Update: The SECURE Act Passes House, Awaits Senate Vote
A bill that would substantially alter the world of employer-sponsored retirement plans has cleared a major hurdle. The bipartisan Setting Every Community Up for Retirement Enhancement (SECURE) Act—introduced in April 2019—was passed in the U.S. House of Representatives by an almost unanimous margin on May 23, 2019. The bipartisan bill was then shipped to the U.S. Senate, where it currently awaits approval. A hiccup related to Section 529 plan provisions has delayed this bill’s summer fast-tracking into law, but most industry experts believe we’ll see a favorable approval by the Senate this fall.
What Does the SECURE Act Mean for Retirement Plan Sponsors?
The overwhelming narrative of the SECURE Act is the expansion of retirement plan coverage and the lowering of retirement savings hurdles for working Americans. As such, lawmakers seek to place the onus on employers to incentivize their employees to invest in their own financial futures. Let’s examine some of the key provisions of the SECURE Act; what they mean to retirement plan sponsors, business owners, and benefits administrators; and how existing retirement plans could be affected. The act:
- Allows long-term part-time employees to participate in the retirement plan. Employers would be required to offer eligibility to these employees once they complete either one full year of service (with more than 1,000 hours worked) or three consecutive years of service with at least 500 hours worked per year.
- Allows for “open” multiple employer plans, which permit unrelated small businesses to band together in an open retirement plan arrangement. This enables companies with smaller plans to take advantage of economies of scale and features that typically are available only in larger plans.
- Increases the automatic safe harbor deferral maximum from 10 percent to 15 percent, raising the ceiling for automatic in-plan retirement saving.
- Removes the prohibition of retirement contributions after the account owner reaches age 70½, making retirement account contributions allowable regardless of age.
- Raises the age for required minimum distributions from 70½ to 72, allowing retirement savings to last longer into retirement years as Americans’ life expectancies increase.
- Offers tax credits to businesses that offer an automatic enrollment provision to their employees in 401(k) and SIMPLE IRA plans, incentivizing business owners and organizations to make saving easier for employees.
For retirement plan administrators and business owners who offer a workplace retirement plan to their employees, the signs are clear: lawmakers are focused on improving the American retirement system through increased—and easier—access to retirement savings vehicles, particularly workplace retirement plans. Regulatory Update Q3 2019 page 3 of 3 Get ahead of the curve by reviewing your plan’s provisions and features with your plan advisor, third-party administrator, or other service provider, and see where enhancements can be made. These are good first steps toward preparing for potential legislative changes.