CAPTRUST On RESA And How It Will Impact Your Retirement

ValueWalk’s interview with Scott Matheson, Managing Director and Defined Contribution Practice Leader at CAPTRUST. In this interview, Scott discusses his and his company’s background, his view of the SECURE Act, the difference between the House’s SECURE Act and the Senate’s RESA, the impact of the legislation on regular Americans, how these bills help in retirement, small business economy, and the gig economy.

RESA

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Can you tell us about your background? 

I started out of college in corporate finance and then did a tour of duty in public accounting before going back to business school.  After business school I ended up in New York City working on a fixed income trading desk for Citigroup’s Global Investment Bank.  Just over 12 years ago I came to CAPTRUST to help build out their investment research capabilities. After learning the retirement plan business from some really great colleagues and mentors I was named the Defined Contribution Practice Leader for the firm, a position I’ve held for the past seven years.  Thanks to my position and the trust a growing number of clients have placed in us, I have had numerous opportunities over the years to be in front of regulators and legislators to hopefully influence policies in a pro-retirement way.

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Can you tell us about your firm?

CAPTRUST is one of the nation’s leading independent wealth management and retirement plan advisory firms. We are an employee-owned firm and provide investment advisory services to retirement plan fiduciaries, endowments and foundations, and comprehensive wealth planning services to executives and high-net worth individuals. CAPTRUST is headquartered in Raleigh, North Carolina with offices around the country and we currently have over $300B in client assets.

What do you think of the SECURE Act?

I really like and support the SECURE Act.  Is it perfect?  No, but is any policy or law?  I think the good that could come to the American retirement system as whole from the Act becoming law far outweigh any downsides.

How does it differ from the Senate proposal?

Perhaps surprisingly to most, the House’s SECURE Act and the Senate’s RESA were very aligned in their major points.  There were some more nuanced technical differences throughout of course – things like the proposed penalty amounts for failure to file 5500s and differences in the way each proposal structured the “pay for,” which was the effective elimination of the Stretch IRA.  However, there were some more sizable differences too.  Notably, items the SECURE Act included which RESA did not.  Those included 1) lowering the part time employee exclusion from 1,000 hours per year to 500, 2) increasing the required minimum distribution age to 72, 3) allowing penalty-free birth/adoption plan withdrawals, 4) expanding the uses of 529 proceeds to cover student loan debt and apprenticeships, and 5) there was some unique defined benefit plan funding relief for community newspapers.

It's rare to see legislation with such bipartisan support, why do you think we saw that here?

For years now, the issues in these proposals have had great bipartisan support.  No surprise there – Americans are systemically undersaved for retirement, people are living longer and working differently and our entitlement-based solutions for retirement are underfunded and under strain.  Elected officials know this and want to fix it.  Why now?  Why did the House version get to the Senate and not the other way around?  Wish I knew.  What I do know is that it is disappointing that these policies, which have such overwhelming bipartisan support, score relatively low on their projected budget impact and could positively impact many people, are seemingly stalled because of politics and ideology and not because of legitimate differences in opinion on the core policies.

How big of an impact would either of these have and how would it impact regular Americans?

Let’s lay out a few facts for background: Americans are systemically undersaved for retirement, Americans are living longer, Americans are working differently with so many “gig” employees or independent contractors working for very small businesses – which, by the way, are the overwhelming majority of all businesses in America.  Further, the employer sponsored retirement plan today is the defined contribution style plan and these 401(k)s are pretty good retirement savings vehicles while you are accumulating assets, but fail to offer much in the way of tools or solutions that help the average American worker turn a lump sum into a sustainable paycheck during their retirement years.  The SECURE Act expands access to retirement plans for millions of workers through the introduction of easier to run pooled retirement plans, and studies from organizations like the Employee Benefit Research Institute tell us that the average American worker is 16 times more likely to save for retirement when they have a plan offered at work.  The Act also allows older workers and retirees to contribute more to their IRAs, addresses the fact that people are working and living longer and increases 401(k) coverage to part-time employees which can be hugely impactful to the 16.5 million American the BLS estimates are working in the “gig” economy.  It also helps new parents, including adoptive parents, better handle the expenses of having or adopting a child.  Lastly, the Act removes two big hurdles of adding in-plan income solutions to a 401(k) – safe harbor for the selection of an annuity provider and the portability for participants in the event a change is needed.

Most Americans cannot contribute anywhere close to the maximum, so how would these bills help?

This bill isn’t about increasing the maximum allowable contribution.  This is about expanding coverage and access to workplace savings plans to the American worker, letting more people into those plans, and making the plans themselves better actual retirement plans – ones you can actually use when you are in retirement.

Many Americans have small 401ks/IRAs, how would this legislation help them?

Hard to generalize here, but the same benefits mentioned above apply.  More flexibility, ability to save longer, defer taking your money out until later, etc.

What will the impact be on the broader small business economy?

In particular, the multiple employer plan changes here could allow a much more cost effective, administratively simpler and less risky way for small businesses to join one of these pooled plans for their employees to contribute to.  This could make them more competitive in today’s tight labor market and lead to better satisfied, more financially healthy employees.  Conversely, smaller businesses with retirement plans that employ a ton of part time workers – particularly those working between 500 and 1000 hours – could see some administrative burden and cost from the rule change on part time employee eligibility.

Will it impact the growing numbers of 1099 workers?

To the 16.5 million American the BLS estimates are working in the “gig” economy, the changes to the part time hour rules, as well as the introduction of open multiple employer plans for smaller businesses, could really help many contract and part time employees have access to workplace savings vehicles.  And, back to the EBRI study mentioned earlier, we know they are multiples times more likely to save for retirement when they have this access.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver