Last spring, the U.S. House of Representatives passed legislation that would have made sweeping changes to the nation’s retirement system - but this legislation, known as the SECURE Act, failed to make it through the Senate.
At the end of last year, however, supporters of the SECURE Act added its provisions to a spending bill. This will result in a number of key changes to the rules for creating and maintaining employer-sponsored retirement plans, including the following:
1. Lower barriers to offering multiple employer plans (MEPs). MEPs are retirement plans created by two or more businesses that are unrelated to each other. Starting in 2021, the rules allowing unrelated businesses to form an MEP will be relaxed, making it easier for small businesses to offer these plans to employees.
2. Expanded retirement plan eligibility for part-time employees. Beginning in 2021, part-time employees who’ve worked more than 500 hours annually for three consecutive years must be granted access to their employer’s 401(k) plan. The same goes for part-time employees who worked at least 1,000 hours during the previous year.
3. New and increased tax credits. Starting this year, a tax credit of up to $500 is available to businesses that establish a new 401(k) plan or SEP-IRA that includes employee auto-enrollment. This is in addition to an existing plan startup credit that’s already available and has been increased.
4. New safe harbor for selection of annuity providers. Many plan sponsors hesitate to offer guaranteed retirement income (or annuity) contracts to participants due to liability concerns if the insurer doesn’t fulfill its financial obligations. Sponsors can now choose a safe harbor when selecting an insurer.
You should talk to your third-party administrator about how these changes could impact your retirement plan.