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Congress May Be Doing Something Right For A Change

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Steve Pomeranz, Congress Retirement Plan Benefits

There’s a movement afoot in Congress to make some big changes to help people save and invest more for their future. This pending change is good news for retirees, for people planning for retirement, and parents! It’s called the SECURE ACT of 2019 which stands for “Setting Every Community Up for Retirement Enhancement” and it passed the House by an overwhelming vote of 417-3. The Senate has its own version which is still pending and expected to pass shortly, then they will bring the two together and reconcile them.

What The SECURE Act Offers Small Business Employees

Let’s take a peek at the new bill to see exactly what it means for planning for retirement. And let me note that part of the act has major significance for small business employees.

  • The act, if passed, would make it possible for small businesses to join together to create 401(k) plans for their employees. By forming such a group, small businesses would be able to access lower cost plans and plans that offer a wider variety of investment options for employees. This is an important step because of the fact that most small businesses don’t currently offer retirement savings plans to their employees, which means that nearly 50% of US workers don’t have access to employer-sponsored retirement plans.
  • The bill would further offer tax incentives—in the form of tax credits—to small businesses that establish employee retirement savings plans such as 401(k) plans. So there is an incentive for small business to do something.

Helping Part-time Workers

Another section of the SECURE Act offers help for a different segment of workers—part-time employees. In the past, part-time employees have had little or no access to retirement plans.  The SECURE Act proposes to change that.

  • The bill would allow all part-time workers, after three years of employment, to have access to employer-sponsored retirement savings plans. It also reduces the minimum amount of work hours needed to qualify from 1,000 to 500 hours. That means that even employees who only work 10 or 15 hours a week could still qualify for their employer’s retirement plan. With so many companies having cut back workers’ hours to reduce operating costs, this element of the bill offers benefits to millions of part-time workers. A side note though: the bill doesn’t require employers to make matching contributions for part-time employees, even if they offer matching contributions for full-time employees. I guess something is better than nothing and it’s a good start.

Changes For Retirement Plan Contributions And Distributions

This bill also aims to offer retirees or people nearing retirement more flexibility in contributing to or taking distributions from their retirement plan accounts.

  • The current cut-off age of 70½ for making contributions to retirement plans would be done away with, and the age for taking required minimum distributions would be raised to 72. Let me repeat that. Under this proposed law, you wouldn’t be required to take your minimum distribution until age 72 and you could keep contributing to a retirement plan as long as you wanted. In today’s world, this represents a major positive change, which, in my opinion, would help a lot of people.

Help For Parents

Two other specific provisions of the SECURE Act are aimed at helping parents. The first would allow parents to withdraw up to $5,000, without any penalties, to pay for qualified expenses following the birth or adoption of a child. The second provision would allow parents to withdraw up to $10,000 from those college education savings plans called 529 plans, to help pay back student loans.

And there may be even more help for parents on the way. One of the proposed additions to the bill in the Senate is to allow 529 savings plans to be used to fund homeschooling costs. That would certainly help out the parents of the nearly two million children who are currently homeschooled in the United States.

Assuming the bill passes as it currently stands, 529 plans will also be expanded to allow funding of more educational choices, such as apprenticeships.

Finally, this bill would also allow more annuity choices in the plans and enable employees to increase their retirement contributions from 10% to 15% of their income.

All in all, the SECURE Act of 2019 represents the first significant change to retirement plans since 2006’s Pension Protection Act that made it easier for employees to be enrolled in 401(k) plans. Given the fact that, according to a recent study by the Federal Reserve, only about a third of Americans think their retirement planning is in good shape, I’m all for measures that make retirement planning easier, more robust, and that allow some more flexibility regarding access to one’s retirement funds. We’ll keep an eye on this bill for you as it continues through Congress and report back on the Senate version and the final version when and if it comes to pass.

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