CNBC: What the Secure Act Would Mean to You
Author: Siân Killingsworth / 24 May 2019
We’re so excited and we just can’t hide it!
On Thursday, May 23rd, the House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019, known as the Secure Act. This is a bill backed by both Republicans and Democrats that aims to improve the nation’s retirement system. If the legislation passes, these changes would be the most significant to retirement plans since 2006, when the Pension Protection Act made it easier for companies to automatically enroll their employees in 401(k) plans.
“This is a stepping stone to try to solve that looming retirement crisis, ”
-Chad Parks, founder and CEO of Ubiquity Retirement + Savings
Here are some of the provisions included in the Secure Act:
- Repeal the maximum age for traditional IRA contributions, which is currently 70½
- Increase the required minimum distribution age for retirement accounts to 72 (up from 70½)
- Allow long-term part-time workers to participate in 401(k) plans
- Allow more annuities to be offered in 401(k) plans
- Parents can withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses
- Parents can withdraw up to $10,000 from 529 plans to repay student loans
Many Americans are not prepared for their golden years: Just 36% of non-retired adults think that their retirement saving is on track, the Federal Reserve found in its annual study on household well-being. And 25% of Americans have no retirement savings or pension. Our CEO Chad says that part of this problem comes down to the simple fact that many workers don’t have access to 401(k) plans.
“The reality is that almost half of all working Americans don’t have the ability to save for their retirement at their job. That’s primarily because small businesses are hesitant or intimidated by offering either a 401(k) or some sort of payroll-deduct IRA program.”
A goal of the Secure Act is “to incentivize businesses to put [plans] in place,” Parks explains. One of the ways it’s doing that is by making it easier for small businesses to band together to offer 401(k) plans via Multiple Employer Plans, known as MEPs.
By making it easier and cheaper for small businesses to offer 401(k) plans, if the bill becomes law, “millions more people, hypothetically, should have access to the ability to save at work,” says Parks.
The bill would also allow more part-time workers to participate in 401(k) plans. Currently, employers generally can exclude people who work less than 1,000 hours per year from its defined contribution plan. But with the new bill, “any employee who has worked for you for at least three years and at least 500 hours a year is now able to participate in your retirement plan,” says Parks.