Retirement reform: Key SECURE Act provisions that will affect you

Bipartisan retirement reforms offered by key House lawmakers

Retirement reform: Key SECURE Act provisions that will affect you

The bill would let sponsors of 401(k), 403(b), governmental 457(b) and SIMPLE plans match workers’ student loan payments as if the payments were salary-reduction contributions.

Employers offering the benefit would have to make it available to all workers eligible to receive matching contributions on salary deferrals, and the match rate for both payments would have to be the same.

The benefit would apply only to repayments of student loan debt incurred for higher education.

Mandated automatic enrollment and escalation for new plans

New 401(k), 403(b) and SIMPLE plans would have to automatically enroll new participants at a deferral rate between 3% and 10%, with lower deferral rates increasing annually by one percentage point to reach 10%.

Employees could opt automatic enrollment or chose a different contribution percentage.

Small employers with fewer than 10 employees, new employers in business less than three years, and sponsors of governmental and church plans would be exempt from the requirement.

Expanded coverage of part-time workers

Sponsors of noncollectively bargained 401(k) plans would have to let part-time workers voluntarily contribute to the plan if they have completed at least 500 hours of service per year for two consecutive years. Current law (the SECURE Act) generally applies this participation requirement to employees with three consecutive years of service.

Required minimum distribution (RMD) changes

The bill would make a number of changes to Internal Revenue Code Section 401(a)(9) rules for RMDs:

  • Starting age. A participant’s RMD start date would increase from the current age 72 (as set by the SECURE Act) to age 75. The change would take effect for RMDs starting after Dec. 31, 2020, for individuals who turn age 72 after that date.
  • Actuarial increase for defined benefit (DB) plan participants. The bill would clarify that DB plan participants who retire after the year in which they turn 70½ are still entitled to an actuarial increase for the post-70½ period for which they are not receiving distributions. This is a technical correction to the SECURE Act, which some practitioners read as limiting the increase to participants who retire after age 72.
  • Removal of barriers to life annuities. Certain barriers under current RMD rules would be removed so defined contribution (DC) plans could offer annuity options with certain increasing or accelerated payment features, such as guaranteed increases of up to 5% (if applied at least annually), full or partial lump sum commutations, and return of premium death payments.
  • RMD exemption for balances of $100,000 or less. DC plan participants and IRA owners with total account balances of $100,000 (indexed) or less on the last day of the year before the year they turn 75 would be exempt from RMD rules.
  • Reduced penalty tax. The excise tax for failure to take an RMD would decrease from 50% to 25%. For RMDs from IRAs, the excise tax would further drop to 10% if the failure is corrected before the earlier of (i) the date IRS initiates an audit with respect to the failure or (ii) the end of the second tax year beginning after the end of tax year in which the penalty is imposed.

Qualified longevity annuity contracts

Qualified longevity annuity contracts (QLACs) let employees use a portion of their retirement savings to purchase an annuity starting as late as age 85, without violating the RMD rules. The bill directs Treasury to amend its regulations on QLACs as follows:

  • Premiums. Premiums for QLACs would no longer be limited to 25% of the account balance, and the dollar limit on these purchases would increase from $125,000 to $200,000 (indexed for inflation).
  • Joint and survivor benefits after divorce. The bill would clarify the rules for joint and survivor benefits for couples who divorce after purchasing the QLAC but before payments begin, facilitating the sale of QLACs with survivor protection.
  • “Free look” periods. The regulatory prohibitions on QLACs having commutation benefits, cash surrender rights and similar benefits would not apply to contracts with rescission periods up to 90 days.

Expanded self-correction program

The bill would expand the Self-Correction Program (SCP) under IRS’s Employee Plans Compliance Resolution System (EPCRS):

  • Inadvertent errors. Plans could use the SCP to correct inadvertent failures at any time before Treasury identifies the error.
  • Loan failures and the Voluntary Fiduciary Correction Program (VFCP). The Department of Labor (DOL) would have to treat inadvertent loan failures corrected under the SCP as meeting VFCP requirements.
  • Safe harbor corrections. The EPCRS would provide more safe harbors for correcting inadvertent errors, including a safe harbor method for calculating earnings that must be restored to a plan.
  • Correction by IRA custodians. IRA custodians could correct inadvertent errors as long as the IRA owner is not at fault.
  • Deadline for RMD corrections. Plans and IRA custodians/owners would have 180 days to self-correct inadvertent violations of the RMD rules without paying an excise tax.

Recovery of retirement plan overpayments

The bill would give retirement plan fiduciaries the latitude to decide not to recoup benefit overpayments. If plan fiduciaries choose to recoup overpayments, limitations and protections would apply to safeguard retirees.

Notably, fiduciaries wouldn’t be able to recoup overpayments from a participant or a beneficiary if the first overpayment occurred more than three years before the participant or beneficiary first receives written notice of the error.

Reporting and disclosure

Several provisions aim to simplify reporting and disclosure requirements, though the bill also would require at least one annual paper benefit statement:

  • Annual paper benefit statement. DC plans would have to deliver at least one paper benefit statement per year (and one every three years for DB plans), unless a participant opts out. In addition to summarizing the participant’s benefits, the paper statement would contain information on how participants can opt receiving the paper disclosure or order delivery of some or all disclosures on paper for no additional cost.
  • Joint agency report. Treasury, DOL and the Pension Benefit Guaranty Corp. would have to review how to consolidate, simplify and standardize reporting and disclosure requirements. The agencies would have to report recommendations to Congress within 18 months of the bill’s enactment.
  • Performance benchmarks for asset allocation funds. DOL would have to issue new guidance allowing plan administrators to benchmark a target-date fund against a blend of securities market indices that is reasonably representative of the fund’s asset holdings. This approach to benchmarking would be permitted but not required.
  • Exemption for nonparticipating employees. DC plans would be exempt from notice and disclosure requirements for employees who choose not to participate and have no account balance, as long as they receive all documents about their initial eligibility and annual reminder notices of eligibility to participate. Nonparticipating employees could also request any documents available to participants.

Retirement savings lost and found

The bill would establish an Office of the Retirement Savings Lost and Found that would develop a searchable online database of information about all lost retirement accounts.

Plans would have to transfer small lost accounts worth $1,000 or less to the program, which would invest the amounts in Treasury securities.

As under current law, plans seeking to disburse a lost retirement account would have to roll over accounts worth more than $1,000 into an IRA established in the participant’s name, but the threshold for disbursement would increase from $5,000 to $6,000.

Provisions specific to 403(b) plans

Several of the bill’s provisions relate specifically to 403(b) plans:

  • Investment in group trusts. The bill would allow 403(b) custodial accounts to invest in collective investment trusts. Under current law, these accounts can invest only in mutual funds. Collective investment trusts are held by banks and are considered less costly investment options than mutual funds.
  • Multiple employer plan (MEP) reforms expanded. The SECURE Act’s provisions allowing pooled employer plans (PEPs) would also cover 403(b) plans.

Provisions of interest to small employers

Some provisions will be of special interest to small employers:

  • Increased start-up tax credits. The current start-up tax credit would increase from 50% to 100% of administrative costs, with additional credits available to employers making contributions on behalf of employees.
  • Start-up credits extended to MEPs, PEPs. Small employers that join a MEP or PEP could claim the start-up credit for their first three years in the MEP or PEP, regardless of how long the MEP or PEP has existed.
  • Military spouse eligibility credit. Small employers could receive a three-year tax credit if they (i) make employees who are military spouses eligible for plan participation within two months of hire, (ii) let eligible military spouses receive any matching or nonelective contribution they would otherwise have been eligible to receive at two years of service, and (iii) make military spouses 100% immediately vested in all employer contributions. The credit would apply only to nonhighly compensated employees.

Miscellaneous provisions

Other miscellaneous provisions that might be of interest to employers include:

  • Expanded saver’s credit. The income limit and amounts eligible for the saver’s credit would increase, and the Treasury Department would have to raise awareness of the credit.
  • Small financial incentives for contributing to plans. Employers could offer small financial incentives (e.g., gift cards) — without violating prohibited transaction rules — to encourage employees to participate in the 401(k) or 403(b) plan.
  • Catch-up contribution limits. Qualified and 403(b) plans could allow larger catch-up contributions of up to $10,000 starting at age 60. The maximum catch-up for SIMPLE plans would increase to $5,000. All catch-up contribution limits (including the current $1,000 limit for IRAs) would be adjusted for cost-of-living increases.
  • 457(b) deferrals. Governmental 457(b) plans could allow employees to change their deferral rates at any time before the compensation would otherwise have been available to the employees. Current rules require making the change before the beginning of the month of deferral.
  • Charitable contributions. Participants age 70-1/2 or older could use their pension, 457(b) and 403(b) plan funds to donate up to $130,000 directly to a charity, without paying income tax on the withdrawals. Current rules only exempt charitable donations from IRAs. The bill also would increase the annual IRA charitable deduction limit from $100,000 to $130,000.


The SECURE Act is changing retirement — here are the most important things to know

Retirement reform: Key SECURE Act provisions that will affect you

President Trump signed the SECURE Act this week as part of the government’s spending bill and it will inevitably affect most retirement savers, for better or worse.

The SECURE legislation — which stands for “Setting Every Community Up for Retirement Enhancement” — puts into place numerous provisions intended to strengthen retirement security across the country.

Part of the bill addresses the grim outlook for many workers who don’t have access to workplace retirement accounts.

It offers small businesses tax incentives to set up automatic enrollment in retirement plans for its workers, or allows them to join multiple employer plans, where they can band together with other companies to offer retirement accounts to their employees in the first place. The bill also eliminates the maximum age cap for contributions to traditional individual retirement accounts.

Not all retirement experts are certain the bill will have much of an impact.

“The SECURE Act is a nice thing — anything we can do on a bipartisan basis in this day and age is something of value — but my sense is the changes in the act are really quite modest,” said Alicia Munnell, director of the Center for Retirement Research at Boston College, and a columnist for MarketWatch.

Some financial advisers worry a few of the changes can hurt savers — such as incorporating annuities in 401(k) plans and eliminating the rule that lets account beneficiaries stretch distributions across their lifetimes.

See: As industry spends millions on lobbying, Congress moves on retirement legislation

Here’s what the bill includes, and what that means for current savers and future retirees:

Annuities in 401(k) plans

The SECURE Act opens the gates for more employers to offer annuities as investment options within 401(k) plans. Currently, employers hold the fiduciary responsibility to ensure these products are appropriate for employees’ portfolios, but under the new rules, the onus falls on insurance companies, which sell annuities, to offer proper investment choices.

Read:Economists annuities; consumers don’t — here’s the disconnect

The upside: Annuities provide a guaranteed income over the course of a retiree’s lifetime which is especially beneficial considering so many Americans are living longer, fuller lives in retirement.

Proponents say annuities can offer a steady stream of money to retirees in the long-term, and also encourages savers to think about the far-off future. “They can be structured in a way to meet long-term retirement income objectives,” said Clint Cary, head of U.S.

delegated investment solutions at Willis Towers Watson.

The downside: Annuities are complex investment products, and the wrong choice can be detrimental to a person’s portfolio.

Employees should review their options and consult a financial adviser before moving forward with a plan. Annuitization could result in heftier fees and penalties if used incorrectly.

Critics argued the bill was a major win for the insurance industry, which lobbied for the bill.

READ:This financial planner believes you probably don’t need an annuity for your retirement

Increasing the required minimum distribution age — and contribution age

Previously, qualified account holders such as those with a 401(k) or IRA had to withdraw required minimum distributions (RMD) in the year they turned age 70.5.

The SECURE Act increases that age to 72, which may have tax implications, depending on where the account holders fall in their tax bracket in the year they withdraw. The 70.

5 age was life expectancies in the early 1960s, the House said, and had not been updated since.

The bill also eliminates the maximum age for traditional IRA contributions, which was previously capped at 70.5 years old. “As Americans live longer, an increasing number continue employment beyond traditional retirement age,” the House Committee on Ways and Means said in a summary of the bill.

But be warned: Americans who turned 70.5 years old in 2019 will still need to withdraw their required minimum distributions this year, and failure to do so results in a 50% penalty of their RMD, said Jamie Hopkins, the director of retirement research at wealth management firm Carson Group. People who are expected to turn 70.

5 years old in 2020 will not be required to withdraw RMDs until they are 72. The first withdrawal doesn’t need to be made until the following April 1, which means people who turned 70.5 in 2019 can wait to withdraw their RMD until April 1, 2020. They’ll then have to take another RMD by the following Dec. 31, and every Dec.

31 thereafter.

Don’t miss: Delaying retirement by up to 6 months is equivalent to saving an additional 1% over 30 years

No more stretch IRAs

Required minimum distributions have also changed for non-spousal account inheritors.

Under the current law, beneficiaries who did not inherit their accounts from a husband and wife are in some cases allowed to withdraw required minimum distributions for the span of their lives, which could be a few years, or a few decades. The amount of the distribution is calculated a few factors, including life expectancy and beneficiary age.

The SECURE Act requires beneficiaries withdraw all assets of an inherited account within 10 years. There are no required minimum distributions within those 10 years, but the entire balance must be distributed after the 10th year.

This change can be problematic for some beneficiaries, especially if they are in their 40s and 50s and at the peak of their earning years.

Limiting the time frame in which someone can distribute money from an inherited account means potentially boosting the tax burden those distributions will cause.

This calculator created by Hopkins and Carson Group can help Americans understand how their RMDs will change, including factors the value of an inherited account, age and estimated rate of return.

Multiple employer plans for small businesses

The bill also widens access to multiple employer plans for small businesses. Previously, companies may have avoided participating in that type of program because of the so-called one bad apple rule that stated if one employer did not meet the plan requirements, the plan would fail for all others involved.

Under the SECURE Act, employers no longer have to share “a common characteristic,” such as being in the same industry. “As employers pool together, they will enjoy the economy of scale, which is access to more features at affordable prices,” Cary said. “It does enable employers to help their employees in a big way.”

Employer-sponsored retirement plans would also be available to long-term part-time workers, with a lower minimum number of hours worked.

Previously, employers did not have to invite workers who clock less than 1,000 hours every year to participate in a retirement plan, but the SECURE Act drops the threshold for eligibility down to either one full year with 1,000 hours worked or three consecutive years of at least 500 hours.

Also see: Nobel winner Richard Thaler: ‘You have to worry about getting unlucky and living to 100’

Encouraging auto-enrollment

Another aspect of the SECURE Act is the tax credit for employers that automatically enroll workers into their retirement plans.

Auto-enrollment is a simple but effective measure to get people saving more for their futures, as studies show participants are more ly to stay in a plan than actively enroll in one themselves.

Nobel Prize winner Richard Thaler, along with colleagues, may have helped Americans save nearly $29.6 billion in their retirement accounts with his work on auto-enrollment.

Under the SECURE Act, small employers will get a tax credit to offset the costs of starting a 401(k) plan or SIMPLE IRA plan with auto-enrollment, on top of the start-up credit they already receive.

Auto-enrollment is something the U.S. needs more of, Munnell said. The SECURE Act provisions will only have a slightly positive impact on workers, but Americans need coverage and to be automatically enrolled in those plans.

States have already stepped in, creating their own automatic-IRA programs, where companies without a retirement plan can — or in some cases, must — provide one for their employees. “That’s the only way to do it,” she said.

“That is probably the biggest thing that could improve the retirement outlook for people.”


SECURE Act 2.0: Key Provisions Affecting Retirement Plans

Retirement reform: Key SECURE Act provisions that will affect you

Tuesday, February 9, 2021

Late last year, House Ways and Means Committee Chairman Richard E. Neal (D-MA) and Ranking Member Kevin Brady (R-TX) introduced the Securing a Strong Retirement Act of 2020 (SECURE 2.0), a bipartisan legislative proposal that includes changes designed to encourage plan adoption, promote retirement savings, and fix certain plan administration problems.

As retirement income issues gain an expanding focus, we think it is important for broker-dealers, RIAs and their advisors to understand changes that could impact their clients. In this post, we comment on a number of the key provisions.


At its core, SECURE 2.0 seeks to expand coverage in three ways: by mandating auto-enrollment in 401(k), 403(b) and SIMPLE plans; by making long-term, part-time workers eligible for participation in plans after two rather than three years; and by permitting employers to provide de minimis financial incentives for employees to contribute to a 401(k) or 403(b) plan.

The first of these would clearly have the biggest impact. Currently, automatic enrollment for employees is permissive — employers do not have to include that feature in their plans. Even though employees have the right to opt out, the auto-enrollment feature has had a positive effect, since a relative small percentage of those who are auto-enrolled exercise the opt-out feature.

Under SECURE 2.0, for all new plans, automatic enrollment would be a required feature, while still permitting employees to opt coverage. (Existing plans would be grandfathered.

) In addition, automatic escalation of deferrals would be mandated by 1% per year to a maximum of 10% of compensation.

Assuming the opt-out rate in the future is similar to the historic pattern, this should increase enrollment and deferrals — and thus enhance employee retirement savings and plan assets — substantially.

SECURE 2.0 also contains other provisions that would help increase retirement savings.

  • The age at which participants are required to begin taking distributions from their retirement plans would be increased from 72 to 75. This change recognizes that many Americans are working beyond a traditional retirement date. In addition, participants with accounts of $100,000 or less would not be required to take a required distribution.
  • At age 60, participants in 401(k) and 403(b) plans would be able to increase their catch-up contributions from the current $6,500 beginning at age 50 to $10,000 (adjusted annually for cost-of-living increases), recognizing that those closer to retirement may be able to and may need to contribute more to the plan.
  • To assist student loan borrowers in saving for retirement while their student loan debt is being repaid, SECURE 2.0 would allow employers to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA, as would governmental employers under their plans.
  • Under current law, employers are generally prohibited from providing any immediate incentives, other than matching contributions, for employees to contribute to a 401(k) or 403(b) plan. SECURE 2.0 would allow employers to offer de minimis financial incentives, such as gift cards in small amounts, to encourage employees to contribute.
  • SECURE 2.0 would make 403(b) plans eligible to participate in multiple employer plans (MEPs), generally under new rules adopted in the SECURE Act. The thinking is that this will facilitate the adoption of 403(b) plans by eligible employers by shifting much of the administrative burden to professional service providers.
  • To encourage participation by lower-income workers, SECURE 2.0 would amend the Retirement Savings Contributions Credit (Saver’s Credit), which allows low- and middle-income individuals to take a tax credit for making eligible contributions to an IRA or employer-sponsored retirement plan. The changes would eliminate the current tier structure, increase the maximum credit from $1,000 per person to $1,500, increase the maximum income eligibility amount, and index the creditable contribution amount for inflation.


SECURE 2.0 would also offer solutions to a number of plan administration problems.

These include easing certain disclosure requirements, expanding the IRS Employee Plans Compliance Resolution System (EPCRS) and modifying the requirements for recouping plan overpayments mistakenly made to retirees.

The principal objective of these plan administration changes would be to reduce plan costs and simplify the information that participants receive about the plan each year.


The legislation would allow conforming plan amendments to be made by the end of 2022 (2024 in the case of governmental plans), provided that the plan operates in accordance with the amendments as of the effective date of a bill requirement or amendment.


Although the ideas proposed in SECURE 2.0 have broad bipartisan support, it remains unclear whether and when the legislation will ultimately be enacted.

One potential obstacle is the cost of the bill, which hasn’t yet been scored by the Congressional Budget Office.

Since the bill has no revenue-raising provisions in its current form, it could be held up or otherwise modified over cost concerns. Still, the bill has a fair chance of becoming law at some point in 2021.


The importance of SECURE 2.0 for firms and their advisors is to gain an understanding of the efforts being addressed by Congress to help American workers have a more secure retirement.

While all of the changes will have some impact, the mandating of auto-enrollment is, in our view, the most significant since it will ly have the greatest impact on getting employees into plans and enhancing their retirement benefit over time.

Customers will need to understand the new provisions if they are enacted, so broker-dealers, RIAs and advisors need to be prepared to answer their questions.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume XI, Number 40


8 Major Ways The SECURE Act Could Impact Your Retirement Plan

Retirement reform: Key SECURE Act provisions that will affect you

From the outset, 2019 looked it might be “The Year Of Retirement Reform” for Congress. Last year closed out with a number of retirement bills making real headway through DC, committees, think tanks and lobbyists, and we’ve been poised for major legislation to emerge.

And now we have the first real movement of the year: The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) passed in the House with a 417-3 vote on Thursday and is expected to make it through the Senate during this current term.

The first real movement of the year, The SECURE Act, which may affect your retirement plan.

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The SECURE Act would be the first real major retirement legislation since the Pension Protection Act in 2006. This comes after the Tax Cuts and Jobs Act back in 2017 essentially punted on all of the major retirement reform provisions initially discussed in the Trump Administration.

While the bill has essentially 29 new provisions or major changes, I want to focus on just eight areas. One important note: the SECURE Act is not yet finalized.

The Senate has a similar bill before it called the Retirement Enhancement Securities Act (RESA), and, as often happens, some of the RESA’s provisions may make their way into the SECURE Act, or parts of the SECURE Act may be modified through committee or other Congressional action before being signed into law.

While the bill does smooth out some minor road blocks to retirement savings – removing the IRA age limitation, expanding the start date for RMDs, increasing annuity options, and potentially increasing the lihood of small employers starting retirement plans – there is still a strong argument that these changes, while positive, won’t move the retirement security needle much or at all. Many of the changes can be viewed as only benefiting wealthy IRA owner's that don't need their RMDs yet and a clear nod to the product manufacturing lobby.

The major issues facing retirement security for most Americans still come from Social Security funding issues, rising health care costs through skyrocketing drug costs, strains on Medicare and Medicaid, and – with roughly one-third of the American population not really saving for retirement – small modifications to savings plans ly won’t help this group. This is not to say that the SECURE Act provisions aren't positive changes, just not really going to do much to deal with the real retirement issues facing Americans.

That being said, here are eight major pieces of the current version of the SECURE Act that I think are worth closer examination.

1. Increase Small Employer Access to Retirement Plans

Title 1, Sec. 101 of the bill would make some significant changes to a variety of retirement rules. It would expand the ability to run multiple employer plans and make the process easier overall. It would essentially allow small employers to come together to set up and offer 401(k) plans with less fiduciary liability concern and less cost than exists today.

The goal here is to try to expand small employers’ capability to offer some form of retirement savings to employees.

This has generally been a frustration of previous legislative attempts as the SIMPLE and SEP IRAs were developed in part to achieve this outcome, but ultimately have not filled in as a broadly utilized retirement savings plan for small employers.

As such, the SECURE Act will take another stab at this huge issue as many small employers offer no retirement savings options at all, leaving the issue solely to the individual.

2. Increase Annuity Options Inside Retirement Plans

Sec. 204 seeks to update the safe harbor provision for plan sponsors to select annuity providers in order to offer in-plan annuities inside of a 401(k).

Today, many 401(k)s stay away from annuities, in part because of concerns about liability in picking an annuity provider for the plan.

The new rules would essentially ease this liability concern to some degree, potentially opening up the path for more annuities to be offered inside of retirement plans.

3. Increase Required Minimum Distribution Ages

Today the law requires that most individuals take out required minimum distributions (RMDs) from their retirement accounts once you reach age 70.5. The SECURE Act would delay this requirement to age 72. The RESA Act currently in front of the Senate seeks to push RMD requirements even further back to age 75.

However, one criticism of this provision is that it mostly benefits those with significant tax-deferred savings by allowing them to grow this money even longer. Other suggested changes to RMD rules have included allowing smaller accounts, such as those under $100,000, to be exempt from withdrawal requirements for the owner of the account.

4. Removal of Age Limitation on IRA Contributions

For years there has been a rule that essentially discouraged retirement savings in IRAs for people who continued to work later in life. After age 70.5, you could no longer contribute to an IRA, but amazingly, you could still contribute to a Roth IRA. Sec. 114 of the SECURE Act would remove this savings limitation by repealing the age limitation for traditional IRA contributions.

5. Tax Credit for Automatic Enrollment

Sec. 106 introduces a new tax credit of $500 to help some smaller employers encourage automatic enrollment into their retirement plan. This small credit could help offset some of the costs of operating a plan at the beginning. Automatic enrollment has seen great success in increasing plan participation by employees.

6. Penalty-Free Distributions for Birth of Child or Adoption

A really interesting and welcome addition to the bill was a new exemption from the 10 percent penalty tax of 72(t) for early withdrawals from retirement accounts. The new rule, found in Sec.

113, would allow an aggregate amount of $5,000 to be distributed from a retirement plan without the 10 percent penalty in the event of a qualified birth or adoption.

The distribution would need to occur within one year of the adoption becoming final or the child being born.

7. Lifetime Income Disclosure for Defined Contribution Plans

The bill would require that defined contributions plans deliver a lifetime income disclosure to participants at least once every 12 months. This lifetime income disclosure would essentially show how much income the lump sum balance in the retirement account could generate.

The methodology for calculating lifetime income is still in the works. Additional disclosures and information on assumptions used would also have to be provided to participants.

8. Removal of “Stretch” Inherited IRA Provisions

The SECURE Act would make significant changes to inherited retirement plans 401(k)s, traditional IRAs, and Roth IRAs. In the past, beneficiaries of these accounts could typically spread the distributions over their own life expectancy.

However, the new bill includes what is viewed as a tax-generating provision that would require most beneficiaries to distribute the account over a 10-year period. This change would accelerate the depletion of inherited accounts for many large IRAs and retirement plans.

Typically, smaller inherited accounts are liquidated fairly quickly by beneficiaries already. However, the end of the so-called “Stretch” IRA or retirement account makes a lot of sense from a public policy perspective, especially after the Supreme Court has ruled that inherited accounts are not “retirement” accounts.

As such, it does not make policy sense to allow for an extended tax benefit through the beneficiary’s retirement. The RESA bill has a significantly different provision, but would also end the stretch provision for larger inherited IRAs over $450,000.

The potential tax burdens of faster distributions of inherited retirement accounts will increase the need for proper estate planning and potentially more strategic Roth conversions during the life of the account owner, adding additional complexity to retirement and estate planning.

With the SECURE Act headed to the Senate, with nearly across the board support by parties in the House, the lihood of its eventual passage seems extremely high. However, modifications are ly.

While the SECURE Act makes positive changes, takes a step forward, but doesn’t clearly advance the retirement security of those in most need of a boost.


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