The Setting Every Community Up for Retirement Enhancement Act or “SECURE” Act that became law on Dec. 20, 2019, includes “many provisions to encourage employers to adopt new (retirement) plans or enhance their current plans and to provide more savings opportunities for employees,” according to Sharon Severson, CPC, consultant with CUESolutions Platinum provider CUNA Mutual Group, Madison, Wisconsin. The act is the largest package of retirement system changes in more than a decade.
Severson says she’s most excited about some of the changes to individual retirement accounts that became effective Jan. 1, 2020, and open multiple-employer plans options that will become effective Jan. 1, 2021.
“The rules governing IRAs impact most individuals at one time or another during their careers,” Severson explains. “Most of us have heard along the way about the age 70.5 or the required minimum distributions. Now those distributions must begin at age 72 instead of age 70.5 if the individual has not already turned 70.5 by 12/31/2019.”
The upshot is that people who want to can save longer—and that’s a big benefit to people who keep working even in retirement. “This may be helpful for credit unions when assisting their members with their questions about IRAs or for credit unions that offer investment services to members,” Severson notes.
Multiple-employer plans have been around for a long time, but the act creates the opportunity to form a new kind of MEP. “The Act allows for the formation of a 401(k) plan that includes two or more unrelated employers and this plan type is now being referred to as a ‘PEP’, a pooled employer plan,” Severson says, “and hopefully this will allow smaller employers to obtain an economy of scale that can lower both employer and employee costs.”
In the show, Severson says she is glad that the Act expands retirement savings options for certain long-term part-time employees. She also thinks credit unions will also want to learn more about the Act’s changes to the minimum employer contributions for safe harbor plans.
The new Act also provides a pathway for plan participants to receive an annual disclosure of projected monthly income from their retirement savings plan. According to Severson, this disclosure has “been on the Department of Labor’s to-do list” since 2006 and will still take some time to implement. The Department of Labor needs to provide a model disclosure and a set of uniform assumptions that can be used to generate these projections “so that if you move from a plan provider to another plan provider, those projections are relatively stable.”
“Many people don’t know how much (money) they need” for retirement, she explains in the show. “They’re surprised when they get to retirement that their nest egg isn’t really what they needed after they stopped working. The illustration would help participants make adjustments in that savings plan with this information in hand.”
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