On Thursday May 23rd, the House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE” Act) with a near unanimous vote. Billed as an attempt to encourage retirement savings and expand and preserve access to retirement plans on a large scale, the Act contains 29 proposed changes to the current retirement savings landscape. If approved by the Senate, the Act would be the first concrete step towards retirement plan reform since the Pension Protection Act of 2006.
So—what could the SECURE Act mean for plan sponsors and individuals saving for retirement? The Act would make changes in a number of areas, including:
- Repealing the age limit for traditional IRA contributions,
- Current law mandates that individuals contributing to traditional IRAs cease all contributions by age 70½. Perhaps somewhat surprisingly, there is no corresponding rule for Roth IRAs. The SECURE Act would move towards creating a parity of sorts between these two types of IRAs by removing the age limit for contributions to traditional IRAs.
- Expanding part-time employee inclusion in 401(k) plans,
- Under current law, employers and plan sponsors may generally exclude part-time employees from participation in 401(k) plans. The SECURE Act would create a new rule mandating inclusion for long-term part-time employees—that is, for employees who work more than 500 hours but less than 1,000 hours for at least 3 consecutive years—at least in the elective deferral feature of the plan. The rule would not apply to employees covered by a collectively bargained plan.
- Increasing the age for required mandatory distributions,
- Currently, participants generally must begin taking retirement plan distributions at age 70½. The SECURE Act would extend this to age 72.
- Permitting penalty-free distributions upon birth or adoption, and
- Participants in retirement plans generally may not take money out of their plans early without incurring an attendant tax penalty unless the distribution is made following a qualified distribution event (such as a finding of disability or pursuant to a qualified domestic relations order following a divorce). The SECURE Act would create a new permissible qualified distribution event: the birth or adoption of a child. Parents who give birth to or adopt a child could become eligible to take a withdrawal of up to $5,000 without incurring an early withdrawal penalty.
- Introducing a new tax credit for automatic enrollment.
- The SECURE Act would provide a new annual tax credit of up to $500 to certain small employers who adopt a new plan or amend an existing plan to provide for automatic enrollment.
The path forward, however, is somewhat opaque. In the Senate, the SECURE Act will have to contend with the Senate’s own Retirement Enhancement and Savings Act (the “RESA” Act)—a bill first introduced in 2016 and reintroduced in the current session. RESA and the SECURE Act contain many overlapping provisions and enjoy support both on a bipartisan level and by many in the retirement plan industry.
The full text of the SECURE Act is available here. For those with perhaps less reading time, the Senate and House, respectively, have also released condensed summaries of RESA and the SECURE Act.