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Aaron Morris

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) provided relief and improved retirement plans and IRAs for millions of participants across the nation.  A new and improved act, “Securing a Strong Retirement Act of 2020”, is designed to increase access to workplace savings plans and enhance retirement savings opportunities by incentivizing Americans to save.

The proposed legislation contains more than 30 changes to retirement plans – here’s the breakdown of some of the more significant enhancements:

Retirement Plan Participation Incentives:

  1. 401(k), 403(b) and SIMPLE plans would be required to automatically enroll eligible participants at least 3% but no more than 10% unless employees opt out. Each year, the amount would increase by 1% until it reaches the maximum 10%. Not only does this increase participation within younger, lower-paid employees, but it also helps eliminate the racial gap in participation rates, according to an Ariel Aon-Hewitt Study.
  2. The Saver’s Tax Credit rate increases to 50% of what you contribute to the plan, increase the maximum credit amount from $1,000 to $1,500 per person, and raise the maximum income eligibility amount indexed to inflation.
  3. Under current law, the limit on IRA contributions is increased by $1,000 (not indexed) for individuals who have attained age 50. The legislation would index IRA catch-up limit contributions beginning in 2022.
  4. Currently, employees who are age 50 and older can make catch-up contributions up to $6,500 to retirement plans except in the case of SIMPLE plans in which case the limit is $3,000. For employees age 60 and older, the new legislation would increase these limits to $10,000 and $5,000 (both indexed).

Plan sponsor tax credits and enhancements:

  1. The proposed legislation would allow 403(b) plans to participate in Multiple Employer Plans (MEPs), generally following MEP rules under The SECURE Act rules.
  2. For small businesses with 50 or fewer employees, the SECURE Act 2.0 legislation would boost the existing tax credit from 50% to 100% of plan start-up costs, capped at $5,000 per employer for each of the first three years – a total of $15,000. With SECURE 2.0, the credit would eventually become available for companies with between 50 – 100 employees.
  3. Excluding defined benefit plans, an employer matching credit would be provided equal to the applicable percentage (100% in the first and second years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year) of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. The full additional credit would be limited to employers with 50 or fewer employees and phased out for employers with between 51 and 100 employees.

Retirement Plan Distribution changes:

  1. Required minimum distributions (RMD) were designed to ensure participants do not use their retirement for estate planning. RMD forces the account holder to take a distribution triggered by their age. The SECURE Act increased the age requirement to 72. However, the proposed legislation would increase the required minimum distribution age to 75.
  2. The Act would reduce the penalty for failing to take a required minimum distributions (RMD) from 50% to 25%. If the error is corrected in a timely manner then the penalty is reduced from 25% to 10%.
  3. And Lastly, Retirement plans and IRAs (excluding pension plans) with less than $100,000 at the end of the year prior to attaining age 75 will not be required to take an RMD.



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