THE SECURE ACT OF 2019
As a reminder, in April, the House Ways and Means Committee voted to move forward with the “Setting Every Community Up for Retirement Enhancement” Act (SECURE Act) legislation. Concurrently, the Senate reintroduced similar provisions in the Retirement Enhancement and Savings Act (RESA). The SECURE Act, with its provisions to incentivize retirement plan creation and increase plan accessibility, is designed to help American workers boost their chances of a secure retirement.
Specifically, the SECURE Act is designed to increase access to tax-advantaged accounts and prevent Americans from outliving their assets. The Act would provide incentives for smaller companies to establish and operate retirement plans. According to Census Bureau data, companies with fewer than 20 or fewer than 100 workers make up 89% and 98% of employers in the U.S., respectively. Further, more than half the workforce in the U.S. are employed at firms with fewer than 100 workers, but nearly one-third of these employers do not offer retirement plans – often because of administrative complexity and costs.
One of the most significant parts of the legislation is the authorization of multiple employer plan (MEP) arrangements. The SECURE Act also includes:
- An increase to retirement plan start-up credit that should result in new plan formation – increasing from $500 to a maximum of $5,000 per year
- A new tax credit for smaller employers who implement automatic enrollment to help with employee participation – up to $500 per year
- The ability for long-term, part-time employees to make deferrals – increasing the number of employees that could contribute to their employer’s retirement plan
Both bills have many things in common, signaling that there may be enough bipartisan support for the House and Senate to come to an agreement and send a final package to President Trump for his signature. There is a growing acknowledgment that many Americans are woefully unprepared for retirement. The climate is right for MEPs and other aspects of the SECURE Act, which should help smaller businesses establish retirement plans, expand the number of employees covered, increase contributions by employees, and further help to simplify retirement plan rules for employers.
AUTOMATIC IRA ACT OF 2019 & IRA PRESERVATION ACT OF 2019
In its Automatic IRA Act of 2019, the Senate proposed a bill to amend the Internal Revenue Code of 1986 to expand personal and retirement savings coverage by requiring certain employers who do not offer qualifying retirement plans to enroll employees in automatic IRA arrangements. The IRA Preservation Act of 2019, introduced by the House, is a bill designed to limit some of the disadvantages of these employer-sponsored individual retirement plans. The bill should help employers comply with laws by expanding the IRS Employee Plans Compliance Resolution System, which will reduce penalties and make it simpler to self-correct errors. Both Acts are designed to help Americans be better prepared for retirement, and we will keep an eye on each as Congress moves forward now that they are back in session.
REPEAL OF CADILLAC TAX
In July, the House overwhelmingly passed the Middle Class Health Benefits Tax Repeal Act of 2019 (H.R. 748), which would eliminate the “Cadillac Tax” element of the Patient Protection and Affordable Care Act. The Cadillac Tax would have levied a 40% tax on employer-sponsored healthcare plans above a certain threshold. The idea was that the Cadillac Tax would apply to the most generous and expensive employer-provided healthcare plans and exert downward pressure on rising healthcare costs. Yet its structure adversely affects employer incentives to offer health benefits, including the calculation of the employer-provided health savings account (HSA) and health reimbursement arrangement (HRA) benefits, with the probable long-term outcome of reducing health benefits for middle class workers. The bill to repeal the Cadillac Tax goes to the Senate next for consideration.
IMPORTANT DISCLOSURES: These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—Arnerich Massena cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.