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SECURE (Setting Every Community Up for Retirement Enhancement Act)

June 07, 2019

We mentioned in a previous blog post that Congress was altering the retirement system. The changes are becoming clearer. The House of Representatives passed 417-3 the Setting Every Community Up for Retirement Enhancement Act (SECURE).

The Senate version is called the Retirement Enhancement Securities Act (RESA). Do they have someone whose only job is to come up with these acronyms?

There are 29 new provisions. Highlights of the legislation are below


Small employers – It has been a long-term goal to get small employers to offer a retirement plan for their employees. The SEP-IRA and SIMPLE plans were created to entice small employers to offer a plan. They have met with limited success. The new legislation would allow small employers to join together to offer a 401(k) plan for less cost and less fiduciary liability.


Annuities – We are not a big fan of annuities because of their typical costs. We also find it an oxymoron to have an annuity inside a retirement plan. One of the selling features of annuities is their tax deferral. Why do you need one when a retirement plan is already tax deferred? Be that as it may, the legislation encourages annuities to be in 401(k) plans. (A win for the very strong insurance lobby.)


Required Minimum Distributions – Many of our clients are already in their RMD phase. Currently, once a person reaches 70.5, they are required to start their withdrawals. SECURE moves the age to 72 while RESA has it at 75.


Age limit on IRA Contributions – Under current law, workers cannot contribute to a traditional IRA after age 70.5. SECURE would repeal this age limit.


Employer Tax Credit for Auto Enrollment – A new tax credit would be offered to small employers offering a retirement plan that automatically enrolls employees. The belief is this would help offset retirement plan costs to the employer.


Lifetime Income Disclosure – Currently defined contribution plans (401(k), 403(b), etc.) accrue money until you leave your employer. This provision would require plans to provide an estimate of how much lifetime income your defined contribution plan balance would provide. While the theory is good, the devil will be in the details. How will this lifetime income number be calculated? So far, we don’t know.


Inherited Retirement Plans – This new feature will cause problems for many. Currently, beneficiaries can stretch out the distribution over a lifetime (hence called “stretch-out” provisions). The new legislation is a tax generating change. The Supreme Court ruled that inherited accounts are not retirement accounts. This changed legislative thinking about why should the beneficiary receive an extended tax benefit.


SECURE has the provision that the funds would need to be distributed within 10 years. RESA is different; it would require the end to stretch out provisions for inherited IRAs over $450,000.

Part-Time Workers – The legislation makes it easier for part-time workers to qualify for some 401(k) plans.

Adoptions or Birth – Parents would be able to withdraw up to $5,000 to cover qualified expenses from their retirement plan without penalty.

Tax Penalties – Penalties for the failure to file tax returns for retirement plans increases

529 Plans – Unrelated to retirement, a withdrawal of up to $10,000 from a Section 529 plan could be used to pay back student loans.


At this time, these changes primarily apply to 401(k)s and IRAs. New estate planning techniques will need to be considered.

We still don’t know what the final legislation will look like since the Senate and House need to negotiate a final bill acceptable to both houses.


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