Bill Enhancing 401(k) and IRA Savings Program Opportunities Sails through House

On May 23, 2019 the House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE”). SECURE passed the House with strong bipartisan support on a 417-3 vote. The fate of SECURE is now in the hands of the Senate which is expected to pass the bill. 

Requires Retirement Plan Participation for Long-Service, Part-Time Employees. Effective January 1, 2021 SECURE would require that employers permit employees who have worked at least 500 hours per year for 3 consecutive years to participate in the employer’s savings plan. This would supplement the Code’s current requirement that employees be eligible to participate in their employer’s savings plan after 1,000 hours of service in a consecutive 12-month period. SECURE would still allow employers to exclude part-time employees from employer nonelective or matching contributions. Part-time employees would also be excluded from top-heavy and nondiscrimination testing.

Increases Required Minimum Distribution (“RMD”) Age to 72. Effective January 1, 2020, participants may wait until age 72 before receiving an RMD. The RMD age is currently 70 ½.

Provides Tax Incentives for Small Employers that Establish Retirement Plans and Auto-Enroll Employees. Effective January 1, 2020 SECURE creates a $500 tax credit for small employers (employers with no more than 100 employees who received at least $5,000 of compensation) that automatically enroll their employees in a retirement savings plan. Additionally, effective January 1, 2020, SECURE increases the tax credit limit from $500 to $5,000 for small employers that incur qualified start-up costs to establish an eligible retirement savings plan.

Repeals the 70 ½ Year Age Limit for Traditional IRA Contributions. Effective January 1, 2020 SECURE would repeal the prohibition on contributions to traditional IRAs for persons age 70½ and older. Going forward there would be no age limit.

Prohibits Qualified Retirement Plans from Making Loans through Credit Cards. Effective upon enactment of SECURE, qualified retirement plans will be prohibited from making any plan loans using a credit card or similar arrangement.

Permits Penalty-Free Plan Distributions for Childbirth or Adoption. Effective January 1, 2020 a qualified defined-contribution plan may adopt an amendment permitting penalty-free distributions of up to $5,000 contemporaneous with the birth or adoption of a child in the case of a plan participant.

We will provide updates on this legislation as it moves through the Congress.