The SECURE Act – A Primer on the Top Six SECURE Act Changes that could be coming to Retirement Plans Next Year

The SECURE Act (the “Act”) passed the House with bipartisan support and is on its way to the Senate with predictions that it could end up on the President’s desk by the end of the year. Here are some highlights of this potential legislation.

1. Longer Life means Later Mandatory Distributions. To account for increases in life expectancy, the Act would increase the age for required minimum distributions from 70 ½ to 72. The Act will also repeal the maximum age for traditional IRA contributions.

2. Auto-Enrollment Incentives. Automatic enrollment has been shown to increase both participation and higher savings, so to incentivize this plan design, the Act will provide a tax credit for small employers adopting plans with this design and increases the cap from 10% to 15% for automatic escalation in an automatic enrollment safe harbor plan.

3. Part-Timers Participation. Under the Act, employees that work at least 500 hours over three consecutive years will be eligible to participate in their employer’s defined contribution plan, thus, longer term part-timers, often ineligible, will now have a way in to their employer’s plans.

4. New Baby Withdrawal.  Participants will be able to withdraw a limited but penalty-free amount from their retirement funds for any qualified birth or adoption.

5. Lifetime Income Disclosures. The Act aims to provide participants in defined contribution plans with a tangible estimate of what they would receive, on a monthly basis, across their lifetime based on the current funds in their account. For many participants this could be an all-important wake-up call. Plan fiduciaries and sponsors will not have liability under ERISA for these disclosures as long as they are provided in accordance with the assumptions and guidance that will be issued by the Department of Labor.

6. New Pooled Employer Plans. The Act would allow two or more unrelated employers to join a pooled employer plan managed by a financial services institution that acts as the pooled plan provider. These “PEPs” may reduce administration thus realizing the economies of scale that small employers want but cannot currently achieve under MEPs.

 

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