Just in time for the holidays, Congress gave plan sponsors and employee benefits attorneys a reason to celebrate this holiday season. On December 19, 2019, the U.S. Congress passed a spending bill, which was signed by President Trump, which contains several new provisions affecting pensions and benefits.
One of the new laws that was adopted in the flurry of new rules in the year-end federal spending bill was the SECURE Act, a measure designed to ease compliance burdens on retirement plans and increase opportunities for employees to save for retirement. In fact, the SECURE Act is the most comprehensive pension reform since 2006.
Among other things, the SECURE Act – which stands for “Setting Every Community Up for Retirement Enhancement” Act:
• Establishes “open multiple employer plans” or “open MEPS”, which is expected to expand access to employer retirement plans particularly for small business employees.
• Increases the age when required minimum distributions must be started by the participant/owner from 70 ½ to 72.
• Eliminates the age limit for contributions to individual retirement accounts.
• Requires employers to distribute an illustration to workers showing how much monthly income their savings will provide if it were paid in the form of an annuity, which is intended to help them plan to increase their retirement savings.
• Enhances certain retirement plan features such as automatic enrollment and auto-escalation, permitting employers to enroll employees automatically into a retirement plan at a 6% rate of salary contribution instead of 3%. Includes a safe harbor for employers to increase employee contributions to the retirement plan up to a maximum of 15% of an employee’s annual pay.
• Makes it easier to comply with “safe harbor” rules for a 401(k) plan.
• Prohibits defined contribution (DC) plans from extending loans to participants using credit cards.
• Relieves nondiscrimination testing requirements for closed defined benefit (DB) plans.
These changes are generally viewed favorably as they expand access to savings, and in some cases, ease administrative burdens on employers.
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