December, one of the largest changing legislative acts to impact America’s
retirement system was signed into effect. The Setting Every Community Up for
Retirement Enhancement Act – or SECURE Act – has many updates and modifications
that seek to enhance retirement security activities. The Act strives to
addresses challenges that small business owners face including helping your
employees better understand their workplace savings plans, encouraging
employees to save more for their future, and offsetting plan costs.
For plan administrators, sponsors and fiduciaries, here are
a few of the biggest changes that you should be aware of:
better understand their account balances: When participants see their total
account value, it can be challenging to understand how that will translate into
retirement income. That is why, coming soon and the reason why there will be new
lifetime income disclosure statements. The statement will illustrate monthly
payments based on the current account balance to demonstrate a monthly income
stream. This helps your employees to see how far (or short) their retirement
account balance would stretch if that was their sole source of monthly income.
Based on this information, it could be a great motivator to help your employees
save more towards achieving a capable retirement income.
to increase savings through automatic enrollment: Today, plan sponsors can
auto-enroll employees at 10% of salary to save towards their retirement. Under
the SECURE Act, the Safe Harbor deferral cap is increased to 15% of salary. This
auto-enrollment nudge could help your employees get on track and improve their
conversations about lifetime income options: The Act protects plan
fiduciaries that act prudently when selecting insurers for guaranteed
retirement income contracts and protecting them from liability, thus allowing
for portable workplace retirement annuities.
growing families: Allowing participants to withdraw up to $5,000 from
401(k) plans without penalty to help with the costs related to a child’s birth
to access retirement assets in the event of a disaster: In the unfortunate
event that disaster strikes, there are new provisions that allow either a
distribution or loan up to $100,000 for recovery.
to the Required Minimum Withdrawals (RMD) age: Changing the required
distribution age from 70 ½ to 72 years old.
for new retirement plans: If your firm setup their retirement plan within
the last three years, you may be eligible for tax credits up to $5,000 to apply
towards startup costs. Additional credits are available to employers that
convert an existing plan to an automatic enrollment design.
update to Non-Elective Safe Harbor. The Act allows plan sponsors to
switch to a Safe Harbor 401(k) plan with Non-Elective contributions at any time
before the 30th day before the close of the plan year. Also, the notice requirement for Non-Elective
Safe Harbor is eliminated.
The SECURE Act has many changes that could directly impact your
company’s retirement plan. The information above is a brief high-level overview
that might affect your plan, it is definitely not exhaustive and you should do
careful review to learn how the SECURE Act will impact your company’s
retirement plan. For more information,
please visit NAPA-Net’s SECURE Act resource page,
which is updated continuously with new information.
Additionally, contact us, we are available to sit down for a
conversation to discuss your specific plan needs.