WAVE STRENGTH PODCASTWhat’s in the Secure Act 2.0? Pacific Life’s Seaver Sowers Explains

With the Secure Act 2.0 officially signed into law, Seaver Sowers, Pacific Life’s vice president and head of global government & policy affairs, returns to The Wave Strength to discuss the provisions and explain how the Act can help Americans achieve a more secure retirement. Listen in as Seaver explains:

• How new provisions help Americans save for retirement
• What new features will benefit student loan borrowers
• Changes to Requirement Minimum Distributions
• How qualified longevity annuity contracts (QLAC) are more accessible

About Seaver Sowers

Vice President & Head of Global Government & Policy Affairs

Seaver is responsible for representing Pacific Life’s policyholder interests to government and regulatory officials. Prior to joining Pacific Life in 2017, Seaver held positions with the American Council of Life Insurers, the American Bankers Association, the Agricultural Retailers Association, as well as serving as deputy chief of staff and legislative director in the U.S. House of Representatives. Seaver is a graduate of Duke University.

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Voiceover: Welcome to The Wave Strength: Innovative Solutions for a Secure Retirement. Presented by Pacific Life.

Jim Breen: Hello, everyone. And welcome to another exciting episode of The Wave Strength podcast series. I'm your host, Jim Breen, Head of Marketing with Pacific Life's institutional Division. With us today in studio is Seaver Sowers. Seaver, thanks so much for joining us today on this episode.

Seaver Sowers: Jim, It's great to be here. Thanks for having me.

Jim Breen: Absolutely. Now, before we get into our topic at hand, which is talking about some of these new provisions in Secure Act 2.0, I want to introduce our audience, re-introduce them, frankly, because this is your second time on the show to you and your role. And your role with Pacific Life is VP and Head of Global Government and Policy Affairs for Pacific Life. So, perhaps you can share a little bit with our audience what you do in your role. It's a unique role, and I'm sure they'd love to hear more about it.

Seaver Sowers: Well, sure. Of course. So, I'm based in Washington, DC; it is great to be with you here in California. But most of the time, I am in Washington, DC, where we're talking to Congress or policymakers, the federal agencies. And a lot of times, what we're talking about is the topic we're going to talk about today, which is retirement security. I know we're going to get into a little bit about 2.0, but we do a lot of things. So, really what we want to do is be a resource to policymakers; whether they're talking about tax, they may be talking about prudential regulation, in many cases, they are talking about retirement security. So, whatever they're working on and if we have a way to be a part of that conversation, we want to both tell the Pacific Life story but also tell the story of our customers and their needs.

Jim Breen: Yeah, absolutely. So, it's almost like you're kind of acting as this bridge to represent the needs of these policyholders or participants and bringing those needs and concerns to the Hill, to Congress to help them understand what we're dealing with, what are folks that are nearing retirement or in retirement or dealing with.

Seaver Sowers: Well, absolutely. I mean, Congress, you know, they don't operate in a vacuum; there's think tanks, there's trade associations, there's folks like Pacific Life and other companies, consumer groups. There's a lot of folks who have information and expertise and information they can share with Congress. So, we want to be a part of that. We certainly don't want Congress to operate without good information; the more information they have about what's happening in the marketplace, what's on the minds of consumers, folks who are thinking about retiring, how folks are trying to prepare their family for retirement. So...

Jim Breen: Yes.

Seaver Sowers: We want to provide our unique perspective to that conversation.

Jim Breen: You're a fantastic educational resource for Congress.

Seaver Sowers: Well, that's the mission. That's the goal. We want to be fantastic. I think you use the word fantastic... We want to be as fantastic as we can, but certainly, we do want to be a resource. This can be, you know, it's both a complicated and not a complicated topic. It'd be nice if we could make it less complicated, but as we'll get into a little bit today, some of the, there are some kind of technical and legal details; there's a lot of laws that apply in the retirement space. And so you want to make sure that you operate within that environment. But when it comes down to it, you want to simplify it and help make it simple. And actually, that's really kind of the goal of this bill is to make things a little bit more simple for folks trying to save.

Jim Breen: And simplification, right? You know, the research shows, studies show that folks nearing retirement, folks in retirement just need more resources, more education. They're looking and hungry for opportunities to more carefully figure out how they can retire with dignity a have a good retirement. What a reassuring feeling this is that Congress has this in their sights, that they're really trying to focus on that. And before we get too far into the weeds there, I'm wondering if maybe you can unpack a little bit for those that might be new to the show, for those that maybe haven't heard of the Secure Act yet, which is fine. Maybe we can understand a little bit more about Secure Act 1.0, or the first iteration, why it was enacted, and now why we're here looking at 2.0?

Seaver Sowers: Well, sure. Well, you know, retirement security, obviously, it's an important social and public policy concern. You know, folks are living longer. Medicine, medical advances are meaning that folks can live longer retirements and more full retirements. And so, folks need the resources to be able to do that and live their best retirement. So, I do think this is maybe an issue that hasn't gotten the attention that it deserved previously. And maybe that's just a function of where we are, again, with folks living longer. But it is, as you said, really great to see Congress coming together. These are all very bipartisan measures. These are things that Congress can do; they work together. There is very little opposition, generally, to these types of things, so...

Jim Breen: Which isn't always the case, right? I mean, especially as we've seen in the last couple of months. I mean, sometimes it takes a little bit of time to move through certain bills or certain scenarios that they're going through. And so it's a fantastic, again, it's very reassuring to see that there was such what seemed like overwhelming agreement for 2.0.

Seaver Sowers: There is overwhelming... Yeah, there were a few no votes, but yes, there was overwhelming agreement not just on this legislation, but I think just on the principle of, hey, what more can we do on retirement security? What more needs to be done? I kind of, I don't know if this is the best analogy, but you kind of think of like your house and you're at your house, and there's always like a house project. You can always something you can do to, you know...

Jim Breen: You have one of those, too?

Seaver Sowers: Yes, yes, yes.

Jim Breen: I think in my house we call it the "honey do" list.

Seaver Sowers: Yeah, well, there's always something to be done at the house. You know, and you have kids, Jim; I have kids. So, I'm picking up after my kids. But in some sense, it's true that retirement security is probably never something that will be finished, right?

Jim Breen: Yes.

Seaver Sowers: I don't think Congress will ever say, "All right, well, we did that, and we're done." This is going to be a process. And so it is great, as you said, there was Secure 1.0 in 2019. Here we are three years later, in 2022, and now we're 2023. But I mean, the bill passed here at the end of 2022 in about three years time. And yeah, I would expect that Congress will come back, and they'll keep working on this because more does need to be done. So again, I think this is more of a journey than a destination.

Jim Breen: A journey. That's a great way to put it because as we see, as we'll unpack here, some of these provisions in 2.0, we'll see that; clearly, folks were really, they really wanted to take what already was a great step forward and increase those strides and make that new legislation in 2.0 even better. And you can see that there are perhaps now, as we go further into this 2.0 realm, we'll see, oh, you know what, 4, maybe 3.0, they're going to find new ways in which we can better that retirement journey for our participants.

Seaver Sowers: I think that's true. I mean, certainly the retirement landscape, the retirement products, products that Pacific Life offers, and other folks in the industry, I mean, it is a constantly evolving marketplace.

Jim Breen: Yeah.

Seaver Sowers: So, there's that. So, even even if Congress felt like, wow, they made great decisions on 2.0, and they were done for now. But even so, the marketplace will change, and needs will change, and folks may continue to live even longer. We hope so, right?

Jim Breen: Yes.

Seaver Sowers: We hope that will happen. So, yeah. Again, I don't think Congress will ultimately say, "Yeah, we've done that." They'll say, "Hey. Gosh, things are continuing to change. So, let's now let's adopt the rules." And the law is to make sure we're keeping up with what's happening out in the market.

Jim Breen: Absolutely. And as much as our audience, those familiar with Secure Act, may want us to start talking about Secure Act 3.0, we don't have that crystal ball.

Seaver Sowers: It's not... We can't get ahead of ourselves.

Jim Breen: Yeah, no crystal ball. But what we can do is talk a little bit about these provisions from 2.0.

Seaver Sowers: Sure.

Jim Breen: So, let's dive into that a little bit here. I think, you know, you and I were talking before the show here, and something that I think resonates with the two of us: We have kids; we both have perhaps been in these scenarios before as it pertains to student loans. And so this student loan matching contribution situation. Can you explain a little bit and unpack that for our listeners?

Seaver Sowers: Sure. Sure. Well, again, so student loans is something this is a big public policy issue, right? This is in the news a lot; people are struggling with this. People are struggling with the price of higher education. So, yeah, so it's great to see that there are provisions in Secure 2.0 that are going to help with that. And actually, there's a there's a 529 piece, and we can talk about that too. But specifically, the main thing in Secure 2.0 that they tried to do on the student loan piece was make it possible so if you're a young person, you're just starting out in your career, you get a new job, but you're paying your student loans, and that makes it harder to contribute to your 401k plan or your retirement plan. So, this provision will allow employers, when they set up their plan and make it available to their employees. They say, "Hey, if you make a student loan payment, we will match that inside your retirement plan." So they won't have to give up that matching contribution. So before, if they just made their student loan payment, weren't contributing to their 401k plan, they wouldn't have gotten that benefit. So, now it's going to be possible. So, you can make your student loan payment, and you can capture that matching contribution.

Jim Breen: And I know this might be a little thinking of ourselves and my own needs back, you know, 15, 20 years ago. But man, I wish I would have had that, you know? Right?

Seaver Sowers: Right!

Jim Breen: Because, you know, when you're 21, and you're entering the workforce, or 22, if you are in that position where you're going to put in maybe a little extra of a percentage into your 401K or make that student loan, you're going to want to pay off the student loan. And unfortunately, that can of retirement gets kicked further down the road. And so what a great step to involve those folks entering the workforce into, you know, visualizing their retirement hopefully early on or visualizing the path that they can begin to walk, or that journey, a little earlier on than looking at it at 35 going, "Oh, I should have started this ten years ago."

Seaver Sowers: Well, and to me, I think one of the nice things about this particular provision is it's going to help a lot of people. But it's also it's great that this is, again, this the student loan problem or the cost of higher education problem, that's kind of a broad problem for the United States, for all of us to deal with and manage. So, it's nice to kind of tie that back to retirement and say, "Hey, well, in the retirement space, how can the retirement community help address that in some way?" So, this obviously is a small piece but can help a lot of people too. I mean, it makes it so that they don't just fall behind in their retirement savings, right? They can they can start to build that retirement nest egg even while they're paying back their student loans.

Jim Breen: Exactly. Start early, right?

Seaver Sowers: Right.

Jim Breen: And this is just one more opportunity to help those folks start earlier.

Seaver Sowers: Right.

Jim Breen: Which is definitely something you hear from a lot of retirees...

Seaver Sowers: You got to do, right?

Jim Breen: "I wish I would have started earlier. I wish I would have had the resources to start earlier." So, again, back to what we mentioned at the beginning of this podcast, good on Congress for trying to find these new ways in which we can bring people into that retirement discussion at an earlier age.

Seaver Sowers: That's exactly right. And maybe I'll just turn, Jim. So, and then there is a thing on Section 529 plans.

Jim Breen: Yeah.

Seaver Sowers: Which is a lot of way, of course, the parents put away money for a college education for their children. And so, again, it's kind of a small change, but could be very meaningful to a lot of folks in the provision. And Secure 2.0 says that if you've put some money into the 529 plan, and let's say your son or daughter gets a scholarship or your son or daughter decides to take a different path and maybe doesn't go to college, then what happens to the money in your 529 plan? Because right now, would be subject to taxes and a 10% penalty if you tried to use that money for something other than the education of your child. So, now there is this option where any unused funds, up to $35,000 could be converted to a Roth IRA. So, it kind of relieves some of that anxiety. I guess the folks may have said, "Geez, we'll have a if I put this money into a 529 and I don't need it, am I going to get hit with these penalties?" And so this is a way to kind of address that concern and say, well, if that should happen, and under that scenario, there is a way for you to convert this to a Roth IRA.

Jim Breen: Yeah. So, Seaver, that's again another example of Congress looking ahead and trying to find ways in which they can improve Secure Act, in this case, with those matching contributions for not just the student loans but also too, those parents who have been contributing to that 529 but maybe the student doesn't go, obviously, to school or they get a scholarship, or whatever the case may be, and there's that extra money left over. So, very good on Congress once again. Let's move to a different part of the Secure Act 2.0 and these new provisions. RMDs, the increased age for RMDs, and some of the other items surrounding required minimum distribution. So perhaps you can unpack that.

Seaver Sowers: Sure. Sure. Well, you know, and this is, you know, these are great provisions. It seems common sense, actually, that we would increase the age at which you're required to take these RMDs, the required minimum distributions. I mean, people are living longer. You know, this is kind of where we are as society. So, in some sense, I think these rules are kind of catching up to just where things are, right? Because folks are living longer; they're living longer lives and better lives in their retirement. So, it does make sense that Congress would revisit this. And so, they've increased the age for required minimum distribution to 73 immediately. Ultimately, it will go to 75 in nine years; in about nine years, it'll go to age 75. But yeah, that really reflects the reality of how folks are living longer. So, but that will be really beneficial to folks not have to take those RMDs too soon because you and I know, Jim, for Pacific Life, we, you know, on behalf of our customers, we don't want our customers to outlive their savings. Obviously, it's part of the value proposition that we provide at Pacific Life. And so this RMD issue kind of speaks to that and is trying to make it possible for folks not to outlive their savings.

Jim Breen: Yeah. And also, too, the penalties, right? We saw some significant changes to penalties associated with RMDs.

Seaver Sowers: That's right. That's right. Penalties are being reduced from 50% to 25%. I think in some cases if you resolve them in an expeditious manner, I think it's 10%. So that's all welcome.

Jim Breen: It was 50%, right, wasn't it? Something like 50% before.

Seaver Sowers: It says it was high. It was. You didn't want to run afoul.

Jim Breen: Or say yeah. Or you forget, or something happened. Life happens. You forget. My, my goodness. 50%. Yeah. So...

Seaver Sowers: Yeah, yeah. So, this is welcome. This is welcome. Not only, as you said, it's the reduced penalties, it's the increase in the retirement age. And actually, there's even some other things too, a little bit more technical in nature, where some annuities inside of qualified plans running could run afoul of some RMD rules, and it really kind of technical and unintended consequences, I would say. And so, Congress did kind of clean those up to make sure, hey, yes, annuities are a great place to be inside of a qualified plan. And so they kind of made that more clear that that's that's a good thing and very possible.

Jim Breen: Great, wonderful. Yeah. Again, just one more positive item here. And what I'd like to do is talk a little bit now about our qualified longevity, new contracts or QLACs, and some of the items that are connected to those provisions as they pretend to the QLACs. Perhaps you can talk about that a bit.

Seaver Sowers: Well, sure. And this is an important item too. And again, this is a product, as you know, is, you know, well, Jim, that really is designed for folks not to outlive their savings. You know, really, there are different strategies that advisors might recommend; is you're, either about to enter retirement or in your retirement and trying not to outlive your savings. And a QLAC is really a great product to guard against that to make sure that you don't, ultimately, you get to be a certain age, and suddenly your savings are gone.

Jim Breen: Yeah.

Seaver Sowers: And what do you do? And that's just an untenable situation. And so, obviously, a QLAC is really designed to guard against that and protect folks from that situation. So, what Secure Act did was increase... Well, there was a cap; there was a couple of caps. There was a dollar cap and then a percentage cap. They lifted the percentage cap and increased the dollar cap, the premium cap, up to $200,000. So, now you can invest in a QLAC up to $200,000 inside of a qualified plan. So, again, very helpful provision. They actually did. There was also some regulations, again, some kind of technical regulations, that were just kind of making it hard for QLACs to be administered; they cleaned that up as well. So, again, it just it makes a QLAC a little bit more accessible and, frankly, just a little bit more consistent with where the marketplace is today. You know, you want to have that higher premium and the ability to invest in that QLAC.

Jim Breen: Well, Seaver, you've done a great job helping both me and my listeners understand more about these provisions. But I mean, frankly, the ink is barely dry, right?

Seaver Sowers: Right.

Jim Breen: And so, a lot of these haven't even taken effect yet, as you've mentioned, but still a lot of positivity. I mean, this is frankly just a fantastic example of Congress coming together to work for their constituents in a collective manner. But the ink hasn't even dried yet; we still have a lot of runway ahead of us here to unpack, to learn more.

Seaver Sowers: Well, that's true. I mean, it is a sizable bill in terms of the number of provisions. And so, it will take some time. I think, not only for advisors in the industry and consumers to really understand everything that's in here. And that's okay. You know, some things are effective immediately, but by and large, a lot of the provisions will be effective over time. I think we already mentioned the increase in age for RMDs, and going all the way to 75 won't even be applicable for 8 to 9 or even 10 years. So yeah, but this is... we're on the right path now. These provisions will be rolled out, and Treasury and the Department of Labor and others will be writing some of the rules. And this is all to the good.

Jim Breen: Now, Seaver, we've talked a lot about these provisions, but it's interesting to take a step back, and we mentioned this in the beginning about maybe some of the why, but I'd like to go in deeper with this question. You know, what was it that, you know, brought this need to the forefront of Congress, you know, with Secure Act 1.0 or three years ago, just Secure Act. And now here we are with 2.0. You know, what began those conversations, or was it just hearing folks like you say, "Hey, our folks in retirement. They need this; this is important." Or what was it that kind of spawned those conversations?

Seaver Sowers: Well, I would say this kind of area of thought around retirement security and folks living longer. I mean, there's a lot of think tanks who are putting intellectual capital into this and thinking, "Well, geez, how do we prepare folks for retirement?" Social Security is a super important part of that. But we know Social Security is probably not enough for most people. So, I think this is a bigger policy concern that I think really smart people are trying to wrap their minds around, say, "What are the solutions for this? How do we get after this and help people who are doing this?" And then I would say you just had some really thoughtful members of Congress who wanted to address this problem, said, "Hey, I see this as a critical need; I see this as a problem for my communities and for families that I talk to and who I interact with." So, I think there's a lot of members of Congress, you know, I think of Congressman Richard Neal, who was the chair of the House Ways and Means Committee and helped shepherd this bill through the Congress. He had a partner on the Republican side by the name of Kevin Brady, who was the senior Republican on that committee. And then there were counterparts on the Senate side. And so these members of Congress were kind of committed to this idea that, "Hey, not only is this really good policy, it's also something we can do, right? Congress can come together on this." So, it was just everything just kind of came together. But it does take... it's kind of like this. It's kind of like how do things, how do important things happen? It really does take individuals kind of standing up and saying, "Hey, this is really something we should do, and let's all do this together." But it does take individuals standing up and saying, "Let's do this."

Jim Breen: It does. What a great example of folks on the Hill coming together, as we've mentioned already. And kudos to them. This is fantastic. And, you know, hopefully, these new provisions, we will see the benefits to these new provisions. And Secure Act 3.0, you know, maybe one day we will see.

Seaver Sowers: Well, listen, I think that's great, as we talked about earlier in the podcast. You know, again, this is a journey, and I think Congress will keep trying to improve upon what they've done. And I think the need will be there, too, right? The need will be there for them to revisit this and think creatively because the market's going to change, and needs will change. So, I absolutely think that there will be other legislation; maybe it will be called Secure 3.0, maybe they'll have another name for it. But I do think we are going to continue to see improvement in this space.

Jim Breen: Secure Act 15 will just be an AI-generated button. You just press the button, and your retirement is taken care of. We'll see.

Seaver Sowers: The future. That's the future for sure.

Jim Breen: Let's focus on 2.0 now, and well, yeah, we'll keep going to these provisions. But Seaver, once again, I'm just real grateful for you spending time; I know you're very busy. And truthfully, Seaver, you just came out to the West Coast, I think, this morning, and you're flying back tonight. So, thank you so much.

Seaver Sowers: It's great to be here.

Jim Breen: Helping us out and being with us today on the podcast. It's always a pleasure talking to you. So, thanks again.

Seaver Sowers: Thank you, Jim. Really enjoyed it.

Jim Breen: Absolutely. And we'd love to have you back.

Seaver Sowers: I'll be back.

Jim Breen: Okay. Fantastic. For that Secure Act 15.

Seaver Sowers: We'll be back for that.

Jim Breen: Thanks, Seaver. I appreciate it.

Seaver Sowers: Thanks, Jim.

Jim Breen: And to our audience, I want to thank you for joining us today on another episode of The Wave Strength. And I want to encourage you to head over to Spotify and YouTube. And don't forget to hit that like and subscribe button. And we'd love to hear from you. Go ahead and add your thoughts in the comments of these pieces of content so we can answer your questions as they pertain to the Secure Act. Thanks again, everybody, and have a fantastic day.

Voiceover: This has been another episode of The Wave Strength presented by Pacific Life. Don't forget to catch us on YouTube and make sure to subscribe. Although this podcast is presented by Pacific Life, the opinions and views expressed are those of the hosts and participants and do not necessarily reflect Pacific Life's views on any of the topics discussed. Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products. Pacific Life, its affiliates, its distributors and respective representatives do not provide any employer sponsored, qualified plan, administrative services, or impartial advice about investments, and do not act in a fiduciary capacity for any plan. Pacific Life refers to Pacific Life Insurance Company (Newport Beach, California) and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products at issues. This podcast was recorded on January 20th, 2023.

Jim Breen: Thanks for joining us on today's show. We'd love to hear from you. Join the conversation below and leave a comment on your thoughts on what the industry can do better for participants as it pertains to lifetime income solutions. And if you'd like more interesting content. Click one of these links over here.