Retirement plan sponsors have been watching Congress closely, waiting on passage of the Setting Every Community Up for Retirement Enhancement Act. The legislation, designed to boost Americans’ retirement savings, has implications for small businesses and individual savers alike.
The bill is considered to have strong bipartisan support, and advocates are optimistic it will pass by year-end. If it doesn’t pass via a unanimous consent vote this fall, pundits suggest it will be attached to a year-end spending bill.
Helping more small businesses offer retirement plans
The act includes provisions designed to make it easier for small businesses to offer retirement plans. The measure would increase the available tax credit to 50 percent of a small business’s retirement plan start-up costs. Under this provision, the maximum credit limit jumps from a mere $500 to $5,000.
In addition, the act would create a new “bonus” tax credit of $500 for new 401(k) and simple IRA plans that include automatic enrollment. The credit would be available for three years and would also be available to small businesses that convert an existing plan to auto-enrollment.
Finally, the act would allow businesses to create a pooled plan with other businesses. That would allow small businesses to outsource administration, ultimately making plan administration more accessible and affordable.
Increasing the savings rate
Among efforts to increase retirement plan participation, the act would:
- Guarantee 401(k) plan eligibility for part-time employees age 21 or older who have worked at least 500 hours per year for the last three consecutive years.
- Change the allowable auto-enrollment rate employers can set for a 401(k).
- Prohibit 401(k) loans via credit or debit card arrangements.
Additionally, the act would push the required minimum distribution age to 72 (up from 70 and a half), eliminate age restrictions on IRA contributions, and allow a $5,000 penalty-free withdrawal following a birth or adoption.