The House Ways and Means Committee has passed a bill that overhauls rules for retirement plans to allow workers to contribute more, and for a longer period, and give incentives for employers to increase 401(k) participation.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 increases the contribution cap to 15% from 10% for employees enrolled in safe harbor plans, and repeals the rule that prohibits contributing to a traditional IRA after age 70½.
“Americans currently face a retirement income crisis, with too many people in danger of not having enough savings to maintain their standard of living and avoid sliding into poverty,” Ways & Means Committee Chairman Richard Neal said in a release. “The SECURE Act goes a long way in addressing this problem by making it easier for Americans to save.”
Because automatic enrollment is shown to increase employee participation and higher retirement savings, the proposed legislation creates a new tax credit of up to $500 per year to employers to defray startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. The credit is in addition to the plan start-up credit allowed under current law and would be available for three years.
The credit would also be available to employers who convert an existing plan to an automatic enrollment design. Increasing the credit for plan start-up costs is intended to make it more affordable for small businesses to set up retirement plans.
The bill also increases retirement plan portability by allowing qualified defined contribution plans, section 403(b) plans, or governmental section 457(b) plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan.
Long-term, part-time workers would also be allowed to participate in 401(k) plans under the proposed bill. Under current law, employers may exclude employees who work fewer than 1,000 hours per year when providing a defined contribution plan to their employees.
But under the SECURE Act, the bill will require employers maintaining a 401(k) plan to have a dual-eligibility requirement under which an employee must complete either one year of service of at least 1,000 hours worked, or three consecutive years of service where the employee completes at least 500 hours of service. This provision is intended to help close the retirement pay gender gap as women are more likely than men to work part-time.
The proposed legislation would also raise the age at which retirees are required to being taking their minimum distributions to 72 from 70½. The 70½ requirement was first applied in the early 1960s and has never been adjusted to account for increases in life expectancy.
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Tags: 401(k), 401k Plan, House Ways and Means Committee, Pension, SECURE Act