Welcome back to Human Capital. I’m Melanie Waddell in Washington. After chatting with Senate Finance Committee Chairman Chuck Grassley, R-Iowa, recently about the timing of Senate passage of the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019, I checked in with IRA expert Ed Slott to get the lowdown on complaints being lodged that the Secure Act is an insurance industry-backed bill that contains pitfalls for investors.
“The idea is really good,” Slott said of the Secure Act. “I think employees should have guaranteed income, annuity income, for their basic living expenses. A good retirement portfolio has to have some guaranteed aspect of it. Even non-annuity people, not in the insurance industry, will tell you that.”
However, Slott said, there are drawbacks.
What’s the Secure Act’s goal? Like a pension, the bill “in some sense is saying, ‘maybe you should have a portion of your retirement account guaranteed with income — an annuity,’” Slott says. “There’s a good case for that. I’ve said that on TV many times that, as a basic minimum, most retirees should have at least their basic living expenses covered with guaranteed monthly income, like an annuity.”
From a historical perspective, companies ditched pensions because they “saw that this was a good way to transfer the risk and responsibility of saving for retirement from them, the corporation, to the employees,” Slott says.
Now: “The employees suffer risk; they have to decide what to invest in.” They wonder: “‘What if I lose money? Are there guarantees?’ You get none of that in a 401(k).”