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Landmark Retirement Reform Legislation May Finally Become a Reality

by Andy Poreda

On Thursday morning, the House of Representatives took a big step toward sweeping retirement reform. A bipartisan legislation package was near-unanimously approved by the House 417-3 (no thanks to dissenting GOP Reps. Justin Amash (R-MI), Thomas Massie (R-KY), and Chip Roy (R-TX)). Although there was some last-minute frustration by Republicans over the removal of a provision that would have allowed 529 plan funds to be used for K-12 private education and homeschooling, we believe the primary focus of the legislation was a no-brainer for the country.

The Setting Every Community up for Retirement (SECURE) Act of 2019 is a multi-faceted set of provisions aimed to enhance the ability for Americans to save for retirement, providing the first major set of updates to retirement plans since 2006. The estimated $16 billion landmark bill would ease the multi-employer plan rules (MEPs) to allow two or more unrelated employers to join a pooled employer plan (PEP) through a designated pooled plan provider.

Other key provisions of the legislation include:

  • Increasing the auto enrollment safe harbor cap for existing plans
  • Simplifying safe harbor 401(k) rules
  • Increasing the tax credit for small employer plan start-up costs
  • Providing portability of lifetime income options
  • Allowing long-term part-time workers to participate in 401(k) plans
  • Allowing plans adopting by the filing due date to be treated as in effect as of close of year
  • Providing a fiduciary safe harbor for selection of lifetime income provider
  • Modifying the treatment of custodial accounts on termination of section 403(b) plans
  • Requiring disclosures regarding lifetime income
  • Modifying the nondiscrimination rules to protect longer service participants

Source: American Society of Pension Professionals & Actuaries

According to a recently released Federal Reserve report, a quarter of American adults have no money saved for retirement. A likely culprit is the fact that over half of American workers do not have access to an employer-based retirement plan, according to a 2018 Stanford study; exacerbating the situation, life expectancy is on the rise and future Social Security benefits remain tenuous at best. Meaningful legislation that provides opportunities for Americans to start saving for the future while also lessening the blow of an impending retirement epidemic must be hailed as a monumental success.

Our hope is that the SECURE Act is the start of a bigger reform movement, as future bills are already being pushed. The similarly focused Retirement Enhancement and Savings (RESA) Act still needs to pass through the Senate and is currently stuck at the committee level. A few key differences need to be sorted out, as the Senate version has included no provisions for part-time employees or increasing the required minimum distribution age; however, all signs point to Senate and House Leadership working them out. The bipartisan team of Senator Portman (R-OH) and Senator Cardin (D-MD) are encouraging a bill that would enhance the saver’s credit for low-income individuals and increase catch-up contribution, among other improvements to current rules.

Only time will tell, but these current changes are all a step in the right direction. Here at Sage, our team of professionals build dynamic liability and cash-flow oriented investment strategies for pension and cash balance plans, in addition to providing asset allocation strategies for 401(k) plans. For more information, visit: https://www.sageadvisory.com/retirement-plans/.

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