The American Retirement Association expressed its opposition to the Protecting America’s Retirement Security Act (PARSA) in an April 5 letter to lawmakers. “Our opposition to this legislation is based on both its substance and its process,” writes ARA CEO Brian Graff.
The PARSA legislation was marked up and approved by the House Education and Labor Committee on April 5. It will now proceed to the House floor for a vote.
In the ARA letter, Graff expresses special concern over the bill’s provisions that concern spousal consent. “The ARA is deeply concerned with Section 4 of the Protecting America’s Retirement Security Act,” he says, noting that “Section 4 creates a new in-person notarized spousal consent requirement for nearly all distributions from individual account retirement plans, like 401(k) plans.”
“While the ARA supports the policy goal behind this proposal, which is to protect the retirement security of a spouse, the proposal lacks sufficient research on whether it would do greater good to the retirement system than harm,” says Graff. “Should the proposal be implemented, as is, it may have significant unintended consequences that damage those individuals the policy intends to protect,” he warns.
More specifically, the letter points out that:
- With tens of millions of individual participants in 401(k) plans, this law would require an in-person notarized consent for most distributions, putting an immense burden on the recordkeeping system and imposing significant barriers for individuals to obtain consent to access funds they contributed.
- If an individual needs to take a hardship distribution due to a medical emergency, repair their home following a disaster, or some other immediate financial need, this law would delay access to needed funds by days or even weeks due to the onerous consent requirements.
- Currently, an employer only needs to know whether an employee is married if the employee is seeking to have their spouse covered under health insurance. Otherwise, marital status is not necessarily a data field that an employer shares with their plan administrator. The proposal would make the HR Department the potential arbiter of whether a marital relationship is strained if a participant seeks out one of the exceptions built into the proposal.
- Due to the exception requirements, an employer may unwillingly become aware of marital strain to disperse needed funds to an employee, or conversely, an employee may be unwilling to disclose a marital issue, preventing access to needed funds. An individual may be in an estranged relationship without the ability to contact their spouse (nor want to contact their spouse due to abuse) and would be unable to access their own funds without obtaining notarized consent from the estranged spouse. To obtain the funds, the individual would need to prove to the HR Representative that they cannot locate their spouse, an embarrassing situation that may simply prevent the individual from seeking this exception.
- The Securing a Strong Retirement Act has an important provision to protect victims of domestic abuse by allowing them to take a penalty-free distribution from their retirement account, financially enabling them to break free from an abusive relationship. Under this spousal consent provision, a victim of domestic abuse would need to obtain consent to access funds from the spouse that is potentially the abuser. Or it would require the employee to disclose to their company the abusive relationship, which is an embarrassing hurdle that could prevent the employee from accessing the funds.
- At this time, no study or data has been produced that shows how often a spouse uses 401(k) plan assets for non-retirement expenses without the knowledge of the other spouse. Is a blanket in-person notarized consent on all transactions the proper course of action?
Graff says that the ARA supports the recent request by Sens. Patty Murray (D-WA) and Richard Burr (R-NC) that the Government Accountability Office (GAO) study the issue and report back with proposed solutions. “A new requirement imposed on all distributions that will disrupt the retirement system and participants should not be implemented if there is insufficient analysis on whether this proposed solution is the proper course of action,” he writes.
Graff further points out that “Congress has an extensive history of bipartisan cooperation and legislating on retirement policy that has built upon the success of the workplace-based retirement savings system” and that “action on this partisan and unstudied legislation so soon after” bipartisan action on other legislation related to retirement plans “is a step in the wrong direction.”
