Last week, the U.S. House of Representatives overwhelmingly approved a retirement bill, the Setting Every Community Up for Retirement Enhancement (SECURE) Act (H.R. 1994). The bill is notable for being bipartisan, as shown by the 417-3 vote and the mix of its 58 cosponsors (35 Democratic and 23 Republican). It is widely considered to be the nation’s most important retirement legislation since the Pension Protection Act of 2006.
Many of the bill’s provisions have been debated in similar legislation during the past few Congressional sessions. This version was introduced in March by Representative Richard Neal (D-MA) with Representatives Ron Kind (D-WI), Mike Kelly (R-PA) and Kevin Brady (R-TX) signing on as original cosponsors.
The bill’s provisions attempt to increase Americans’ retirement security by making it easier for small employers to offer retirement plans, incentivizing individuals to save and making it easier for them to keep their savings in retirement vehicles.
Let’s take a closer look at some of the SECURE Act’s provisions.
Expanding access to retirement plans:
- Open multiple employer plans (MEPS, a.k.a pooled employer plans): The bill eases the “commonality of interest” provision surrounding MEPs. Under current law, MEPs can be sponsored by professional employer organizations or bona fide groups or associations of employers; there needs to be some sort of connection. Now, two or more unrelated employers would be able to use a pooled plan provider to join together in offering a defined contribution (DC) plan to employees.
- Small employer tax credits: Small employers that establish retirement plans would receive a $5,000 tax credit, up from the current $500. If they add automatic enrollment of participants, they would receive another $500 tax credit, payable for three years.
- Long-term, part-time employees’ eligibility: Currently, employers can require employees to work 1,000 hours per year to participate in DC plans. The bill requires employers to allow noncollectively bargained employees who have worked at least 500 hours per year over the past three years to participate.
- Required minimum distributions (RMDs): Beginning in 2020, individuals would have until age 72 to start taking RMDs from their IRAs and retirement plans (up from age 70½).
- Automatic enrollment: The safe harbor auto-enrollment cap would be increased from 10% of participants’ pay to 15%.
- Loans: Generally, plan loan amounts could no longer be distributed through savings plan credit cards.
- IRA contributions: The bill would repeal the maximum age (currently 70½) for traditional IRA contributions, allowing individuals to continue to save in IRAs for as long as they wish.
- 529 plan withdrawals: Individuals would be able to withdraw up to $10,000 from a 529 plan to repay student loans or pay for apprenticeships. This could make it easier for younger individuals to start saving for retirement sooner.
Ensuring lifetime income:
- Lifetime income: The bill offers a fiduciary safe harbor for DC plan sponsors to more safely offer annuity payout options by limiting their liability if the chosen annuity provider fails to make future payments. The bill also requires the plan to provide an annual statement showing the individuals’ account balance as a monthly income stream.
- Penalty-free withdrawals for birth or adoption: Individuals would be able to take up to $5,000 from their retirement plan within one year of the birth or adoption of a child to pay qualified expenses.
- Inherited IRAs/DC benefits: Nonspouse beneficiaries would need to spend down an inherited IRA or DC benefits within ten years. Currently, this spend down can be done over the life of the beneficiary. This provision would bring billions in tax revenue more quickly to the federal government.
Next Up for the SECURE Act—The Senate
It’s likely the Senate will vote on retirement legislation. The question is how and when.
Senator Chuck Grassley (R-IA) has introduced a bill, the Retirement Enhancement and Savings Act (RESA) (S. 972), that closely tracks the SECURE Act, but does have some differences.
Will the Senate vote on RESA as introduced? If RESA passes as is, the differences between RESA and the SECURE Act will need to be resolved during a conference committee. The modified bill will then need to be voted upon by both chambers. Alternatively, RESA can be changed in the Senate before the vote to better match the SECURE Act. Or, the Senate can instead vote on the House-passed SECURE Act rather than RESA.
The Senate is scheduled for a nonlegislative period until June 3. It’s possible they’ll consider retirement legislation upon their return. They may well pass such legislation because of bipartisan support, although it is not certain.
If passed, the bill would then go to President Trump for his signature. Although he has not said one way or the other, it is possible he may sign.
Representative Richard Neal, Chair of the House Ways and Means Committee, has indicated he sees this bill as the “first round” in retirement legislation. He may introduce “round two” later this year.
Stay tuned to the International Foundation for news on the SECURE Act and any future retirement legislation.
Julie Stich, CEBS
Associate Vice President, Content at the International Foundation
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