Legislators in the House of Representatives' Ways and Means Committee unanimously passed a bill yesterday that could make it easier for small businesses to provide retirement plans to their employees and make more workers eligible to participate in them.
Dubbed the "Setting Every Community Up for Retirement Enhancement Act of 2019," or the SECURE Act, the bill contains several provisions that aim to make retirement an attainable goal for more American workers.
Following the bill's passage, Committee Chairman Richard Neal (D-Mass.) said the proposal was a big step in helping "workers of all ages prepare for a financially secure retirement."
"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. The SECURE Act goes a long way in addressing this problem by making it easier for Americans to save," he said. "Passage of this bill is a tremendous bipartisan accomplishment, and I hope to see the measure move through Congress and be signed into law in short order."
After the introduction of the Retirement Enhancement and Savings Act of 2019 in the Senate, SECURE is one of two similar pieces of legislation making their way through Congress that lawmakers hope to have on President Donald J. Trump's desk before the end of the year.
News of the bill's successful run through committee had retirement plan industry leaders excited at the prospect of SECURE and RESA becoming law.
"Taken together, RESA and the SECURE Act represent the kind of leadership necessary to address Americans' retirement security concerns," said Susan Neely, president and CEO of the American Council of Life Insurers (ACLI). "We urge Congress to act quickly on these important measures."
What the SECURE Act proposes
While proponents of the bill, like Rep. Ron Kind (D-Wis.), touted the proposal as "landmark, bipartisan legislation," it's important to note that the SECURE Act still must pass a vote on the House floor. For that to happen, legislators outside of the Ways and Means Committee will have to weigh the bill's perceived merits.
If passed, the SECURE Act will do the following:
- Allow employers to automatically escalate employee contributions from 10 to 15 percent
- Implement rules that help long-term, part-time workers participate in 401(k) plans by requiring employers that provide the benefit to have "a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service"
- Give a larger tax credit to small businesses that opt to set up retirement plans for their employees, making the process more affordable
- Provide retirement plan holders with an easier way to transfer lifetime income to another employer-sponsored retirement plan or IRA
- Let individuals continue to contribute to a traditional IRA beyond the current cutoff of 70.5 years old. Under the SECURE Act, people can continue to contribute until they are 72 years old
- Help those with some taxable, non-tuition fellowship and stipend payments to save for retirement based on that income
- Block qualified employer plans from making loans through credit cards, ensuring that "plan loans are not used for routine or small purchases, thereby preserving retirement savings."
Along with those provisions, the SECURE Act will give employers a "fiduciary safe harbor" when selecting a lifetime income provider. Under those protections, employers will have a set of guidelines that, if followed, can shield them from liability.
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Funding the SECURE Act
If passed, the SECURE Act and the Senate's RESA Act would be the first major piece of retirement legislation since the Pension Protection Act became law 13 years ago. Since then, 401(k)s and IRAs have grown in popularity.
As with most pieces of legislation, lawmakers are left wondering how to pay for the SECURE Act's laundry list of changes. According to the bill, there are four main methods that legislators hope to employ to even out the costs:
- Change existing rules surrounding the distribution of 401(k) plans when participants die. Unless those retirement plans are disbursed to the employee's surviving spouse, disabled or chronically ill individuals, people who are 10 years younger than the employee, or the employee's child (under 18 years of age), beneficiaries will not get the funds until 10 years after the death of the plan holder.
- Increase the penalty that comes with not filing your taxes to either $400 or 100 percent of the amount of taxes due, whichever is the lesser amount.
- Increase the penalty for failing to file retirement plan returns. Under the new legislation, the Form 5500 penalty will go to $105 per day, not to exceed $50,000. Other fees are also included in this item.
- Bolster information sharing between the IRS and the U.S. Customs and Border Protection in order to more easily administer and collect the heavy vehicle use tax.