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What the SECURE Act's Passage in the House Means for SMB Retirement Plans

image for Devrim Pinar/Shutterstock
Devrim Pinar/Shutterstock
  • If made into law, the SECURE Act would give larger tax credits to small businesses that provide retirement-savings plans to their workers.
  • This bill allows small businesses to form multiple-employer 401(k) plans to save costs, making it easier for them to offer quality retirement plans to their employees.
  • Under the SECURE Act, long-term, part-time employees may be eligible to participate in employers' 401(k) plans.

Weeks after its passage through the Ways and Means Committee, "Setting Every Community Up for Retirement Enhancement of 2019," or the SECURE Act, got one step closer to becoming a law following a 417-3 vote in the House of Representatives.

This piece of legislation has bipartisan support and is touted as a major step in making retirement benefits more attainable for American workers.

"The SECURE Act will help American workers and their families save for a secure retirement, and I am proud to bring it to the Floor today for a vote in the House," said Majority Leader Steny H. Hoyer (D-Maryland).

Following its passage in the House yesterday, the bill is expected to make its way to the Senate's Finance Committee after Congress returns from Memorial Day recess. If it passes there, the bill will be brought to the Senate floor for a final vote before it gets sent to President Donald J. Trump's desk for approval.

The SECURE Act is one of two retirement-focused bills now making their way through the higher chamber, with lawmakers hoping this bill or its counterpart, the Retirement Enhancement and Savings Act of 2019 (RESA), will become law by the end of the year.

If made into a law, the SECURE Act will offer a larger tax credit to small businesses that opt to set up retirement plans for their employees.

It also makes it easier for small businesses to sponsor employee retirement plans by removing existing restrictions on multiple employer plans (open MEPs) that let SMBs enter a plan with other businesses.

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.

Chad Parks, founder and CEO of Ubiquity Retirement + Savings, said the bill's attention to small businesses should put them at ease. "There's something to be said about the widespread awareness of retirement issues at the regulatory level, given the bipartisan support on this bill," he said. "Many of the changes that were included in this legislation show that regulators are working to clean up some loose ends and loopholes that were historically problematic to plan administrators and employees."

Parks said he and his firm were especially happy about the bill's focus on addressing lifetime income and its inclusion in retirement accounts.

"For many, ensuring lifetime income has been an ongoing challenge when saving for retirement and simultaneously managing other financial responsibilities," Parks said. "While the fate of this legislation is unknown at this point, we are enthusiastic about regulatory support to help end the looming retirement crisis."

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Though the SECURE Act still has a way to go before the president has a chance to sign it into law, legislators stress its importance for the American worker. If passed, it would be the first major piece of retirement legislation since the Pension Protection Act became the law of the land 13 years ago.

Here are some of the bill's notable features:

  • The bill increases the age that retirees must reach before being able to withdraw cash from their individual retirement accounts (IRAs) and 401(k)s from 70.5 to 72.
  • It removes the age cap for contributions to IRAs entirely, allowing older workers to put money into their retirement accounts.
  • It allows employers to increase employee contributions from 10% to 15%.
  • The bill allows long-term, part-time workers to participate in 401(k) plans by requiring employers 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."
  • It allows new parents to withdraw up to $5,000 from retirement accounts to cover expenses for their newly born or adopted child without any penalties.

While the overall mood during the vote on the SECURE Act was largely amicable between the two parties, a last-minute change caused some consternation within Republican ranks.

When the bill was originally introduced, there were two provisions that expanded Section 529 accounts – also known as qualified tuition plans – to cover home-schooling costs and supplies for K-12 students. While Republicans favored the measure, numerous teachers' unions and lobbyists did not. As a result, the language was removed and Republicans were upset at its exclusion. Kevin Brady (R-Texas), the top-ranking Republican on the Ways and Means Committee, said its removal could "lower bipartisan support for the package we reached in good faith."

Regardless, Brady and an overwhelming majority of his Republican colleagues joined lawmakers on the other side of the aisle and passed the bill.

Andrew Martins

Andrew Martins is an award-winning journalist with a Bachelor of Arts in journalism from Ramapo College of New Jersey. Before joining Business.com and Business News Daily, he wrote for a regional publication and served as the managing editor for six weekly papers that spanned four counties. Currently, he is responsible for reviewing tax software and online fax services. He is a New Jersey native and a first-generation Portuguese American, and he has a penchant for the nerdy.