Sam Payne, RICP®, CLTC – VP Business Consultant
(Asset Marketing Systems)
The “Setting Every Community up for Retirement Enhancement” Act (SECURE Act) passed in the House last week with a 417-3 vote. This legislation is expected to make it through the Senate during this term, and in doing so, it will be the first major retirement legislation passed since the Pension Protection Act in 2006.
The Senate is working on their version of retirement legislation, it’s called the Retirement Enhancement Securities Act (RSA). As often happens, some of the provisions of the RSA may find their way into the SECURE Act. For this article, I stick to what we know about the SECURE Act, but keep in mind; it has not passed the Senate…
So what are some of the components of the SECURE Act? Out of the 29 or so new provisions, here are 8 things I think advisors should know:
1. Increase Small Employer Access to Retirement Plans – Part of the legislation will attempt to expand small employers capability to offer some form of retirement savings to employees. One way the act proposes to accomplish this is by expanding the ability to run multi-employer plans and streamline the process overall. This would essentially allow small employers to band together to offer reduced overall cost to the employer, and purportedly a reduction in the fiduciary liability.
2. Increase Annuity Options Inside Retirement Accounts – the act proposes to update the safe harbor provision for plan sponsors to select annuity providers to offer in-plan annuities for use within the 401K. The new rules would essentially ease liability concerns, perhaps opening the path for more annuities to be offered in the plan.
3. Increase RMD Ages – the plan proposes to increase the RMD start age from the current 70 ½ to 72.
4. Remove Age Limitation for contributing to an IRA – if RMD ages are going up, it only makes sense to remove the contribution age limits. Individuals are living longer, and as a consequence working longer. Having the ability to continue to contribute to an IRA as long as they work just makes sense.
5. Tax Credit for Automatic Enrollment – this provision would introduce a tax credit for small employers to encourage automatic enrollment into their plan. It’s a $500 credit, and the intention is to offset the costs of operating the plan at the start.
6. Penalty-Free Distributions for the Birth of a Child or Adoption – this provision will provide an exemption from the 10% penalty tax 72(t) for early withdrawal. It would allow an aggregate amount of $5,000 to be distributed from the plan within one year of birth or adoption.
7. Lifetime Income Disclosure for Defined Contribution Plans – the bill will require defined contribution plans to deliver a disclosure at least once every 12 months to illustrate how much income the account balance would generate. As you can imagine, the methodology for determining or calculating that income is still in the works.
8. Removal of “Stretch” IRA Provisions – here is where I see some significant changes to inherited plans. This provision would require most beneficiaries to distribute the account value over ten years.
So these are 8 quick things to know about the SECURE Act, but the real question in my mind is, will this really help Americans save more? I don’t think it will have a huge impact. I believe our continued message needs to be that each individual has the burden of saving for their financial future placed squarely on their shoulders. They should recognize that, and act accordingly.
Using financial tools and concepts with the advice and direction of a financial professional may help Americans better achieve the retirement of their dreams, so be their guide.