Retirement Benefits Improve with Secure Actions by Congress
Retirement benefits offered in the workplace are now being tied to improved outcomes for employees and retired plan participants. The government is preparing to make sweeping changes to retirement benefit plans — the first such activity in more than a decade. The Secure Act, a proposal intended to increase the flexibility of 401(k) plans and improve access to such accounts, was unanimously just passed by a key House committee. Small businesses and their employees stand to benefit greatly from the proposed changes to retirement plans.
The Secure Act also has the support of top Democrat and Republican members of the Ways and Means Committee, “where we find solutions and get things done for the American people,” according to a CNBC article. The bill includes:
- Provisions designed to encourage small businesses to provide private retirement benefits for their employees
- Permission for small businesses to join forces to offer 401(k) plans
- A tax credit of up to $500 for companies that set up 401(k) plans with automatic enrollment
- Allowances for businesses to offer retirement benefits to long-term, part-time workers
The Secure Act also includes other measures:
- It repeals the maximum age for Individual Retirement Account (IRA) contributions and raises the age for required mandatory distributions (RMDs) from 70 1/2 to 72.
- It expands the use of 529 plans to include home school expenses and student loans, along with college-related costs.
The Secure Act is one of the proposals with the highest odds of becoming law, despite a deeply divided Congress. The last landmark retirement plan legislation, the Pension Protection Act, was passed in 2006.
If passed, the Secure Act would open the door for more small business employers to offer retirement plans, and for more employees to have access to such retirement savings opportunities. It’s a much-needed reform. According to a recent LIMRA survey, just 42% of small businesses (2-99 employees) offer retirement benefits, either in tandem with insurance benefits or on their own. However, smaller employers recognize the importance of offering retirement benefits for their employees; 40% believe retirement benefits are more important now than three years ago, and 57% say it is equally as important, LIMRA found.
In addition, employees who have access to a retirement plan at work are more likely to save for the future. In fact, four out of 10 workers LIMRA surveyed said they started saving for retirement because their employer offered them a retirement savings plan. While the legislation is an engine to help move forward efforts to broaden retirement plan access for employees, particularly those who work for small businesses — nearly 60 million workers (which comprise 47.5% of the workforce) — small business employers are already on board. While 36% of small businesses don’t currently offer retirement benefits to their employees, according to LIMRA, 4% plan to start in the next two years, and 19% say they might. Although those numbers aren’t earth-shattering, it shows some small business employers are tuned in to the necessity of offering retirement benefits in the workplace, and a willingness to expand their benefits menus to include an opportunity for employees to save. These are positive signs.
There is additional legislation under consideration that would allow for open multiple employer plans (MEPs), which would permit several small, unrelated employers get together to offer retirement benefits for their employees. If passed, this legislation would have lasting positive effects on both employers and employees, while providing more widespread access to workplace retirement plans for small business workers.
With Americans woefully under-saved for retirement, helping workers gain access to workplace savings plans should be a top priority. It is refreshing and encouraging to see lawmakers making a concerted and focusing efforts to make the ability to save for retirement more accessible for all workers. Retirement benefits are important for all, especially those employed by small businesses. The outcome is still to be determined. However, it appears lawmakers are moving in the right direction by trying to help more Americans achieve financial security for their future.