Changes proposed for federal rules governing retirement savings could attract as much as $1 trillion in new assets for the retirement and annuities industries.
A Labor Department rule change set to take effect Sept. 30 will make it easier for small businesses to offer retirement plans through regional or industry associations. A piece of federal legislation awaiting approval in the Senate could expand the possibilities of multiple-employer retirement plans even further.
Small businesses often do not offer retirement plans with their benefits packages because of the cost and complexity of providing 401(k) accounts. The new rules are aimed at addressing that issue by allowing companies to join associations that offer retirement plans as a group, potentially providing access to large swaths of the small business workforce.
In 2017, 89% of workers at companies with at least 500 employees had access to retirement plans, while just 53% of those working at companies with fewer than 100 employees had the option to enter employer-sponsored plans, according to an executive order issued by President Donald Trump authorizing the rule change.
Expanding multiple-employer retirement savings plans to groups of small businesses would favor companies that offer midmarket-sized plans, said Credit Suisse analyst Wilma Burdis.
"Several are pretty strong in that midsize plan market," Burdis said in an interview.
Life insurers are especially structured in a way to be helped by the reforms because the market that will open up will likely favor more attentive servicers, according to Burdis.
"Smaller companies are higher-touch businesses, and life insurers have that type of service in place," she said.
Companies that would benefit from liberalizing multiple-employer plans include Voya Financial Inc., Principal Financial Group Inc., AXA Equitable Holdings Inc. and Lincoln National Corp., given their expertise with midsize plans, Burdis wrote in a May 23 research note.
Reforms proposed by the SECURE Act require congressional approval. Passage of the act was viewed as imminent after it cleared the House of Representatives with an overwhelming, bipartisan majority in May, but the Senate version has stalled under the scrutiny of a handful of lawmakers.
With the Labor Department's rule change, multiple-employer plans would still be restricted to associations of companies with common interests in proximity of each other or to nationwide industries. It would also maintain a prohibition on financial institutions from participating. However, if it were to pass, the SECURE Act would remove those restrictions.
The bill also proposes to raise the minimum distribution age to 72 from 70.5 and raise the age limit for making retirement contributions. The legislation could also boost annuities sales by making those lifetime income plans portable, Burdis said.
Companies best positioned to take advantage of increased inflows into annuities would be Brighthouse Financial Inc., Athene Holding Ltd. and Lincoln National Corp., Burdis said in her note.
Provisions of the bill that could substantially grow retirement assets include automatic enrollment in retirement plans with employee contribution escalations baked in, said Paul Richman, chief government and political affairs officer for the Insured Retirement Institute. The organization has intensely lobbied to make the SECURE Act law, Richman said in an interview.
The proposal would mandate that companies make available lifetime savings illustrations showing how much income employees could expect from their plans, which studies show is an effective incentive for getting workers enrolled, Richman said. Nearly half of employees who work where plans are offered do not participate; the SECURE Act could boost participation considerably, he said.
"By enhancing the current features [of retirement plans], that'll create more opportunities for Americans to take advantage of them," Richman said.
The House in May voted 417-3 to pass the bill, raising hopes that the Senate would pass it within weeks. But at least three Republican senators — Ted Cruz of Texas, Mike Lee of Utah and Pat Toomey of Pennsylvania — have placed holds on the bill because of certain changes they want to make. Their misgivings about the bill are unrelated and diverse, according to Richman.
The Insured Retirement Institute likes the odds that the three senators will eventually lift their holds on the legislation, or that the measure could be attached to related legislation that passes by the end of the year. Senate Majority Leader Mitch McConnell, R-Ky., could also bring the bill to the floor for an up-or-down vote, Richman said.
"We're very optimistic that the majority of Senators required to move this bill forward realize the benefits that this bill provides for the constituents who are seeking to save for retirement," he said.
