While the SECURE Act immediately raises the age for taking RMDs from 70½ to 72, Portman-Cardin would increase it to age 75 by 2030.
“We also reduce the penalty for failing to take the required distributions from the 50% of the shortfall amount to 25%, in most cases as low as 10% if you self-correct,” Portman said. “So that along with the QLACs we think would really help older Americans be able to ensure that they’re not going to outlast their savings.”
Advisors the “Gateway” to Open MEPs
While the “pay-for” elimination of the Stretch IRA and a provision providing fiduciary safe harbor to 401(k) plan sponsors who include annuities to plan participants have commanded plenty of SECURE Act headlines, perhaps the most impactful change comes from the Open Multiple Employers Plan (MEPs) provision that makes it easier and more economical for smaller employers to offer retirement plans by allowing for the creation of pooled retirement plan providers without a common nexus.
Andrew Kligerman, an analyst who follows the life insurance industry at Credit Suisse, told The Wall Street Journal last December he expects the change “to expand the $5.84 trillion 401(k) market by $1 trillion within about five years.”
Combined with the SECURE Act’s accompanying tax credit changes, with Open MEPs advisors will be able to offer small employers the ability to provide a retirement plan in a much more cost and administratively efficient manner.
“Financial advisors will be the gateway to open MEPs, as much education will need to be done for these small employers,” State Street Global Advisors Managing Director for Retirement Policy, Melissa Kahn, told 401(k) Specialist. “Advisors will also be the ones to guide employers in choosing the MEP that is best for them. And the increased start-up tax credits, coupled with the automatic enrollment tax credits, will make providing these benefits very attractive.” Portman said he sees Open MEPs as the most significant provision just because of its potential to get so many more (small business) workers access to an employer-sponsored retirement plan that will go on to make a big difference in their retirement preparedness.
“I think this Open MEPs idea makes sense,” Portman said. “This is why we pushed that way back in 2016 with RESA [Retirement Enhancement and Savings Act] because it lets small businesses know you can get into these plans without taking a huge risk—both in terms of your liability, but also just your administrative costs in figuring out all the complications of retirement policy—if you can join together with other small businesses and provide a retirement [plan].”
Portman said he’s seen estimates suggesting another 700,000 Americans will have a retirement plan due to the SECURE Act’s Open MEPs provision. “I think it will go even higher, from what I’ve learned from small businesses and know what they’re thinking about in person, whether we do a plan or not,” he said. “I think it’ll be more significant than that.”
Although it will not happen overnight, and further regulations are needed to outline administrative duties and a model plan design, State Street’s Kahn says she does expect to see many small companies moving into Open MEPS over the next 3-5 years.
Brian Anderson is the managing editor of 401(k) Specialist.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
