On December 20, 2019, President Trump signed the “Setting Every Community Up for Retirement Enhancement Act” into law. Better known as the SECURE Act, the law makes several changes to rules governing workplace retirement plans in an attempt to bolster American retirement prospects.
Before it was signed into law (tacked onto the year-end spending bill), the SECURE Act enjoyed support from proponents on both sides of the political aisle. Some critics argue the law doesn’t go far enough. However, with only 55 percent of the U.S. adult population participating in a workplace retirement plan in 2018, most will agree it’s a step in the right direction.
Small business incentives
The overarching goal of the SECURE Act is to get more people on workplace retirement plans. In order to do that, a key strategy of the law is to create a greater incentive for small businesses to offer plans to their employees.
First, the law increases the maximum tax credit to $5,000 a year to small employers who start-up a retirement plan (up to three years). Secondly, employers who create a 401(k) or Simple IRA plan with automatic enrollment can receive an additional credit of $500 a year. Thirdly, the law increases the cap under which employers can automatically enroll workers in “safe harbor” retirement plans, from 10 percent of wages to 15 percent.
Retirement options for part-time workers
In March 2019, only 40 percent of part-time workers had access to workplace retirement benefits. To increase this rate, the SECURE Act enables businesses to provide plans to employees who work either 1,000 hours a year or who have worked three consecutive years with 500 hours worked. Adding the latter qualifications includes a large group of previously-ineligible workers.
Since part-time workers are disproportionately female, this provision is seen to right an inequal ability to prepare for retirement based on sex.
Annuity Encouragement in 401(k)s
The law encourages employers and plan sponsors to include more annuity options in 401(k) plans by transferring liability to the insurance companies. Ambiguity surrounding who would be obligated to fulfill the financial obligations of a guaranteed retirement income contract was seen as a roadblock to offering lifetime income benefit options under a 401(k).
Other interesting elements of the law
- Penalty-free withdrawals from retirement plans for any “qualified birth or adoption distributions.”
- Pension funding relief for local newspapers that may be struggling to contribute the required amount to their pension plans
- Increases the age at which individuals must make their required minimum distributions from 70 ½ to 72
To learn more, you can visit the U.S. House of Representatives Ways and Means Committee website for a more-detailed reading of the law.
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https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743
https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-116HR1865SA-RCP116-44.PDF
https://www.bls.gov/news.release/pdf/ebs2.pdf
https://humaninterest.com/blog/part-time-employees-secure-act/
