The SECURE Act Proposal

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The SECURE Act Proposal

by | May 28, 2019

The full house is set to vote this week on the SECURE Act – another bill with a cutesy name:  “Setting Every Community Up for Retirement Enhancement Act of 2019,”.  This bill, which passed through the House Ways and Means Committee in April, is paired with a similar bill in the Senate, the Retirement Enhancement and Savings Act of 2019, is a repeat of various provisions from bills from 2018.
The bill would make it easier for small businesses to set up retirement plans, pave the way for more annuities in retirement plans and raise the required minimum distribution age to 72 from 70 1/2.  All good things.  To raise revenue, it would change the withdrawal rules on inherited IRAs, curtailing the “stretch IRA” strategy.  Sneaky- not a good thing at all.  

Essentially, it’s a combination of incremental improvements in 401(k) plans.  It has bipartisan support and received votes from members of each party, but that it passed through the committee unanimously and in a very fast-tracked manner.

There are a number of key components to increase participation in and contributions to 401(k) plans, including:

 Permitting employers to auto-escalate their employees’ contributions up to 15% of pay, up from 10%;
 Increasing the tax credits provided to small businesses who start up retirement savings plans and/or include automatic enrollment;
 Allowing graduate students and post-docs to save for retirement based on their stipends/fellowships, and allowing home healthcare workers to save based on “difficulty of care” payments, which are otherwise not counted as compensation; and
 Prohibiting credit card-based loans but enabling penalty-free withdrawals in case of birth or adoption.
 Create a safe harbor that employers can use when they’re choosing group annuity issuers to support 401(k) plan lifetime income stream options.
 Require plan sponsors to tell the participants about how much monthly retirement income their assets might produce.

The bill also includes provisions which are unrelated to retirement savings, including the expansion of Section 529 education savings accounts to include such categories as apprenticeships.

The bill includes allowing for workers of any age to contribute to IRAs (that is, eliminating the existing age 70 1/2 cutoff).

There is a multiple Employer Plan proposal that would allow two or more unrelated employers to join a pooled employer plan (PEP) with a designated pooled plan provider (PPP) that will have clear responsibility to ensure that the MEP follows the rules under ERISA and the tax code. 

And finally, to fund the tax credits and other spending in the bill, the bill increases penalties when either individual or retirement plan sponsors fail to file returns on time, and accelerates the rate at which heirs of IRAs or 401(k)s must take distributions from (that is, pay taxes on) the accounts.

So where does this leave us?  The changes expanding the ability of small employers to offer retirement plans as well as the provisions including annuity access offer the greatest promise for improving retirement benefits.  

 Notably, Chairman Neal also announced that he and Ranking Member Brady will be working on a second, more comprehensive retirement bill with a goal of marking it up prior to the August recess. 

Time will tell us…

Any opinions are those of Thomas Fleishel and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.

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