAs or 401(k)s.  Passed with the latest spending bill last December, this legislation, favoring insurance companies and annuities, made its way from the legislative graveyard to becoming law, without a hint of true public scrutiny.   

The SECURE Act stands for “Setting Every Community Up for Retirement Enhancement” and makes changes to what can be placed in a 401(k) as well as how to withdraw from or contribute to an IRA. A person may now contribute to an IRA until they are 72, a change from the prior age of 70 and a half.  If that IRA is passed on to a descendant, the descendent must withdraw the entire contents of the IRA over the course of ten years. In the past, a descendent may make withdrawals over the course of their own life.  

Additionally, rules have been loosened regarding what assets can be saved in a 401(k).  The new law now allows for annuities, sold by insurance companies and other financial groups, to be placed in a 401(k), whereas they were once viewed as too risky and complex to be placed in a retirement portfolio.  Under previous law, employers had the fiduciary responsibility to ensure that the assets being placed within a 401(k) were secure, and annuities were viewed as too complex to satisfy that requirement. However, these rules have now been relaxed, and the burden has been placed on the insurance company selling the annuity.  

The bill received large, bipartisan support in both chambers of Congress, and passed with a veto-proof majority attached to the latest spending bill.  While the media was almost entirely distracted with impeachment, Congress has overhauled retirement rules in ways that benefit large insurance companies.  

Without the lens of public opinion to drive debate, this massive change in law made its way through Congress with relatively little public scrutiny.  Millions of Americans who have saved or are currently saving will be impacted by this change in the law, not to mention that there are still many unknowns regarding the impact of allowing annuities into 401(k)s.  There has been little discussion of the long term impact of the changes which benefit large financial institutions and insurance companies. The passage of this bill highlights the consequences of public opinion and examination as well as the lack thereof. 

Mathew Okrent is a sophomore in the College from East Setauket, New York.