Secure Act of 2019: Its Consequences on Retirement and 401k Compliance

The SECURE Act of 2019 approved by the Senate on Dec 19, 2019 is targeted towards helping every community when it comes to their retirement financial future. It consists of significant provisions aimed towards improving access to tax-advantaged accounts and encourages small businesses to provide retirement plans for their workers. Some of the major elements introduced in the bill included raising the minimum age for required minimum distributions from 70.5 to 72 years of age and giving students the ability to repay their student loans using 529 accounts (up to $10000).

Secure Act of 2019: Its Repercussions on Compliance Benefits

As far as small businesses are concerned, here are a few incentives contained in the retirement SECURE Act that encourage and help employers become plan sponsors.

1) Increasing Business Tax Credit for Plan Startup Costs – The current cap will be raised from $500 up to $5000 depending on special circumstances to make the process of setting up retirement plans more affordable for small businesses.

2) Automatic Enrollment – For plans that add automatic enrollment, small businesses will be provided with an additional $500 tax credit for 3 years.

3) Simplification of Rules – Rules related to qualified non-elective contributions have been simplified.

4) More Time – The time for adopting new plans has been extended beyond the end of the year to the date when companies file their tax return.

5) Reduced Plan Administrator Costs – Certain contribution plans with a common administrator now come with a consolidated Form 5500 to reduce costs. It is also important to note that penalties incurred by failure to file Form 5500 and withholding notices have been increased.

The SECURE Act also allows small employers unrelated to one another to come together and open multiple employer plans or MEPs. This can significantly reduce not only overall costs but administrative duties as well. MEPs are also referred to as PEPs (Pooled Employer Plans) and come with a single plan document, Form 5500 filing and independent plan audit. While MEPs could change the game for small businesses, it is important to note that there will be certain restrictions too such as standardized investment options and requirements that might be too much of a hassle to handle.

Until recently, the U.S retirement system was plagued with numerous problems that required a large portion of workers to supplement their social security with their personal savings. Due to reduced scope and lack of incentives, only 55 percent of the adult workforce was seen to participate in retirement plans, according to a 2018 report. However, a lot of things have been changed with the SECURE Act. Although it isn’t perfect, it certainly is a step in the right direction. It helps workers of all ages and those who come from all communities to be better prepared for their retirement age by allowing them different options for investment. Here are some of the ways in which the retirement Secure Act will bring about more positive changes to workers everywhere in the country.

1) It will now be easier for small businesses to set up 401ks as the cap under which they can auto-enroll employees (safe harbor retirement plans) has been increased from 10 percent to 15 percent.

2) It allows businesses to have part-time employees to participate in retirement plans. However, to be eligible, employees must work either 1000 hours in the designated year or have worked 3 years with 500 hours of service. This increases the scope of retirement plan participants by a significant margin allowing more people to have a choice in their financial future.

3) Permits participants to withdraw $5000 from 401k accounts with zero penalties to cover the cost of adopting or having a child.

4) Encourages employers to have more annuities in their 401k plans. Businesses now don’t have to worry about any legal liability that may arise from the annuity provider’s failure to meet financial obligations and don’t have to choose the lowest cost plan either.

5) Qualified disaster distributions will now have their penalties waived off if they are taken before the age of 59 .

The retirement SECURE Act of 2019 creates significant changes for small business owners and widens the scope for enrollment, allowing more people to sign up for a better financial future. Whether it becomes a game-changer is still unknown but it is indeed a step in the right direction.


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