It’s been 13 years since Congress enacted the Pension Protection Act of 2006, the last piece of major legislation affecting retirement plans. Significant provisions affecting retirement plans were included in various versions of President Trump’s tax reform bill, enacted in 2017, but Congress ultimately punted and none of them made it into the final bill.
This past May, the House passed, by a near-unanimous vote of 417-3, the “Setting Every Community up for Retirement Enhancement Act” (The “SECURE Act”). Strong support in the House suggests this legislation has an excellent chance of becoming law before the end of 2019, and it’s now contingent on Senate action. Although many of the provisions in this bill have strong support in the Senate, due to arcane procedural rules, a single senator could tie this legislation up in committee.
A number of important provisions in this potential legislation have appeared in past bills and have been received with strong bipartisan support.
Regardless of whether the SECURE Act becomes law this year, it’s almost certain that the majority of its provisions will be enacted at some point in the not-too-distant future.
Some of the more important provisions of this bill include:
Multiple Employer Plans (“MEPs”) for Unrelated Employers
Should it become law, the bill will overturn Department of Labor guidance, preventing unrelated employers from establishing MEPs. This is an attempt to encourage small employers to sponsor retirement plans by offering them a more efficient alternative to plan establishment.
Notice of Lifetime Income
The bill requires sponsors of defined contribution plans to provide participants with an annual notice disclosing the estimated monthly annuity income their account balance could generate at retirement. The intent of this provision is to ensure that participants are better informed about how much they need to save for their retirement. Nationally, the average participant in a 401(k) plan is currently saving enough to replace less than half of his/her projected income at retirement, even when social security benefits are included.
Safe Harbor for Lifetime Income Option
Few defined contribution plans offer an annuity option that provides a lifetime income stream commencing at retirement. One of the major reasons for this is plan sponsor concern about fiduciary liability in the event that the insurance company becomes insolvent at a future date. In 2008, the Department of Labor published a safe harbor for selecting an annuity provider, but this was not viewed as providing sufficient protection to plan fiduciaries. The SECURE Act bill specifies the steps plan sponsors must take in selecting an annuity provider. If these steps are taken, the plan sponsor would be deemed to have satisfied its fiduciary responsibilities.
Current law permits plan sponsors to exclude part-time employees from retirement plans. This bill requires sponsors to allow long-term part-time employees to participate. Long term part-time employees are defined as employees who work at least 500 hours in three consecutive years.
Tax Credit Increased for Plan Start-Up Costs
The bill increases the existing tax credit for plan startup costs for small employers with no more than 100 employees. The credit will increase from $500 to $5,000 over three years, and there will be an additional $500 credit if the plan includes an auto-enroll feature.
Remove Age Limit for Traditional IRAs
Under current law, individuals cannot make deductible contributions to a traditional IRA after reaching age 70 ½. There is no age restriction for Roth IRAs. Should it become law, the SECURE Act will repeal this age restriction.
Age for MRDs Pushed Back
The age at which minimum required distributions must commence would be pushed back from age 70 ½ to 72. This is a popular change, but it has been criticized as only benefitting wealthy tax-payers with relatively large amounts of deferred tax savings who do not need to make withdrawals to cover living expenses.
To learn more about this topic or to request support, plan sponsors are encouraged to reach out to Curi Capital’s Retirement Plan Solutions team at 984-202-2800.
Rediscover the joy of medicine Subscribe
This checklist of common year-end “action items” is a useful guide to help determine where you are in your financial plan and how you should proceed to make the most of the coming year.
A summary of the changes related to hardship distributions along with the mandatory and optional rules that retirement plan sponsors need to implement.
When physicians take time to fully understand their finances and create actionable plans for increased stability, they are able to alleviate many of the associated fears and challenges and ultimately reach a place of financial wellness.