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Most Americans simply do not have the retirement savings to live comfortably in retirement. In fact, a recent First National Bank of Omaha Financial Wellness Survey found that only 60% of respondents worry they will not have enough to retire by age 65. An astounding 46% indicated they only have $15,000 saved for retirement. While not surprising, such findings have been catalysts for significant changes to employer- sponsored retirement plans encouraging broader access and participation.
It started with the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which included a change allowing certain part-time employees to participate in employer-sponsored plans. Other changes included lifetime income disclosures and increased RMD ages to facilitate increased savings. Building upon these reforms, the SECURE Act 2.0 is currently under debate in the Senate and is expected to become law. The proposed changes include broader plan access to part-time employees, mandatory automatic enrollment, and another increase in the required minimum distribution (RMD) age. Now, two new bills have been proposed in the Senate, including the Simplifying Small Business Retirement Savings Act and the Incentivizing Small Business Retirement Savings Act. Key details of these plans are listed below:
Pooled Employer Plans
Under current regulations, plan administrators are required to select various trustees with different responsibility levels based on existing needs. The new SECURE Act prevents the use of discretionary trustees. This resulted in a fewer number of Pooled Employer Plans (PEPs) offerings. To resolve the issue, the first piece of legislation would allow administrators to use Directed and Discretionary Trustees when conducting necessary activities. It is expected that the change will expand the available PEP options.
There is also a provision designed to simplify the Form 5500 filing process for group plans. Under current regulations, a traditional plan with less than 100 participants is subject to streamlined reporting requirements. However, for PEPs, the same rules do not apply. Rather, these plans are forced to follow the filing process for large plans, which is more complicated, cumbersome, and expensive. Under proposed changes, PEPs with 100 or fewer participants would likewise be allowed to file under the streamlined reporting requirements.
Matching Contributions Credit
Since one of the common reasons a small business does not offer an employer-sponsored retirement plan is cost, the latter legislation proposes a new tax credit based on employer contributions. It calls for a $1,000 annual tax credit for matching contributions made to non-highly compensated employees. The value of the credit would gradually phase-out over a five-year period. As it stands, the credit would decrease from 100% in year one to 25% in the final year. Concurrently, it would only be available to businesses with 50 or fewer employees. However, those with between 50-100 employees may also claim the credit, albeit at a reduced percentage.
We’re here to help
The ongoing efforts to remedy the retirement savings crisis are certain to result in more changes to retirement plan administration and reporting. While both parcels of legislation have only been recently proposed, Congress wants to continue making it easier for American workers to save for retirement. If you have questions about the information outlined above or need assistance with your 401k plan audit, JLK Rosenberger can help. For additional information, call us at 972-331-5917, or click here to contact us. We look forward to speaking with you soon.