RETIREMENT UPDATE: Possible Coming Changes To Your Retirement

Original article was from April 17, 2019.

The Senate held a hearing this week for the “Retirement Security and Savings Act,” which would allow people with little in savings to catch up and also help small businesses provide retirement plans to its workers.

The House of Representatives is expected to vote on the Retirement Enhancement and Savings Act (RESA) by the end of the month, a bill that would expand auto-enrollment features, link small businesses together to offer retirement accounts and describe a fiduciary responsibility. The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) is also waiting for a vote in the House.

These bills, which we discussed more in depth last month, have been moving their way through committee in Congress. As usual, with each step revisions and modifications are made.

They look like the will go to conference for combination in June, where the Senate version and the House version are reconciled and 'combined'.

President Trump is expected to sign it.

Here are the four main provisions:

Small Business Access to 401k's

This is the main provision (there are over 50 between both bills)- to increase access to 401k's for small businesses. The Multiple Employer Plans (MEPs) would allow smaller businesses to group together and spread the costs of offering 401k plans to their employees, similar to what you see in HR services with the PEO (where small businesses group together to lower their medical rates on health and other insurance plans).

These bills allow small businesses in different industries to join together to “obtain more favorable pension investment results and more efficient and less expensive management services,” per the Senate Finance Committee summary.

In addition, lawmakers on both sides want provisions to provide tax credits to small businesses to make it more affordable for them to set up their own retirement plans.

Another group of workers who might see increased access to retirement savings plans: long-serving part-time employees. There are provisions in the House bill for part-time workers. On the other end of the Capitol, Senators Rob Portman and Ben Cardin are pushing similar provisions. Their plan would allow part-time workers access to their company’s retirement plans once they work over 500 hours for two consecutive years.

Save for Retirement While Paying Off Student Loans

This proposal was originally part of other retirement security bills, including the Retirement Security and Savings Act, but Sen. Wyden introduced the concept as a stand-alone proposal as well this week. The proposal, called Retirement Parity for Student Loans Act, would let employers make matching contributions to a 401k for employees who are paying off student loans, but not mandate it.

Basically this means if a 401k plan provides a 100% matching contribution on the first 5% of salary reduction contributions made by a worker, then a 100% matching contribution must be made for student loan repayments equal to 5% of the worker’s pay, according to Wyden. (It would be mandatory if an employer is offering a match, but they can offer whatever match they want.)

Contribute and Save for Longer

The plan would eliminate the maximum age to contribute to an IRA. Currently, you are only eligible to contribute to a traditional IRA if you are younger than 70 ½. There are no age limits on contributions to 401k plans or to Roth IRAs.

Lawmakers are also considering increasing the age when account holders must begin taking required minimum distributions (RMDs) from their accounts and pay taxes. Currently, RMDs begins at age 70 ½. The House bill would increase the limit to age 72. On the Senate side, the proposal from Senators Portman and Cardin would increase the age to 72 in 2023 and then up to age 75 by 2030.

Portman noted that as people are living longer, we must ensure that their savings last longer...

More Access to Retirement Plans

Experts are also pushing more forceful measures to encourage younger people to save. Tobias Read, Oregon’s State Treasurer, testified in Washington recently that the minimum age for investing in an IRA should be lowered. We should be “allowing minors as young as 16 to open their own accounts and hold the money in their own names,” he said to lawmakers. Many agreed, so we could see that added to either bill.