Financial services weren’t expected to celebrate many Beltway victories with Democrats in charge of the executive and legislative branches of government.

However, two recent developments were big wins nonetheless.

The biggest news came when the House of Representatives passed the Securing a Strong Retirement Act of 2022 with overwhelming bipartisan support, 414-5. As a follow-up to the Securing a Strong Retirement Act of 2020, industry trade associations have been pushing for what has become known as “SECURE 2.0”.

“The bipartisan legislation will provide measurable benefits to American workers and retirees who worry about whether they will have adequate retirement income through their golden years,” said Wayne Chopus, President and CEO. from the Insured Retirement Institute.

Among other things, the bill contains provisions to relax restrictions on annuities in pension plans in a section titled Income Preservation. It would change the minimum distribution rules required to allow annuity options and increase the limits for qualified longevity annuity contracts.

A second big win came when the Eastern District of Texas reinstated the Department of Labor’s independent contractor rule.

The court’s decision came amid a lawsuit brought by the Financial Services Institute that claimed the Labor Department’s Trump-era rule was improperly removed by the Biden administration in violation of Administrative Procedures Act. The rule is effective from its original effective date of March 8, 2021.

As a result, independent agents and financial advisers definitely become independent contractors again.

Details of the SECURE act

Repeated polls show that Americans are pessimistic about their retirement readiness. According to data from the Federal Reserve System, only 40% of people aged 45 to 59 and only 48% of those aged 60 and over felt prepared. Sixty-two percent of Americans between the ages of 18 and 29 have retirement savings, but only 28% believe they are on the right track with their savings.

Finance professionals say easing restrictions on accessing and using financial products will go a long way to solving the pension crisis. Lawmakers have responded and SECURE 2.0 includes several key provisions endorsed by industry trade associations:

» Raises the age to start the required minimum distributions. Plan participants are required to begin receiving distributions from their pension plans at age 72. The bill would raise the age to 73 this year and 74 on January 1, 2029 and 75 in 2032.

» Expands automatic enrollment in employer-sponsored pension plans, while reducing service requirements for part-time employees to participate in an employer-sponsored plan. It requires 401(k) and 403(b) plans to automatically enroll participants, with an employee opt-out. The initial auto-enrollment amount is a minimum of 3% and a maximum of 10%, but the amount would be increased by one percentage point each year until the total reaches 10%. It also allows employers to treat student loan payments made by their employees as voluntary deferrals for purposes of determining pension matching contributions.

» Increases the level of catch-up contributions to retirement accounts for those close to retirement. Under current law, the IRA contribution limit is increased by $1,000 for people over age 50, but the bill would index those limits beginning in 2023. It would also increase the Catch-up contribution limits for employees. The catch-up contribution limit for 2021 is $6,500, except for SIMPLE plans, for which the limit is $3,000; the bill would increase those limits to $10,000 and $5,000, respectively, to apply to ages 62, 63, and 64.

» Reduces administrative burdens for plan sponsors by changing pension plan design rules and changes regulations on joint employer plans and multi-employer 403(b) plans. Small businesses with 10 or fewer employees, new businesses (those in operation for less than three years), church plans, and government plans are excluded from automatic membership requirements.

Expands “rothification” by requiring that a qualified plan under section 401(a), a plan under section 403(b), or a government plan under section 457(b) allow a eligible participant to make catch-up contributions to treat those contributions as Roth after-tax contributions, according to a Deloitte report. The bill would also allow plan participants to designate employer matching contributions as Roth contributions and would allow SEPs and SIMPLE IRAs to be designated as Roth IRAs.

As of the press deadline, SECURE 2.0 was in the Senate, where supporters are hoping for quick approval.

Definitions of workers

Progressives have pushed to redefine employee classifications as more companies hire contract workers. The use of contract workers allows employers to bypass employee benefits, including taxes and social security.

The reinstated rule clarifies a longstanding “economic reality test” for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. Also the rule:

» Identifies two main factors that determine whether a worker is economically dependent on someone else’s business or works for himself: the nature and degree of control over the work, and the possibility of profit or worker loss based on initiative or investment.

List three other factors that can also be used for analysis, especially when the two main factors do not point to the same classification. The factors are the amount of skill required for the job, the degree of permanence of the employment relationship between the worker and the potential employer, and whether the job is part of an integrated production unit.

Clarifies that the actual practice of the worker and potential employer is more relevant than what may be contractually or theoretically possible.

» Provides six factual examples applying the factors.

Dale Brown, president and chief executive of FSI, said the decision restored important clarity to the financial services industry.

“The court correctly held that the independent contractor’s removal from the DOL did not follow administrative process,” Brown said. “The reinstatement of the DOL’s Independent Contractor Rule brings clarity and certainty to independent financial advisors and independent financial services companies. Our members can now operate their businesses and serve their Main Street clients with confidence, knowing that their choice to be self-employed is secured by the FLSA. »

Financial and insurance industry advocates said that without the rule, individual agents and brokers were subject to a patchwork of state and federal regulations. When the DOL withdrew the rule last year, the National Association of Insurance and Financial Advisors said the department was wrong to say the rule was inconsistent with established principles.

“In fact, this new [DOL] perspective would be a departure from established legal precedents and the opinions of the DOL and would more closely resemble the strict ABC test for determining employee or contractor status,” NAIFA said in a statement last year. “Unlike the economic facts test or any other worker classification test, the ABC test completely reverses the onus of proof by creating the presumption that a worker is an employee rather than an independent contractor.”

NAIFA said the DOL is working on a new version of the rule, but there is no indication of its status. The Biden administration apparently wants more workers to fall under the definition of employee. Employers would be responsible for complying with laws relating to FICA, health care, pension plans and federal regulations that protect employees.