Recently, the SECURE Act (short for Setting Every Community Up for Retirement Enhancement) passed in the House by a huge majority, but is currently held up in the Senate.
While it’s future is uncertain given recent statements by Majority Leader Mitch McConnell, R-Ky, and Congress’ pending recess, the SECURE Act, or a similar piece of legislation, would impact retirement and benefits plans, so it’s important to know what the changes may be and how to plan for them.
Access to retirement
For small employers, having access to benefits has been a key focus of the Trump administration. The SECURE Act makes it easier to run multiple-employer plans that cover the staff of several small businesses. It lowers the fiduciary concerns and costs associated with these plans.
Automatic enrollment
The SECURE Act incentivizes enrollment in 401(k)s by adding new tax credits of $500 to encourage small employers to automatically enroll employees in retirement plans.
Annuity options
Plan sponsors will now be able, under the safe harbor provision, to select annuity providers that allow them to offer increased annuity options inside of 401(k) plans. This removes current concerns that stop many plans from including annuities.
Lifetime income disclosure
All defined contribution plans will be required to include a lifetime income disclosure on a yearly basis. This document would show how much income the lump sum balance in their retirement account would create. There is some question still regarding how to calculate this number, but these details will also be included in the disclosure.
Required minimum distribution age
Currently, most people must take a required minimum distribution (RMD) once they reach 70.5. The Act would delay this until a person reached age 72. The RESA Act, a substantially similar piece of legislation currently before the Senate, would push this back to 75.
Age limitations on contributions
Currently, individuals using IRAs for their retirement savings are not allowed to contribute to their IRAs after age 70.5. (You can still contribute to a Roth IRA at this age.) The Act would remove the age limitation completely, allowing individuals who continue to work past the age of 70.5 to continue saving.
Distributions for birth
In another provision aimed at encouraging people to save for retirement, the Act adds an exception from penalties for early withdrawal for individuals using those funds to cover the cost of birth or adoption. The goal is to encourage young families to save for retirement rather than deferring retirement savings in favor of starting a family.
These and many other changes are broadly viewed as positive progress within the benefits industry, though different groups have various changes they would like to see made in the final version of the bill.
Anne Tyler Hall is the owner and principal attorney of Hall Benefits Law. HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.