August 6, 2019

The U.S. House of Represented passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE ACT) on May 23, 2019. The SECURE ACT has strong bi-partisan support and is intended to help working Americans contribute more to retirement plans in two ways: 1) offering businesses incentives to offer the plans, and 2) expanding features of the plans to accommodate the fact that people are living longer.

The SECURE ACT is NOT passed yet. The Senate will now vote on the bill.

The Top 7 features of the SECURE ACT, as passed by the House and subject to change in the Senate, are:

1.    Tax credits for small businesses. Small businesses receive a tax credit for retirement plan start-up costs up to $5,000, under the SECURE ACT. An additional tax credit of $500/year (for 3 years only) will be available if the plan offers automatic enrollment. To increase both plan participation and savings rates, employees will be automatically enrolled into the plan, unless they elect not to participate.

2.    Allowing multiple employers to share plan administration. The SECURE ACT would permit unrelated businesses to share the administrative and financial burden of establishing and maintaining a retirement plan. Currently, multiple employer plans (MEPs) are available to small employers in the same industry.

3.    Expanded participation for part-time employees.  Currently, employers can exclude part-time employees that work less than 1,000 hours/year. Under the SECURE ACT, part time employees would be allowed coverage if they worked at least 500 hours per year for the past 3 years, consecutively.

4.    Delay required minimum distribution (RMD) date to age 72 from 70½. Today, IRA owners and qualified plan participants must begin taking distributions from their IRAs or qualified plans no later than age 70½. The SECURE ACT would delay RMDs until age 72, allowing funds to continue to benefit from tax deferral.

5.    IRA contributions can be made past age 70½. Currently, contributions to traditional IRA accounts cannot be made past age70½. Because many Americans are working past traditional retirement age, the SECURE ACT would allow ongoing contributions past age 70½ to address longevity.

6.    ‘Stretch’ IRAs no longer available. Under the SECURE ACT, beneficiaries would be required to withdraw the balance of an inherited IRA (and other qualified retirement plans) within 10 years of the inheritance. This means taxes would be due in full on all proceeds within ten years, creating a source of revenue to fund the benefits offered under the ACT. However, beneficiaries who are surviving spouses, disabled individuals, minors, and those who are not more than 10 years younger than the account owner, will not be required to follow the 10-year distribution requirement.

7.    Encourages employers to offer annuities with lifetime income options. The SECURE ACT would also allow employers to offer guaranteed lifetime income options, available from the purchase of annuities. If an annuity is included, however, the employer(plan sponsor) would be required to provide employees who are participating in the plan an annual disclosure that estimates the monthly payment an employee will receive at retirement. Employees would also be allowed to roll over the annuity to an IRA when they retire through an in-service withdrawal.