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How Will the SECURE Act Impact 401(k)s?

Posted by Marc S. Schechter | Aug 12, 2019 | 0 Comments

Pension 401k 2

While 401(k)s are one of the most common retirement savings plans, there are still a lot of American workers who do not have access to a 401(k) or do not have any significant retirement savings. A new bill has passed the House that intends to increase access to retirement savings and accommodate older workers. 

Setting Up Every Community for Retirement Act of 2019 

According to a report by the Stanford Center on Longevity47% of all workers are either “not too confident” or “not confident at all” about their ability to retire. Only about half of American workers have access to a 401(k). For those who do have a 401(k), the median balance for workers between the ages of 60 and 69 is only $62,000. 

The house passed the Setting Every Community Up for Retirement (SECURE) Act of 2019 and it awaits possible changes and approval in the Senate. The bill would modify requirements for 401(k)s, individual retirement accounts (IRAs), and other tax-favored retirement accounts. Most of the SECURE Act changes would improve retirement savings options for most workers. 

Credits to Increase 401(k) Plans for Employers

The bill would increase the credit to employers for the startup costs of setting up a retirement plan. The credit would apply for 3 years and is calculated as: the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000. 

Credits to Increase Automatic Enrollment

Retirement plans that default to automatic enrollment have been shown to increase participation. The bill would provide a credit of up to $500 per year (for 3 years) to employers to defray the startup costs for new 401(k) and SIMPLE IRA plans that include automatic enrollment. The credit would also be available for employers with existing retirement savings plans that convert to automatic enrollment.

Access for Part-Time Workers

The SECURE Act changes would allow more part-time workers to be eligible for a 401(k). Currently, employees who work less than 1,000 hours per year can be excluded from most defined contributions plans by employers. The bill would provide access for part-time workers with 3 consecutive years of service of at least 500 hours per year. Part-time workers are disproportionately women and this change may give more women access to retirement savings accounts. 

Increase the Age for Mandatory Distributions 

Under the current law, participants generally have to start taking mandatory distributions from their account at age 70 ½. The age for mandatory distributions has not changed since it was set in the 1960s. The bill would increase the age for mandatory minimum distributions to 72. More workers are continuing to work in their later years and this change would allow them to defer mandatory distributions for an extra year and a half. 

Eliminate the Maximum Age for Traditional IRA Contributions

Currently, individuals are prohibited from making traditional IRA contributions after turning 70 ½. However, more workers continue working into their later years and increasing the amount of time they can put away income towards retirement savings may increase their savings, especially in the later years. The bill would eliminate the age limit for traditional IRA contributions. 

Benefits Law Firm for San Diego Businesses

If you have any questions about how legislative changes may impact your company's 401(k), 403(b), or other retirement savings plan, Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm with a focus on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.

About the Author

Marc S. Schechter

Marc Schechter specializes in the areas of employee benefits, ERISA, and business matters.

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