Benefits and Compensation

What Is the SECURE Act?

If your organization offers any type of retirement benefit, perhaps you’re already familiar with the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The majority of this legislation went into effect at the beginning of 2020 and made some interesting changes to various retirement plan contribution and withdrawal rules.

SECURE
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Changes for Employers

Let’s look at some of these changes. For employers, here are some of the biggest changes:

  • Part-time workers with at least 1,000 hours worked per year (or, for long-term part-time employees, 500 hours over 3 years) will soon be eligible to participate in 401(k) plans. This could represent a big administrative change for employers once it goes into effect in 2024.
  • New parents can make penalty-free withdrawals up to $5,000 from their retirement account within a year of the birth or adoption of a child to cover qualified expenses. This is a big change because this provision didn’t exist previously and may impact employer benefit communications, as it could be a draw for would-be parents.
  • Parents can also withdraw up to $10,000 from 529 plans to pay for student loans. While this will only affect employers that help facilitate 529 plans, it represents another big change.
  • 401(k) plans can now offer annuities without employer fear of legal liability if the provider cannot meet annuity obligations.
  • There’s a new tax credit available for small business owners who start a retirement plan for employees. It ranges from $500 to $5,000, with additional credits for setting up an auto-enrollment plan.
  • Unrelated organizations can now participate together in multiple-employer plans (MEPs). This can allow small employers to get access to lower pricing for their plans.
  • For employers to create retirement plans with auto-enrollment and auto-escalation of contributions, the maximum automatic contribution limit is increased from 10% to 15% of the employee’s pay.

Changes for Employees

Now let’s look at some of the changes that will impact those already out of the workforce or those inheriting retirement accounts from others:

  • There is no longer a maximum age to contribute to a regular individual retirement account (IRA). Previously, the maximum age was 70½. This is meant to be reflective of the fact that people are living longer lives and may be contributing to retirement accounts longer.
  • The age for required minimum distributions from retirement accounts increased from 70½ to 72.
  • For inherited retirement funds, the assets must be withdrawn within 10 years of the passing of the original account-holder if the inheritor is someone other than the surviving spouse or minor child. (There are other exceptions, too, such as when the beneficiary is less than 10 years younger than the original account-holder. Consult your certified public accountant or financial advisor for specifics.)

These legislative amendments could change the way employers communicate about their benefit options, as they may emphasize the new rules to appeal to different types of job candidates. They may also impact which plans an employer opts to utilize when setting up or changing a retirement plan benefit.

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.