Retirement plans have experienced some regulation changes over the past year thanks to the SECURE Act. The SECURE Act was put into place to make retirement plans more accessible and beneficial to participants and employers. There is a new bill going through Congress that will add more changes to retirement plan regulations, called Securing a Strong Retirement Act or SECURE Act 2.0. Here are highlights in the bill:
Student loans and retirement savings:
Employees paying down student loan debt may not have the financial ability to contribute into a retirement plan. The bill will allow employers to contribute to its employees’ retirement account who are not contributing and paying student loan debt. This arrangement applies to employers that make a match contribution on behalf of their employees. The match would be equal to the amount of the student loan payment, up to a certain percentage of the employee’s compensation.
Increase catch-up contributions:
The current rules allow for individuals over age 50 to have the ability to contribute an additional $6,500 into their retirement account, called a catch-up contribution. This bill will allow for an additional catch-up contribution of $10,000 into a 401(k) or 403(b) plan or $5,000 into a SIMPLE IRA for individuals over the age of 60. The bill also allows for annual adjustments for inflation for catch-up contributions to an IRA plan.
Required Minimum Distributions:
As people are living and working longer, the SECURE Act recognized the need to increase the required minimum distribution age from 70½ to 72. The bill will increase the age limit to 75. In addition, retirees with less than $100,000 in retirement savings could be excluded from taking these required minimum distributions.
Individuals that select an annuity arrangement are set up to receive guaranteed payments over a specific period of time. These annuity arrangements are currently subject to limitations. Such limitations are eased in the bill and will make it easier for plans to offer annuities and allow for Qualified Longevity Annuity Contracts which can increase the amount of retirement savings allowed to be used.
Auto-enrollment is an option for employers to adopt in its 401(k), 403(b) or SIMPLE IRA plans. This bill will require the auto-enrollment feature to be mandatory for all newly eligible employees. The withholding rate will be 3% from the employee’s pay, increasing each year by 1% until employee reaches 10% withholding rate.
The saver’s credit, which allows for a tax credit to lower-income individuals that save for retirement. The bill would increase the credit to 50% of the amount contributed, which increases the value of the credit from $1,000 to $1,500.
Setting up a retirement plan can be costly to small businesses. Currently, there is a three-year 50% tax credit businesses can take for the administrative costs of setting up a retirement plan. Businesses that qualify will have up to 50 employees. The bill will increase the tax credit to 100% and may allow defined contribution plans (i.e. 401(k) plans) to receive higher credits. Plan paperwork is another administrative responsibility of the employer. Currently, participants are required to receive several documents and disclosures regarding the retirement plan with their employer. The bill would no longer require the sending of these disclosures, other than the employer notifying the employee that they can enroll in the retirement plan. The bill would place the responsibility of simplifying these reports and disclosure requirements in the hands of the US Treasury, Department of Labor, and the Pension Benefit Guaranty Corporation. Lastly, penalties will be lessened for some reporting mistakes made by the employer.
Erin is a member of Cerini & Associates; audit staff where she works with our nonprofit and school district clients. Erin has experience in internal claims auditing and external auditing, including financial statement audits. Erins’ knowledge and experience allow her to provide specific services including systems testing and analysis, internal and external audit functions, and claims audit functions.