Surprisingly, the top regulation story of 2019 was not the SECURE Act, but rather a sibling bill, the Retirement Security & Savings Act (S. 1431).
Introduced by Senators Rob Portman (R-OH) and Ben Cardin (D-MD), some of its provisions did end up in the SECURE Act that the president signed—the biggest being the age at which required minimum distributions must be taken (although only from age 70.5 to age 72 in 2020, rather than age 72 in 2023 and to age 75 by 2030 that the senators included in their bill).
401(k) Specialist readers seemed interested in the increase specifically, and the story by Managing Editor Brian Anderson racked up the most views not only in the regulatory channel, but it was one of the most viewed stories on the site for the year overall.
The broad set of reforms set forth in the bill are designed to strengthen Americans’ retirement security by addressing four major areas in the existing retirement system:
(1) allowing people who have saved too little to set more aside for their retirement;
(2) helping small businesses offer 401ks and other retirement plans;
(3) expanding access to retirement savings plans for low-income Americans without coverage; and
(4) providing more certainty and flexibility during Americans’ retirement years.
The measure includes more than 50 provisions to accomplish these objectives. The bill’s main highlights include:
Allow people to set more aside
- Establishes a new incentive for employers to offer a more generous automatic enrollment plan and receive a safe harbor from costly retirement plan rules. It provides a tax credit for employers that offer these safe harbor plans starting at 6% of pay in addition to the existing safe harbor at 3%. This gives employers the certainty to offer more generous retirement benefits to their employees.
- Increases the “catch-up” contribution limits from $6,000 to $10,000 for Baby Boomers (individuals over age 60) with 401k plans.
- Helps employees who are struggling to save for retirement and pay off student loan debt. It allows employers to make a matching contribution to the employee’s retirement account in the amount of his or her student loan payment.
- Allows employers to make an additional contribution on behalf of employees in a small business SIMPLE retirement plan.
- Indexes to inflation the allowable catch-up contribution to Individual Retirement Accounts (IRAs).
Help small businesses offer 401(k)s
Increases the current-law tax credit for small businesses starting a new retirement plan from $500 to as much as $5,000.
- Provides a small business tax credit for adopting the more generous safe harbor from costly rules.
- Simplifies rules for small businesses, including allowing small businesses to self-correct all inadvertent plan violations under the IRS’ Employee Plans Compliance Resolution System (“EPCRS”) without paying IRS fees or needing formal submissions to the IRS.
- Simplifies “top-heavy” rules for small business plans to reduce the cost of enrolling new employees.
- Establishes a new three-year, $500 per-year tax credit for small businesses that automatically re-enroll plan participants into the employer plan at least once every three years.
Expand access for low-income Americans
Expands the existing Saver’s Credit income thresholds to give more Americans access to increased credit amounts.
- Creates a new “government match” for low-income savers by making the Saver’s Credit directly refundable into a retirement account.
- Expands the eligibility of 401(k)s to include part-time workers that complete between 500 and 1,000 hours of service for two consecutive years.
Provide more certainty and flexibility
- Increases the age for required minimum distributions from age 70.5 to 72 in 2023 and age 75 by 2030, allowing all individuals choosing to work later in life to keep saving for retirement.
- Creates an exception from required minimum distributions for individuals with $100,000 or less in aggregate retirement savings, allowing them to choose to keep saving for retirement at any age.
- Reduces the current penalty for failing to take required minimum distributions from 50% of the shortfall amount to 25% in most cases, and as low as 10%, if you self-correct.
- Encourages expanded use of Qualifying Longevity Annuity Contracts (QLACs), retirement plans that provide annual payments to individuals who outlive their life expectancy. QLACs prevent older Americans from outlasting their savings.
Seeking to solve ‘significant challenges’
The statement from Senators Cardin and Portman said that while real progress has been made in strengthening overall retirement savings since their first landmark legislation in 2001, significant challenges in the private sector retirement system remain.
Those include an aging Boomer population that has not saved enough for retirement, lack of access to employer-sponsored plans in smaller businesses, too many low-income Americans without retirement savings, and inadequate lifetime savings.
With regard to Boomers, a 2019 GAO report found that nearly half of all near-retirees over age 55 have no retirement nest egg at all. For small business employees, the Bureau of Labor Statistics’ National Compensation Survey shows that while 68% of private-sector workers have access to an employer-sponsored plan, that number drops to 49% for individuals working for small businesses and 39% for part-time workers.
Actual participation rates in workplace plans lag even further behind, especially for those individuals in the bottom quartile of wage-earners. Among those lowest-paid workers, only about one in five earn retirement benefits, with just 22% of low-income workers participating in a retirement plan.
The final challenge is the lack of adequate lifetime savings as Americans are living longer post-retirement. This legislation seeks to address all of these issues through bipartisan, commonsense measures.
“This bill is an important new chapter in my bipartisan work with Senator Cardin to strengthen the private sector retirement system. Since our last comprehensive package became law in 2001, we’ve seen more Americans participate in 401ks and IRAs to save for their retirement but our savings rate still remains too low and there are far too many Americans with no retirement account at all,” Portman said. “This legislation includes sweeping reforms to help Americans save more for retirement by allowing people who have saved too little to set more aside for their retirement, helping small businesses offer 401ks and other retirement plans, expanding access to retirement savings plans for low-income Americans without coverage, and providing more certainty and flexibility during Americans’ retirement years. I look forward to working with Senator Cardin and my colleagues in the House and Senate to help strengthen the retirement security of all Americans.”
“Ensuring that families and workers can retire with dignity and stability is an ongoing, and strongly bipartisan, effort. There have been many recent efforts acknowledging this need, yet more work needs to be done to make sure families have the necessary tools to be successful in their retirement,” Cardin said. “I’m proud to work with Senator Portman again to propose a set of solutions that will help Americans save more, create more access to retirement plans, promote lifetime income solutions, strengthen the retirement system, and ensure Americans can achieve the post-work financial stability they desire.”