NAGDCA IN ACTION

I recently signed an industry letter supporting the inclusion of CITs for 403(b) plans. This has been a NAGDCA Legislative Priority for several years. While the debate has been marred by a lack of understanding about the non-ERISA 403(b) industry and misinformation about CITs, we are not counting out the possibility that a bill could move forward after the mid-term elections.

Next week, I am headed back to my original home state of Colorado to meet with the members of the Colorado Public Plans Coalition. This is an annual gathering of DC plan administrators from across the state and is similar to events hosted by our member from Mesa, Mike Kennington, in Arizona and another in Texas. Do any of you hold state or regional meetings? If so, I would love to hear about them.

MEMBER CORNER

Many of you have asked good clarifying questions this month about our SECURE 2.0 materials. We cannot get through a month without some sort of tweak to our favorite provision – Section 603, Roth Catch-Up Contributions.

This month we clarified this sentence in the Q&A:

“Governmental 457(b) plans are not currently expressly eligible for deemed elections; separate regulations are expected.”

It now reads:

“The regulations for governmental 457(b) plans have not yet been updated to expressly provide for deemed Roth catch-up elections (although an update is in the works), but the 2025 regulations that implement the Roth catch-up rule, and the IRS’s associated explanations, make clear that 457(b) plans can have a deemed Roth catch-up election. As noted in the next question, use of the special correction methods requires the plan to adopt a deemed Roth catch-up election.”

We also updated our Fact Sheet for Section 326 (Early Distributions for Terminal Illness) to clarify that 457 plans are not eligible for the provision. And we cited this IRS Q&A (question no. 8) to clarify that money purchase pension plans are eligible to use disaster relief distributions.

Please keep these questions coming! These are complex topics, and we want to ensure that each provision is being implemented uniformly across the industry.

ACROSS THE INDUSTRY

Last month, the Social Security trustees released their annual reports, and the news was not good. The Old Age Survivors Insurance (OASI) program will exhaust its trust fund surplus by 2032. At that point, benefits for all beneficiaries of OASI would be cut by about 22%. That cut would include all future and current beneficiaries of the program, so anyone you know who is receiving money from the program would immediately see a reduction in benefits. The Social Security Administration Chief Actuary gave an extended explanation of the report here for those who are interested.

Politically, a cut of that magnitude is unlikely, but congress needs to act to prevent it. The solutions are nuanced, but they all represent some sort of benefit cut or tax increase. The primary proposal that would impact public sector employees is “Universal Coverage”. This would mandate participation in Social Security for the 27% of government employees who are currently uncovered by the program. The fact that universal coverage would have a small impact on the overall status of the OASI program and a large impact on state and local governments means it is also unlikely to happen. However, as the debate on potential reforms continues, every solution will be considered.

Since 2032 is not far away, we expect to hear a lot about both Social Security and retirement in the coming years. The White House has already begun implementing solutions aimed at increasing access to private sector accounts. Trump Accounts went live on July 4th and TrumpIRA.gov will be active by the end of the year.

While Trump Accounts are available to children and have several unique features, TrumpIRA.gov is primarily a website to funnel potential savers to IRA products that already exist. This model is substantively different from that of our newest members, state-facilitated automatic IRAs (SF-IRAs). SF-IRAs are designed around the concept that any employer not offering a retirement plan must link their payroll to the state program and automatically enroll their employees in an IRA vehicle that is managed by the state with fiduciary guardrails like those of our defined contribution members.

Seventeen states have enacted programs (we are glad to have you all on board!), and several others are considering legislation to create new programs. Since enactment, the programs have started 1.3 million people on the path to saving. How the state programs relate to any future federal retirement initiatives is still an open question, but we look forward to representing their interests in the conversation at the federal level.

All the Best,

Matthew Petersen
Executive Director, NAGDCA