For several months, we have heard that some changes to retirement plan were on the horizon. The first official step to making that a reality was taken on May 23, 2019 when the House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which aims to improve the retirement system by providing Americans with new opportunities to save. The legislation received overwhelming bipartisan support, passing the House by a 417-3 vote.
The Senate is expected to vote on its version of the legislation, the Retirement Enhancement and Savings Act (RESA) in the very near future, with the expectation that the president will sign a new retirement plan bill shortly thereafter. However, given the current chaotic state of Washington, guarded optimism is advised. Veterans of the retirement plan industry know all too well the bizarre twists and turns plan legislation can take.
The below provisions included in the SECURE Act highlight the positive impact the law would have on Americans:
- Unrelated employers would be permitted to participate in a new type of plan called a Pooled Employer Plan. Current rules only permit such plans if there is commonality among participating employers.
- The SECURE Act would create a fiduciary safe harbor for the selection of annuity providers with increased portability provisions. This provision is geared toward making it easier for 401(k) plan participants to receive a monthly benefit at retirement similar to distribution provisions in a pension plan.
- The law would require coverage for long-term employees that do not work the required 1,000 hours for eligibility but do work more than 500 hours for three consecutive years. It is generally believed that collective bargained employees would not be subject to this provision.
- The required minimum distribution age would be raised from 70-and-a-half to 72.
- The law would allow for penalty-free distributions for birth or adoption up to $5,000.
- The law would increase the plan start-up credit for small employers from $500 to $5,000.
- The law includes several 401(k) plan administration tweaks.
- The law would allow for the adoption of employer plans by the due date of the employer’s tax return as opposed to the employer’s tax year-end.
- The law would allow contributions to IRAs past age 70-and-a-half. Current rules prevent individuals from making IRA contributions once they have reached age 70-and-a-half.
Effective dates for the various provisions are during 2020 and 2021. The general belief is that a bill will be signed into law prior to year-end, but it is very difficult to know exactly what that will look like at this time. Aronson will continue to monitor the progress of RESA in the Senate, as well as the reconciliation process between the SECURE Act and RESA.
If you have questions or would like more information, please contact Mark Flanagan of Aronson’s Compensation and Benefits Practice at 301.231.6257.