A few months ago I wrote about how a bill that could have a big impact on retirement plans for small business took a few first important steps towards becoming law by unanimously passing the House ways and means committee. Now, that bill – with a few changes – is gaining strength and passage into law looks likely.
The legislation, called the Secure Act of 2019, was passed by the House of Representatives by a vote of 417-3 last month.
It would allow employers to pool together and negotiate better fees from their financial services firms. It would also let them welcome some part-time employees (those working for 500 hours for at least three years) to join retirement plans, increase the “startup” tax credit for new plans from $500 to $5,000, create a new tax credit of $500 when a plan automatically enrolls new employees (they can still opt out) and allow employees to increase the amount they contribute to a retirement plan to up to 15% of their pay.
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But that’s not all. The legislation would also increase the age for required distributions from 70.5 to 72 years, and it says that payouts from 401(k) plans could be made in the form of long-term guaranteed annuities like a pension plan. Also, new parents could withdraw up to $5,000 from their retirement accounts without penalty to help with the costs of a newborn or adoption.
These are great benefits for employees and employers alike.
There are still some hurdles for the Senate to overcome. The biggest for many is that a provision which had allowed 529 plans (after-tax plans for socking away money that can grow tax-free as long as it’s used for higher education and other educational purposes) to include home schooling, as well as private school and special needs school expenses, was stripped out because some say it has very little to do with retirement. Senate Republicans want it back in. The bill also repeals a tax on lower-income children which, though unintended, would cause a loss in federal revenues. If the Senate adds these items back, the bill would need to return to the House for another vote.
Although there is other legislation related to retirement plans under consideration in both the House and Senate, passage of the Secure Act does look promising, despite the challenges mentioned above.
“Given the overwhelming bipartisan support in Congress and among industry leaders, it’s likely to move forward,” Elizabeth Kelly, a senior vice-president of operations at United Income who once worked as the special assistant to the president on the National Economic Council during the Obama administration, told the Chicago Tribune.
Chuck Grassley, the Republican chairman of the Senate finance committee, admits in another Think Advisor report that there are still hurdles, but he says: “We’re working to pass the Secure Act as the House passed it and send it to the president.”
My bet is that the bill will be passed and it will become law in 2019. Why? The 116th Congress needs to show results as we head into election season. There was already overwhelming bipartisan support in the House. Oh, and there’s a huge retirement crisis in this country.
As a business owner, you should be meeting soon with your benefit advisers and discussing what changes you want to make to your plans next year. If you don’t have a retirement plan, you should definitely consider starting one and time it to get the maximum tax benefits. More importantly, you’ll want to make sure that your employees are fully aware of all the new benefits that will be available to them, because many people don’t keep up on this stuff and it’s important.
Sure, you may be able to reap some tax benefits and cost savings. But more importantly, you may be able to increase participation, which will help both you and your employees save more for retirement in the long run.
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