On December 20, 2019, a new piece of retirement legislation became the law of the land, further pushing the burden of providing for one’s later years into the realm of the individual. Make no mistake about it; if you’re planning to live on Social Security alone, your future is dim. Individuals must take action to ensure that they have adequate funds to support themselves for many years.
The new act, dubbed the “Setting Every Community Up for Retirement Enhancement Act” (SECURE), includes many essential adjustments to the current laws, and takes away one of the best tools IRA beneficiaries transfer to pay for it.
Let’s talk about some of the new provisions that further indicate you are on your own for retirement.
Multiple-Employer Retirement Plans
Big companies offer 401k plans more than any other form of retirement benefit. About a decade ago, Congress allowed big companies to enroll their new employees automatically and to invest their deferrals into an appropriate investment bucket. That’s great for anyone working at big companies.
But most Americans don’t work for big companies. About 40% of us work for small companies. And there is a cost for the administration of 401k plans. Big companies can spread the expense over all their participants, making the cost trivial per person. Not so much for small companies.
In part, because of the costs, one in four fulltime American workers, and it climbs to one third when part-timers are considered, do not have access to any employer-sponsored retirement plan.
So, the SECURE Act is giving some love to small businesses, by allowing unrelated small employers to band together in multiple-employer plans (MEP). The act also provides some protections for individual employers if another employer in the MEP breaks the rules.
These provisions of the plan won’t become active until 2021, but we’re already working on ways to help our small business clients who might benefit from a MEP.
Part-Time Employees
Another provision intended to extend employer plans to more workers involves permanent part-time employees. In the past, most plans forced part-timers to work at least half time, or 1,000 hours in a year. That’s 20 hours per week for 50 weeks. The new requirement is that anyone who’s worked just 10 hours per week for the three previous years (or 500 hours per year) must be offered access to the plan.
This is good for the part-time employee. To make it easier on the employer, the rules for calculating the annual non-discrimination and top-heaving testing now make including these long-term part-time employees optional.
Plan Startup Tax Credits
To further encourage small businesses to establish retirement plans, Congress authorized a ten-fold increase in the maximum tax credit offered. Small businesses can now receive up to a $5,000 tax credit when creating a new plan.
Additionally, they can get an additional $500 tax credit for the first three years in which they use an auto-enrollment feature. This feature allows the employer to create an account for new employees and forces the employee to “opt-out” rather than “opt-in” to an optional plan. Studies show that participation is much greater with auto-enroll plans than with optional enrollment plans.
These are just some of the provisions of the SECURE Act which help remind us that individuals MUST build their own retirement nest egg.
If you, or anyone you know, has questions about how best to plan for pursuing your future financial goals, we’re here to help. Reach out to schedule a complimentary consultation. You may find that we’re the firm you’d like pacing you through life’s crossroads and financial milestones, providing wise counsel so that you can focus on the long run!
LPL Financial and Enduring Wealth Advisors do not offer tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
TRACKING #1-944667
On December 20, 2019, a new piece of retirement legislation became the law of the land, further pushing the burden of providing for one’s later years into the realm of the individual. Make no mistake about it; if you’re planning to live on Social Security alone, your future is dim. Individuals must take action to ensure that they have adequate funds to support themselves for many years.
The new act, dubbed the “Setting Every Community Up for Retirement Enhancement Act” (SECURE), includes many essential adjustments to the current laws, and takes away one of the best tools IRA beneficiaries transfer to pay for it.
Let’s talk about some of the new provisions that further indicate you are on your own for retirement.
Multiple-Employer Retirement Plans
Big companies offer 401k plans more than any other form of retirement benefit. About a decade ago, Congress allowed big companies to enroll their new employees automatically and to invest their deferrals into an appropriate investment bucket. That’s great for anyone working at big companies.
But most Americans don’t work for big companies. About 40% of us work for small companies. And there is a cost for the administration of 401k plans. Big companies can spread the expense over all their participants, making the cost trivial per person. Not so much for small companies.
In part, because of the costs, one in four fulltime American workers, and it climbs to one third when part-timers are considered, do not have access to any employer-sponsored retirement plan.
So, the SECURE Act is giving some love to small businesses, by allowing unrelated small employers to band together in multiple-employer plans (MEP). The act also provides some protections for individual employers if another employer in the MEP breaks the rules.
These provisions of the plan won’t become active until 2021, but we’re already working on ways to help our small business clients who might benefit from a MEP.
Part-Time Employees
Another provision intended to extend employer plans to more workers involves permanent part-time employees. In the past, most plans forced part-timers to work at least half time, or 1,000 hours in a year. That’s 20 hours per week for 50 weeks. The new requirement is that anyone who’s worked just 10 hours per week for the three previous years (or 500 hours per year) must be offered access to the plan.
This is good for the part-time employee. To make it easier on the employer, the rules for calculating the annual non-discrimination and top-heaving testing now make including these long-term part-time employees optional.
Plan Startup Tax Credits
To further encourage small businesses to establish retirement plans, Congress authorized a ten-fold increase in the maximum tax credit offered. Small businesses can now receive up to a $5,000 tax credit when creating a new plan.
Additionally, they can get an additional $500 tax credit for the first three years in which they use an auto-enrollment feature. This feature allows the employer to create an account for new employees and forces the employee to “opt-out” rather than “opt-in” to an optional plan. Studies show that participation is much greater with auto-enroll plans than with optional enrollment plans.
These are just some of the provisions of the SECURE Act which help remind us that individuals MUST build their own retirement nest egg.
If you, or anyone you know, has questions about how best to plan for pursuing your future financial goals, we’re here to help. Reach out to schedule a complimentary consultation. You may find that we’re the firm you’d like pacing you through life’s crossroads and financial milestones, providing wise counsel so that you can focus on the long run!
LPL Financial and Enduring Wealth Advisors do not offer tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
TRACKING #1-944667