Financially Speaking | Winter 2019
What Can the SECURE Act Do for You?
Legislation aimed at revving up retirement savings in America offers new opportunities for employers, employees, and advisors alike.
Mark J. Gilbert, CPA/PFS, MBA
President, Reason Financial Advisors
By now you should be familiar with Illinois Secure Choice, the employer-sponsored
retirement plan Illinois employers of 25 or more employees must offer if they do not offer
employees another qualified retirement plan. I suggested the Illinois law could provide
meaningful retirement savings for many Illinois workers in my summer 2019 column, “Can
Secure Choice Secure Illinoisans’ Retirements?” Now, Congress is busy debating federal
legislation to tackle America’s savings and retirement crises.
Enter the SECURE (Setting Every Community Up for Retirement Enhancement) Act, which
aims to simplify the provisions to establish and administer employer-sponsored retirement
plans. In essence, the Act will encourage more businesses and business owners to offer
retirement plans which, in turn, should encourage more workers to participate in securing
their own retirements. The Act received strong support earlier this year, passing in the
House by a margin of 417 to 3 in May. As passage of the Act in the Senate seems likely,
albeit delayed, let’s look at some of the important aspects.
The provisions of the SECURE Act continue a trend the federal government began well
over 20 years ago: reduce the employer’s administrative and fiduciary burden of providing
a retirement plan to employees. If more employers offer such plans, and more employees
participate in those plans, then the end goal of ensuring U.S. workers grow their retirement
assets over and above their Social Security benefits or their public service sector pensions
is more likely to be met.
To start, the Act provides for “open” multi-employer 401(k) plans, meaning unrelated small
employers could participate in a single 401(k) plan. This would theoretically drive down the
administrative and operating expenses of the plan while providing employers with a more
affordable alternative to establishing their own 401(k) plans. (Currently, only “closed” multi-employer
plans are permitted, which are plans made up of two or more businesses in one
industry or established trade association.)
Further, the Act provides two $500 maximum annual tax credits (a plan start-up credit and
an ongoing credit for as long as three years) to employers who establish either a 401(k)
plan or a SIMPLE IRA with automatic enrollments. The Act also simplifies the rules related
to qualified non-elective contributions in safe harbor 401(k) plans (i.e., employer contributions
of 3 percent or more of an eligible employee’s compensation regardless of whether the
employee contributes to the plan).
Lastly, the Act reduces the liabilities of employer plan sponsors who
include annuities as investment options in their plans in the event
the insurer fails to meet its financial obligations, including payouts
to plan participants currently receiving benefits.
The requirement that a worker needs to have 1,000 hours of service
in order to participate in a defined contribution plan has been
modified to be three consecutive years with 500 or more hours of
service. The Act also permits employees who participate in automatic
enrollment safe harbor plans to increase their contribution rate from
the current maximum of 10 percent of pay to 15 percent of pay if their
employers permit it.
The Act also affects all participants in qualified retirement plans and
IRA-type accounts. First, the Act increases the age for mandatory
withdrawals (required minimum distributions) to 72 to reflect the
longer life expectancies of workers. Second, the Act removes the
maximum age limit under which a worker can contribute to an IRA.
Next, the Act expands the permitted use of Section 529 plan
account balances to include student loan repayments of up to
$10,000 per year. The Act also expands the permission of penalty-free
IRA withdrawals to allow withdrawing up to $5,000 to cover
qualified birth and adoption expenses. Finally, the Act requires that
IRAs inherited by non-spouses be paid out over no more than a 10-
year period, subject to certain exceptions.
These provisions reflect a balance of sound retirement policy and
real-world practicalities. By delaying the first required minimum
distribution age by 18 months, retirement plan account balances
are estimated to grow 5 percent or more. Lifting the age cap on
IRA contributions is also sound retirement policy, as it means
workers aged 70½ and older will be able to continue contributing
to an IRA. And, allowing participants to access their funds prior to
retirement in emergency and other certain scenarios should help
As with any potential legislation, the SECURE Act has winners and
losers. Among the winners are small employers who wish to offer
employees some form of work retirement savings plan but have
not done so because of high start-up and administrative costs.
Other winners include older workers in our economy for whom
an age 70½ required minimum distribution commencement is
unnecessary and costly. Losers might include IRA owners who
withdraw funds early for legitimate purposes but find out down the
road that the easier access to funds has adversely affected their
retirement living standards. Non-spouse inheritors of IRAs also
could be hurt if they are forced to withdraw funds at a faster clip to
comply with the Act’s 10-year payout limitation.
Unfortunately, the biggest losers are potentially advisors like us.
While the Act sits in limbo in the Senate, employers and employees
are left to ponder whether it will become law in 2019, 2020, or ever,
which could put their financial and tax planning questions on hold
until there’s a resolution or immediate need. Don’t let this be a lost
opportunity to bring value to your clients. Be proactive and bring
forward strategic ideas and new insights that can better their
financial lives. When we show our clients that we’re invested in
helping them achieve their financial goals, we become not only
their trusted advisors but also their valued advisors.