An advisor with two clients

In late May, the House of Representatives passed the Secure Act with an overwhelming bipartisan majority of 417-3. The bill, which currently awaits passage in the Senate, represents the most significant change in retirement policy since the Pension Protection Act in 2006.

(Related: The Retirement Bills Should Be Good for Retail Advisors: Phil Waldeck)

When you study the details, it’s little wonder the Secure Act received support from both parties in Congress, as well as the retirement product industry. Contained within are sweeping changes designed to encourage Americans to save for retirement by improving access to more types of financial products. The bill would also create incentives for employers to expand access to 401(k) plans, particularly to employees of small businesses and part-time employees — two groups traditionally left out of the employer-sponsored retirement planning landscape.

Should the bill pass the Senate and president’s desk to become law, financial professionals may need to update their strategies to incorporate more types of retirement products. To help you prepare for questions you may receive from clients, here are three provisions worth pointing out.

First, the bill would allow employers to offer annuities, including fixed index annuities (FIAs), paving the way for greater access to lifetime income. According to a survey by the Employee Benefit Research Institute, 80% of 401(k) plan participants are interested in putting some or all of their balances in a guaranteed lifetime income option like an annuity. With Americans living longer and healthier lives, traditional retirement options like 401(k) plans and pensions are not guaranteed to last. In fact, outliving savings is the number one fear of pre-retirees when it comes to their financial health during retirement.

Products such as FIAs help address these concerns by offering guaranteed lifetime income, deferred tax benefits, principal protection and — because they are insurance products — a cushion against market volatility. While annuities are not an end-all solution, retirees’ interests are best served when they have access to a variety of products. Financial professionals are thus encouraged to examine how annuities can fit into their clients’ unique life plans.

Second, the Secure Act would give employers incentives to expand access to retirement products, including tax credits for businesses that offer plans with automatic enrollment. The bill would also allow small employers to join multiple-employer defined contribution plans, which can help overcome the cost-prohibitive nature of current 401(k) options. Given research has found access to planning information correlates with retirement readiness, these provisions could greatly improve Americans’ financial preparedness for their post-working years.

Third, the bill would allow pre-retirees to receive an annual statement that breaks down their current balance into monthly paychecks. Combined with annuities, this change could help clients understand their savings in terms of lifetime income instead of a single lump sum.

There are several other provisions financial professionals could also examine with clients, including a change in the age at which mandatory IRA withdrawals begin from 70.5 to 72. But the Secure Act’s most impactful changes are designed to expand access to employer-sponsored retirement products and help savers think about their nest egg in terms of lifetime income, which is ultimately the point of retirement savings to begin with. Smart financial professionals already incorporate these goals into their strategies; the provisions contained in the Secure Act would only make it easier.

—Read Annuity Shift on ThinkAdvisor.


Jim Poolman is the executive director of the Indexed Annuity Leadership Council, a coalition of life insurance companies dedicated to helping Americans plan for retirement and increase the dialogue surrounding fixed indexed annuities.