Multiple Employer Plans Garner Congressional Attention
Multiple employer plans (MEPs) may soon become a reality, thanks to a new bill making it through the U.S. House of Representatives recently. It appears America’s workplace retirement plans may be headed for their first major reform in more than a decade. The House has passed the Setting Every Community Up for Retirement Enhancement, or SECURE Act. The bill is designed to encourage Americans to save more for retirement and bolster their long-term financial security and it contains a provision for Multiple employer plans (MEPs), according to a recent FoxBusiness article.
The SECURE Act contains multiple provisions that should make it easier for people to set aside money for retirement. One provision allows individuals to save into an individual retirement account (IRA) beyond the current age limit of 70 1/2. The bill would also extend the age when people must begin taking required minimum distributions (RMDs) from age 70 ½ to age 72.
The SECURE Act also clears the way for employers to participate in a group 401(k) plan, called a Multiple employer plan, or MEP. The bill would also make it mandatory for some businesses to allow part-time workers to participate in a MEP. In addition, the SECURE Act encourages MEP plan sponsors to offer in-plan annuities that would provide fixed amounts typically paid out over the course of a participant’s lifetime.
The SECURE Act had bipartisan support in the House; the bill passed 417 to 3. Similar retirement plan legislation is pending in the Senate. However, the Senate version contains a provision to update 529 college savings plans, which would include the ability for account owners to withdraw up to $10,000 for student loan repayments. However, in order to fund the legislation, policymakers in the House are proposing changes to retirement accounts that are inherited — for instance, a beneficiary who is not a spouse would have to withdraw the money within 10 years of inheriting it, according to FoxBusiness. The bill would also repeal the “Kiddie Tax,” a tax on a child’s unearned income. The provision would enable taxpayers to retroactively opt out of paying the tax.
Multiple employer plan, MEP legislation, and the other retirement savings provisions included in the SECURE Act might be closer to reality than not. It is anticipated that soon The Senate is expected to take up the bill passed in the House, per FoxBusiness. As workplace retirement plans have become the primary vehicle for Americans to save for retirement, lawmakers are recognizing the need for widespread reform in retirement plan laws that haven’t been updated since the Pension Protection Act was passed in 2006. The big changes then included the implementation of automatic features in retirement plans, such as automatic enrollment and auto escalation, and the addition of qualified default investment alternatives (QDIAs), such as target date funds (TDFs), into which automatically enrolled participants’ contributions could be deferred. Those changes resulted in much higher participation and savings rates in workplace retirement plans.
The proposed revisions to the Multiple Employer Plans within the SECURE Act could enable millions of more Americans to have access to retirement plans through their employer. Currently, more than a third of Americans do not have access to retirement savings plans at work. The ability for greater numbers of employers to adopt group retirement plans such as MEPs could change that for the better. For now, we wait and watch until policymakers pass the final legislation.
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