The Setting Every Community Up for Retirement Enhancement (SECURE) Act is one of the most significant pieces of retirement legislation since the Pension Protection Act of 2006. The act contains 30 provisions designed to help modernize the private retirement system and recognizes the importance of lifetime income as a key driver of overall financial confidence and retirement readiness.
TIAA has taken a leadership role in supporting retirement reform legislation, especially in regards to ensuring Americans have a stream of guaranteed income when they retire. We applaud the passing of this important act, which is one of several under consideration that are intended to address the following gaps in America’s retirement readiness:
- Access gap: Not enough Americans have access to an employer-sponsored retirement plan
- Savings gap: Americans in general aren’t saving enough for retirement
- Guarantee gap: Americans lack access to in-plan products that can guarantee income throughout retirement
Below is a high-level outline of key SECURE Act provisions, their intended impact and potential considerations for your plan(s). These changes present a good opportunity to review your retirement plan objectives and design, and to ensure your participants are aware of lifetime income and savings solutions.
Effective dates vary between provisions, with some tight compliance deadlines. TIAA is actively working to meet them and will follow guidance provided by Congress and the regulators responsible for implementing and enforcing the law. We will provide ongoing updates as direction is received from Washington. Click here and refer to page 1532 for full details on the act.
Provisions addressing the access gap
| Provision | Impact | Plan sponsor considerations |
|---|---|---|
| Provide access to “open” Multiple Employer Plans (MEPs) | Allows unrelated employers to participate in an MEP that would be treated as a single plan for ERISA and code purposes |
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| Increase startup credit for small employer plans and implement new credit for small employers that adopt automatic enrollment | Provides a financial incentive for small businesses (100 employees or less) to set up retirement plans |
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| Changes to 401(k) Safe Harbor plans | Provides greater flexibility and facilitates plan adoption by eliminating the Safe Harbor notice requirement for plans seeking to satisfy the safe harbors by making specified levels of non-elective contributions and permitting plans to be amended to become non-elective Safe Harbor plans |
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| Mandate that employers allow long-term part-time workers to participate in 401(k) plans | Addresses an impediment to the ability of part-time workers to save for retirement |
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Provisions addressing the savings gap
| Provision | Impact | Plan sponsor considerations |
|---|---|---|
| Increase Safe Harbor cap on automatic enrollment and escalation | Increases the maximum percentage of pay in which a plan can automatically enroll employees or automatically escalate employee deferrals in automatic enrollment/escalation plans |
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| Increase required minimum distribution age to 72 in retirement plans and IRAs | Acknowledges increase in life expectancy, allowing retirement savings to grow for longer before distributions are required |
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| Prohibit plan loans through credit cards | Preserves retirement savings by ensuring that plan loans are not used for routine or small purchases |
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| Allow penalty-free withdrawals from retirement plan or IRA for births or adoptions | Creates a new distributable event for births or adoptions; exempts such distributions from the 10% excise penalty tax and allows the distribution to be repaid to the plan |
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Provisions addressing the guarantee gap
| Provision | Impact | Plan sponsor considerations |
|---|---|---|
| Improve current annuity provider selection Safe Harbor | Makes it easier for plan sponsors to meet their fiduciary prudence in selecting and monitoring annuity providers of guaranteed income benefits by allowing reliance on insurer representations of their financial capability |
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| Require lifetime income disclosures on defined cont ribution benefit statements | Illustrates how retirement account balances translate into a guaranteed monthly income stream |
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| Enhance portability of in-plan lifetime income investments | Allows participants to take a tax-deferred distribution of an annuity from their employer’s plan should the employer decide to remove the annuity from the plan’s investment menu |
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An additional provision was added to the spending bill that was not part of the SECURE Act. This addition allows governmental 457(b) plans to provide for in-service distributions as early as age 59 ½, rather than age 70 ½.