Retirement bill ups savings levels and expands 401(k)s for small businesses

CARES Act 2020: Retirement Fund Access and Student Loan Relief |

Retirement bill ups savings levels and expands 401(k)s for small businesses

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 provides more than $2 trillion in relief for businesses and individuals affected by the COVID-19 pandemic. The new law includes provisions that provide temporary support related to retirement assets and student loan payments to help Americans deal with the economic impacts of the pandemic. Here are 4 things to know.

1. Temporary Waiver of Required Minimum Distributions for Certain Retirement Accounts

The CARES Act waives all required minimum distribution requirements for tax-qualified defined contribution plans, including 401(k) plans), 403(a) and 403(b), government-sponsored Section 457(b) plans and IRAs for the calendar year 2020.

The 2020 RMD waiver applies to individuals who have already been taking RMDs or those who would have taken their first RMD in 2020, including: (1) an individual who is 72 or older in 2020; (2) an individual who reached the age of 70½ prior to January 1, 2020; and (3) certain death beneficiaries.

Things to consider: The temporary RMD waiver applies to all individuals who were subject to an RMD requirement in 2020, not just those who may have been impacted by the coronavirus pandemic. If this waiver applies to you, be sure to monitor any updates to this legislation and make plans for taking required distributions in 2021.  

2. Temporary Waiver of Early Withdrawal Penalty for a Coronavirus-Related Distribution from Retirement Accounts

The CARES Act provides qualified individuals affected by the coronavirus with access to retirement savings that typically would be inaccessible or subject to early withdrawal penalties.

The new law waives the 10 percent early withdrawal tax penalty (that generally applies to early distributions for individuals under 59 ½ years old) from qualified retirement plans (e.g.

, 401(k) plans, 403(b) plans and traditional IRAs) for coronavirus-related distributions (CRDs) made between January 1, 2020, and December 31, 2020.

Qualified individuals may take up to a $100,000 distribution (in aggregate) from their qualified retirement plans.

The waiver is available to individuals: (1) diagnosed with COVID-19; (2) whose spouse or dependent is diagnosed with COVID-19; or (3) who experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the U.S. Treasury Secretary.

The CARES Act allows an individual to pay back the funds to a qualified retirement plan during the three-year period beginning the day after the date on which the individual receives a CRD without having the amount recognized as income for tax purposes.

Income taxes will still be owed on withdrawn amounts that are not repaid, but individuals are permitted to pay tax on the CRD income over a three-year period. In addition, COVID-19-related distributions are exempt from the 20 percent mandatory withholding that normally applies to certain retirement plan distributions.

Employees are required to sign a certification of the reason for the CRD but the plan administrators are not required to verify such certifications.

Things to consider: Individuals should check with their plan sponsors regarding the CARES Act relief and think carefully about withdrawing funds set aside for retirement.

The economic impacts of the coronavirus pandemic are forcing many families to make tough financial decisions, but selling investments at a market low means you are locking in that loss rather than waiting for markets to improve.

When you withdraw money from a retirement account, even without a 10 percent penalty, this can have significant impacts on your retirement savings because you lose out on the compound growth from any funds you withdraw. Absent an urgent need, investors may want to rely on emergency savings to the extent available, and remain focused on long term-financial goals.

3. Temporary Increase in Amount for Retirement Account Loans

In general, loans taken from a qualified retirement plan account (401(a), 401(k), 403(b) and government plans) are limited to the lesser of $50,000 or 50 percent of the participant's vested balance and must be paid back within five years.

The CARES Act doubles these retirement plan loan limits for qualified individuals eligible for a CRD to the lesser of $100,000 or 100 percent of the participant's vested account balance. To qualify, the loan must be made within 180 days after the enactment of the CARES Act.

The participant won't owe income tax on the amount borrowed from the 401(k) if it's paid back within five years.

In addition, qualified individuals with an outstanding loan from their plan (i.e., one taken before the CARES Act was enacted) with a repayment due between March 27, 2020, and Dec. 31, 2020, can delay their loan repayments for up to one year, although interest will continue to accrue on these delayed payments.

Things to consider: Before you determine whether to borrow from your retirement account, consider some of the advantages and drawbacks to this decision.

On the plus side, you usually don't have to explain why you need the money or how you intend to spend it, the loan fees and interest rate might be lower than those available on a personal loan or a credit advance, and the interest you repay is paid back into your account.

On the negative side, the money you withdraw will not grow if it isn't invested, and repayments are made with after-tax dollars that will be taxed again when you eventually withdraw them from your account. Also, if you lose your job, the loan generally will be considered a withdrawal on which you must pay income tax.

Importantly, employers may, but are not required to, offer COVID-19-related distributions and loan relief under their plans. 

4. Relief for Student Loan Borrowers

The CARES Act expands a tax code provision that allows employers to contribute tax-free, tuition assistance to now provide temporary assistance with student loans. From March 27, 2020 through December 31, 2020, employers may reimburse employees up to $5,250 for loan repayment assistance or other education-assistance payments.

The CARES Act also offers relief for most federal student loan borrowers (including those who have direct loans, Perkins loans and Federal Family Education Loans owned by the U.S.

Department of Education) by automatically suspending monthly payments from March 13 to September 30, 2020. While loan payments are suspended, interest will not accrue.

 The CARES Act relief does not apply to private student loans.

Things to consider: If nothing has changed in your financial circumstances during this time, it might make sense to continue paying down your student loans as you are able. These balances will remain when this temporary relief is over so move forward if you can, especially in light of interest accrual suspensions. 

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The small business guide to 401(k) retirement plans

Retirement bill ups savings levels and expands 401(k)s for small businesses

Offering a 401(k) sends a great message to your employees. It says that you’re truly invested in their future with your company—and beyond. They can help employees save for retirement, while potentially providing your business with tax savings and a valuable recruiting and retention tool.

Studies show that half of American families have no retirement savings, and that less than half of small businesses offer a retirement plan.

Given this unfortunate reality, it’s not surprising that offering a small business 401(k) can have a big impact on the way your employees think about your company.

How many employees do you need to have a 401(k) plan? Can small businesses even offer a 401(k)?
Let’s get this the way. Yes, any size business can offer a 401(k) plan.

Traditionally, 401(k) providers charged small and mid-sized businesses exorbitant fees or ignored them altogether—leading millions of smaller businesses out in the cold without an easy way to offer meaningful retirement benefits.

Guideline is changing that by offering small businesses an easy, affordable 401(k).

How do I set up a small business 401(k)?
If you’re ready to set up your small business 401(k), these are the four steps you’ll need to take.

For small businesses that are ready to help their employees save for retirement, the IRS website covers the actions you need to set up a 401(k) plan. In case you don’t speak in tax code, here’s a more approachable step-by-step guide.

Step 1: Choose a plan that meets your business goals

Plan design options
The big difference between 401(k) plan designs is how and when an employer makes contributions on behalf of its employees. Here are three types of plan designs, their requirements, and some other implications:

1. Standard profit sharing 401(k) plan: This plan gives employers the flexibility to make outright contributions to employee accounts, make contributions contingent on what employees’ defer (i.e., matching), or not contribute at all. An employer can also set up these contributions with a vesting schedule. These plans are subject to annual IRS nondiscrimination tests.

2. Safe Harbor profit sharing 401(k) plan: This plan type is similar to a standard profit sharing plan design, but it requires employers to contribute to their employees’ accounts.

There are very specific rules about how contributions are structured in these plans, and contributions usually have to vest immediately. But in exchange, these plans get “safe harbor status” and are exempt from some annual IRS nondiscrimination tests and the consequences of failure.

Standard plans must pass these tests every year. Check out our Safe Harbor 401(k) guide for more details.

3. SIMPLE 401(k): Businesses with fewer than 100 employees can open a SIMPLE 401(k). Similar to the Safe Harbor plan, SIMPLE plans require employers to make contributions to their participants’ 401(k) accounts that vest immediately.

SIMPLE plans are also exempt from nondiscrimination testing. However, they are very prescriptive about start and closure dates, and once you commit to contributions for the year you cannot change your mind.

Read more about how the differences between 401(k) and SIMPLE plans.

What other 401(k) plan features should I consider?
Offering retirement benefits is a great way to attract and retain talent. But specific plan features can really boost participation and make your small business 401(k) plan even more enticing.

Traditional vs. Roth 401(k). What’s the difference?
Generally speaking, the key difference between the two is when employee contributions are taxed. With traditional accounts, contributions are made before taxes are taken pay.

Under Roth accounts, contributions are taxed first and then deposited. When an employee retires, withdrawals from traditional accounts are taxed at ordinary income rates, whereas Roth withdrawals can generally be made on a tax-free basis.

* Read more about traditional vs Roth accounts.

Should I match employee contributions?
Matching contributions can be hugely beneficial for both employees and employers. For employees, they’re an additional form of compensation that can help maximize their retirement savings.

For employers, matching contributions may be tax deductible as an ordinary business expense, up to the annual corporate tax deduction limit on all employer contributions (25% of covered payroll).

* Vesting schedules can help small business owners further customize their plan design to meet their business goals. Read more in our guide to 401(k) matching.

What is 401(k) profit sharing?
Profit sharing works a bonus to an employee’s retirement account—with one big difference.

Rather than be taxed immediately on that bonus, profit sharing contributions go straight into eligible employees’ retirement accounts without any tax taken at contribution. Employees won’t have to pay taxes on that money until they retire.

* For employers, these deposits are income tax-deductible and also aren’t subject to Social Security or Medicare taxes—making profit sharing a win-win for both parties.

Step 2: Pick your dream team

Small business 401(k) plans can involve a lot of different service providers and advisors. When setting up your plan, you can choose to take an a la carte approach with several different providers. Or find one provider who can handle most, if not all, of the services required to set up and administer your plan.

When you offer a retirement plan through Guideline, we handle your recordkeeping, compliance testing, day-to-day plan administration, and more. That means your small business doesn’t have to sweat keeping track of disparate systems or vendors just to manage your 401(k) plan.

401(k) recordkeepers
No surprise: small business 401(k) plans require a lot of recordkeeping. Between all of the contributions, earnings, losses, plan investments, expenses, and benefit distributions, it’s a lot to keep track of. 401(k) recordkeepers are responsible for the following, to name a few:

  • Logging employer and employee contributions
  • Tracking investments
  • Processing 401(k) loans and withdrawals
  • Basic customer support

Financial advisors and fiduciary responsibilities
In the context of retirement, there are generally two kinds of financial advisors that take on fiduciary responsibility: 3(21) and 3(38). These numbers refer to sections of the Employee Retirement Income Security Act (ERISA), the law dictating many of the rules surrounding retirement plans. Here’s how these “fiduciaries” differ:

A Section 3(21) advisor will do the heavy lifting in selecting and maintaining investments for your plan and hopefully provide you with advice to make better decisions on your own. That said, you’re still responsible for calling the shots. If you don’t consider yourself a retirement pro, this approach leaves you and your company on the hook for bad or risky decisions.

A Section 3(38) investment manager has full control over money management for your plan. That means they also take on liability for investment selection and sometimes asset management.

Your duties are limited as a plan sponsor to prudently select and monitor a fiduciary.

Therefore, opting for a 3(38) investment manager might be the best decision if you aren't well versed in how retirement plans work.

401(k) third party administrators
There’s a lot of behind-the-scenes work that needs to happen to keep your small business 401(k) plan in good standing. Though their responsibilities vary, 401(k) plan administrators generally handle:

  • Preparation of documents and notices for participants and beneficiaries
  • Approval of transactions (loans, distributions, etc.)
  • Monitoring compliance with plan rules and federal regulations
  • Discrimination testing and audit support
  • Compliance filing (Form 5500, etc.)
  • Generation of annual participant census

While 401(k) plan administration can be handled in-house, many choose to outsource the function to a third party administrator (TPA). But not all TPAs are created equal. If yours is an ERISA 3(16) fiduciary, they won’t just handle administration but they will also take on liability for doing these things in accordance with ERISA regulations. Read more about 401(k) administrators.

What’s the difference between a trustee and a custodian?
By law, your 401(k) plan’s assets must be held in a trust account to ensure that they’re used solely to benefit plan participants and their beneficiaries.

In other words, your employees' money needs to be kept in a safe place by a custodian and monitored by a trustee. Keep in mind that custodians are the parties that actually hold your plan’s assets, while trustees are responsible for collecting contributions, investing them, and issuing distributions.

These tasks can be delegated to a plan administrator, but the trustee will have ultimate responsibility to ensure the administrator is doing its job.

Payroll providers
Employees will contribute to their retirement accounts come payday.

That means you’ll need to partner closely with your payroll provider to ensure employees’ personal information and retirement contributions are accurately reflected in all systems.

When employees update their contribution rates in your retirement vendor’s platform, for example, this should feed into the tool you use to run payroll. Choosing a 401(k) provider that fully integrates with your HR and payroll providers can save time and reduce errors.

Guideline integrates with top payroll providers, including but not limited to the ones above.

Step 3: Make it official

Adopt a written plan
Once you’ve settled on your plan types and features, you need to create a written plan document that, according to the IRS, “serves as the foundation for day-to-day plan operations.” While that language sounds intimidating, it’s just referring to a description of the benefits, rights, and features under your plan. Your 401(k) plan administrator will usually handle this for you.

Your plan documents should include the following features, for example:

  • When employees are eligible to participate
  • Vesting schedule information
  • Employer matching and/or profit sharing details
  • How distributions are handled
  • Contact information for the employer and applicable third parties

Getting this information right and making sure that it’s readily available is critical when you need to demonstrate compliance during an audit.

Onboard employees
For many plan designs, you’ll need to notify eligible employees about the 401(k) plan before it goes into effect—usually 30 days in advance. Moving forward, you’ll also need to give notice of any changes.

A summary plan description serves as the primary way to share information about your plan and its benefits.

If you include plan features automatic enrollment, Safe Harbor, or a qualified default investment alternative, you may be required to furnish additional notices.

A sample go-live timeline with Guideline.

You may also want to give employees a more thorough rundown of your retirement plan. Consider including a “Retirement 101” section in your next open enrollment presentation or all-hands meeting. Doing so could boost 401(k) plan utilization, promote financial literacy, and help dispel misconceptions employees might have about your overall benefits package.

Step 4: Keep it running smoothly

Ongoing nondiscrimination testing
Offering a retirement plan takes regular upkeep and a close eye on 401(k) plan compliance deadlines to ensure you don’t run afoul of ERISA and IRS rules.

Most 401(k) plans are required to pass nondiscrimination testing each year. These look at the value of each employee's account, employee contribution rates, and other details. Employer matching and profit sharing also come under scrutiny.

Your company may also want to regularly review or revise your plan features as the company's situation changes.

Government filings
In addition to keeping up with compliance testing, you’ll need to file an IRS Form 5500 each year. This federally-mandated form includes information about your business, your retirement plans, number of participants, and more.

How much will a small business 401(k) cost?
Guideline 401(k) starts at a $39 base fee plus $8 per employee per month. Guideline does not charge additional investment fees to participants. Learn more about our fees and services here.

When evaluating a small business 401(k), consider if there are hidden fees for key functions such as compliance, recordkeeping, and investment management. Also ask about setup fees, monthly fees, annual fees, Form 5500 fees, and whether a provider expects you to pay fees to anyone else. All these standard services are included in Guideline's pricing.

Are there any fees for employees?
Many providers put a lot of the burden for their services on employees, or force employees into investments with high management fees. Ask what fees employees pay.

Are there monthly fees or management fees? And what kind of fees are charged by the funds in their portfolios? For small business plans, the average employee fees are around 1%, but some providers have fees as low as 0.07%.

Getting a good answer to this question could mean hundreds of thousands of additional dollars in each employee’s retirement account over the course of several decades.

There’s a lot to consider when setting up a small business 401(k). If you’re currently researching providers, our checklist can help you keep everything straight. If you’d to learn more about Guideline, you can schedule a plan consultation.

*This content is for informational purposes only and is not intended to be construed as tax advice. You should consult a tax professional to determine the best tax advantaged retirement plan for you.


The SECURE Act: How Your Retirement Savings Will Be Impacted

Retirement bill ups savings levels and expands 401(k)s for small businesses

Saving for retirement and ensuring those funds last throughout your lifetime is now a little easier, thanks to a new bill passed by Congress.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law by President Donald Trump in Dec. 2019, aims to improve the nation’s retirement system. The bill’s 30 provisions provide Americans with new opportunities to save and strengthen their retirement security across the U.S., whether they’re three or 30 years away from leaving their working days behind.

“There is general agreement on both sides of the aisle that people need to be saving for retirement, and we want to create the incentives and vehicles for them to do so,” says Elizabeth Kelly, senior vice president at United Income who served as a special assistant to the president at the White House National Economic Council under the Obama administration. “More changes are needed to help make sure that all Americans are prepared to live a secure and dignified retirement, but the vast majority of the provisions are a step in the right direction.”

The SECURE Act’s passing means it’s now the biggest legislative change to the retirement system in more than a decade, when the Pension Protection Act was passed in 2006. Here’s a breakdown of the SECURE Act and how you can expect it to impact your retirement savings.

What is the SECURE Act, and why does it matter?

The reality surrounding retirement is bleak: A lot of Americans aren’t prepared.

More than half of American workers say they’re behind on their retirement contributions, according to a Nov. 2019 Bankrate survey. A separate Bankrate survey from May 2019 found that nearly one in five adults aren’t saving anything for when the day they ultimately leave the workforce.

Contributing to that bleak picture is an issue of accessibility, Kelly says. Thirty-three percent of private sector workers don’t have access to a retirement savings plan as of March 2019, according to the Bureau of Labor and Statistics.

Those numbers are even more grim for part-time workers and employees at small firms. Nearly 39 percent of individuals who work less than 35 hours each week have access to a 401(k) or pension plan at work, according to the Labor Department report, while 54 percent of workers at businesses with fewer than 100 employees had access to only a 401(k), according to BLS.

“We know that the best way to get people to save is to offer them a workplace retirement plan, and ideally, to automatically enroll them in that plan,” she says. “The goal [of the bill] is to give people the tools to be better prepared by increasing the availability of retirement savings plans.”

People are also living longer and working much later in their lives. The remaining provisions are “basically intended to update the rules to increase longevity” of individuals’ funds, Kelly says.

Though there are 30 updates to the retirement system, here’s where you’ll see the most impact, according to retirement experts.

1. Includes part-time employees

Previous laws allowed employers to exclude their part-time employees from eligibility for a 401(k) plan. That won’t be the case, now that the SECURE Act is passed.

Under this legislation, your employer must allow you to participate in its defined contribution plan if you work at least 500 hours hours during three consecutive years.

This will help the growing number of baby boomers who seek part-time work instead of fully retiring, says Rhian Horgan, founder and CEO of Kindur, a retirement planning platform.

“The old world where you retire at [age] 62 or 65 and go from working full-time to retirement isn’t what modern retirement looks ,” Horgan says. “We see more and more retirees sliding into retirement.”

2. Raises age requirement for required minimum distributions

Previous law required that participants start withdrawing from their retirement savings accounts at age 70.5. The new bill raises that minimum age to 72. That’s intended to “ensure that individuals spend their retirement savings during their lifetime,” according to a House of Representatives statement that originally accompanied the bill.

“It’s basically saying that you don’t have to take your minimum distributions until age 72 instead of age 70.5,” says Gene Steuerle, institute fellow and Richard B. Fisher Chair at the Urban Institute. “People are living longer.”

The law also repealed the maximum age for contributing to a traditional IRA, also currently set at 70.5. Under the SECURE Act, you can now continue contributing to your retirement savings plan, as long as you’re working.

“As Americans live longer, an increasing number continue employment beyond traditional retirement age,” according to the bill.

3. New 10-year deadline on inherited 401(k)s or IRAs

The SECURE Act changes how long you can hold on to a 401(k), a traditional IRA or a Roth IRA that you’ve inherited from someone who’s died. Previous guidelines said you could stretch the balance out over your lifetime, but under the new bill, those balances must be withdrawn within 10 years.

But there are some exceptions. If you’re an individual with a chronic disability or illness, as well as a surviving spouse or minor child of the account owner, you would not be subject to these new regulations.

“It’s both to raise money to pay for the provisions of the bill that may cost some money by virtue of increased savings being tax deferred, but also to make sure that the 401(k) plans and IRAs, are not being used indefinitely as a tax-deferred vehicle by the inheritors,” Kelly says.

4. Allows annuities to be offered in 401(k) plans

Annuities are an investment that provides regular disbursements throughout a period of time in exchange for an upfront, lump-sum payment. Essentially, they act as a fixed and steady stream of income during your retirement and can help prevent outliving your savings. Most 401(k) plans, however, don’t offer the option to purchase annuities – but that could change.

The bill creates a safe harbor for employers, making them more ly to offer these plans.

“It’s a recognition that we are living longer. Consumers today have to manage the drawdown of their assets,” Horgan says. “This move from pensions to 401(k)s is creating a tremendous amount of liability and responsibility for consumers.”

But don’t expect that to happen all at once, says Shai Akabas, director of economic policy at the Bipartisan Policy Center. Employers will most ly roll out those plans gradually.

“I don’t think that people are waiting to hit the ‘go’ button and will start offering them tomorrow,” Akabas says. “Over time, you’ll see additional employers considering this option. I would guess that it would be over several years.”

5. Permits multi-employer 401(k) plans for small businesses

Opening up a work-based retirement savings plan such as a 401(k) can be costly for small businesses. As a result, many firms choose not to offer them, forcing employees to find savings plans on their own. A provision in the SECURE Act, however, seeks to change that.

The bill expands employers’ abilities to offer multi-employer plans, as long as they have the same trustee, fiduciary, administrator, plan year and investment options, “making it easier for small employers to sponsor a retirement plan and thus improving retirement savings,” according to the Ways and Means Committee.

The bill also offers tax credits of $500 intended to “defray startup costs” for new 401(k) and simple IRA plans that include automatic enrollment.

“Basically, the idea is that you enable small businesses to band together and create one large retirement plan with the goal of lowering the administrative burden on each plan’s sponsor and costs,” Kelly says.

6. Requires 401(k) statements to include lifetime income stream disclosure

For those between the ages of 30 and 39, you should have about $66,000 in your retirement savings, according to a Bankrate analysis of Labor Department data. That may seem a lot, but if you’re trying to stretch it out over your lifetime into a monthly or even weekly stream of income income, it may seem a different story.

The new retirement bill requires benefit statements to include a disclosure illustrating “monthly payments the participant would receive if the total account balance were used to provide lifetime income streams,” according to text accompanying the bill.

This could help you learn what still needs to be done regarding your retirement savings – and whether you should be contributing even more.

How the bill may change the way you save

Outside of the retirement space, the SECURE Act provides extra opportunities to save elsewhere, by increasing your flexibility in covering costs associated with education and adoption.

“People are increasingly viewing retirement security as a more holistic problem and a comprehensive financial security challenge,” Akabas says. “People are recognizing the fact that student loans and health care issues play into the picture of the retirement broader narrative. It’s fair to look at these provisions as going hand-in-hand with some of the more direct retirement provisions.”

1. Expands 529 account flexibility

The SECURE Act also expands the uses for 529 accounts, an investment vehicle that helps individuals save for higher education costs. The bill allows individuals to use funds within these accounts for apprenticeships and qualified student loan repayments loans of up to $10,000, according to the bill.

“Creating more flexibility on 529s overall incentivizes savings and increases flexibility,” Horgan says. “Flexibility means that you’re more ly to try to save. When things are inflexible, you’re less ly.”

2. Allows adoption or child birth cost withdrawals

The bill allows individuals to withdraw up to $5,000 penalty-free from their retirement accounts to cover qualified costs associated with a new birth or adoption, as long as that distribution is made within a year. That means a couple could take up to $10,000 out penalty-free, granted they each have a separate retirement account.

Taxes still will need to be paid on pre-tax contributions, and you’ll still want to carefully consider whether a withdrawal is worth it if it means excluding funds from decades worth of compound growth on your investments. But the good news is: You won’t have to pay an early-withdrawal penalty fee.

Where the SECURE Act falls short

The nature of accounts such as 401(k)s and IRAs is that they’re self-directed; the account owner must be the one who chooses the investment strategy. But statistics don’t paint an overall rosy picture for that readiness: A June 2018 Bankrate survey found that 61 percent of Americans don’t know how much they will need to have saved to fund their retirement.

Meanwhile, six in 10 non-retirees who hold these self-directed retirement savings accounts have little to no comfort in managing their investments, according to the Fed’s household well-being survey.

“People need more choices, but it always then raises an extra challenge,” says Jeff Yastine, senior equities analyst at Banyan Hill who helps people invest for retirement. “People already feel overwhelmed by their choices when it comes to 401(k)s. (The bill) makes it more complicated for all of us to know and make the right choice.”

The bill also doesn’t address other issues surrounding retirement, such as rising health care costs and Social Security insolvency, though it could protect people from those problems indirectly, Kelly says.

“There are certainly bigger issues in retirement that need to be tackled outside” of the bill, she says. “To the extent the bill encourages more people to save, so that they have more money to cover future health care costs, more is better.”

Bottom line

It’s a good time to review your current plan and find a strategy to increase your contributions, Horgan says.

“If you’re under the age of 70.5 and working part time and haven’t participated in a plan, that’s encouraged for people in their 50s and 60s,” Horgan says. “It’s an opportunity to review your plan to create an income in the transition period.”

If you’re one of these people to which benefits are now being extended, be sure to reach out to your plan provider about how you can enroll.

And because the legislation creates so many new options for retirement savings, it increases the importance of educating yourself on all of the options at your disposal, so you can choose the plan that’s right for you, Yastine says.

“That’s the curse of having a choice,” Yastine says. “If you don’t have a choice, it’s taken completely your hands. If you have three [to] five different choices, now the potential for confusion and misunderstandings grows exponentially. On the other hand, if you make better choices and you can get educated, you will have a better retirement than you might have had otherwise.”

Learn more:


Congress could open access to 401(k) retirement plans to more workers

Retirement bill ups savings levels and expands 401(k)s for small businesses

Workplace 401(k)-style plans could be expanded to include more Americans, especially those who work for small employers, under a bill that passed a House panel Tuesday. (Photo: Getty Images/Ingram Publishing)

If you work for a small company that doesn't offer a retirement plan, keep your eye on Congress.

A large retirement package bill was approved Tuesday by the House of Representatives Ways & Means Committee and included provisions of the Secure Act, which stands for Setting Every Community Up for Retirement Enhancement.

At a time when a lot of Americans have amassed only meager nest eggs, the House panel is pushing to bolster retirement savings, mainly by expanding 401(k) retirement plans to more workers. The legislation would also make it easier for employers to offer annuities in their plans while removing some obstacles on Individual Retirement Accounts, or IRAs.

Enhancing retirement security is a goal that both Republicans and Democrats can get behind, as the House action shows. The bipartisan proposal passed unanimously, and the Senate is considering a similar bill.

What are the key provisions?

The legislation would make it easier to expand 401(k)-style plans among small employers, many of whom don't offer these benefits, by permitting companies to join together to form multiemployer plans and save on administration expenses. Another provision would provide an employer credit of up to $5,000 to defray start-up costs.

An estimated 700,000 more Americans could receive retirement-plan coverage under the bill, according to the American Council of Life Insurers.

A financial-education provision would provide more user-friendly illustrations of how saving-account balances could translate into monthly lifetime income, and another option would allow workers to convert a portion of their savings into an annuity or stream of payments.

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The legislation also would repeal the current age limit, now 70½, above which people can no longer contribute to IRAs, recognizing that some Americans will need to work and keep saving well into traditional retirement age.

The bill also would delay the age at which IRA required minimum distributions must start, from 70½ currently to 72.


To Save or not to Save? Buzz60's Natasha Abellard tells us why it may no longer be an option. Buzz60

What are 401(k) plans?

They are investment accounts offered by employers as a workplace benefit. At their core, the plans let workers invest money in tax-sheltered accounts similar to IRAs.

Participants typically get a front-end deduction on their contributions, and investment gains grow tax-sheltered until withdraw. The plans also are convenient, in that workers invest by having the money diverted automatically from each paycheck.

Many plans allow workers to take out loans against a slice of their balances in a pinch.

To encourage participation, employers often offer matching funds of perhaps 50 cents for every dollar that a worker contributes, capped at certain limits. Also to bolster participation, many employers automatically enroll workers in their programs and gradually increase worker contributions over time, unless they opt out.

But as popular as 401(k) plans have become, they are much more common at giant corporations and other big employers rather than small ones. So the House is trying to address that. 

Despite a slew of retirement plans already available, including workplace 401(k) programs and both traditional and Roth IRAs, a lot of people haven't been saving enough — and some aren't saving at all.

In a poll by Northwestern Mutual, 78 percent of respondents described themselves as extremely or somewhat concerned about affording a comfortable retirement.

Roughly one in five Americans have no retirement savings at all, while one in three Baby Boomers — a group already at or nearing retirement age — have less than $25,000 in savings.

Against this grim backdrop, there are lingering concerns about Social Security's long-term viability.

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