How the Secure Act Impacts Your Retirement Plans

Americans generally do not have enough saved for retirement and Congress is considering a number of measures to address that.

There are a few retirement-related bills of note making their way through Congress. One in particular, the Secure Act, gained significant traction this week. The House voted to approve it Thursday and it is widely expected to move forward in the Senate. Some experts are saying it is one of the most important potential changes to retirement rules seen in years.

WHAT IS THE SECURE ACT?

The Setting Every Community Up for Retirement Enhancement Act, known as Secure Act, is designed to help more people save more for retirement.

Its highlights include a provision to make it easier for small businesses to band together to offer retirement plans to employees. It also opens the door for long-term part-time employees to gain access to workplace retirement plans. It would raise the age that Americans must start drawing from retirement savings, known as the required minimum distribution age, from 70½ to 72, as people are living and working longer. It also provides more years for people to contribute to individual retirement accounts, for the same reason.

Additionally, it creates new rules that could expand lifetime-income options within workplace plans, such as annuities, to help people establish reliable stream of income in retirement. It would also make it easier for employees to transfer retirement plan assets when they change jobs.

There are other notable components, such as allowing employees to withdraw savings penalty free for the birth or adoption of a child. And it would fix a component of the 2017 tax overhaul that raised taxes on benefits received by family members of deceased military veterans, as well as taxes on some students and members of Native American tribes.

WHY DOES THE SECURE ACT MATTER?

Americans are facing a major retirement savings crisis.

Almost half of U.S. households led by someone 55 or older had not set aside savings for retirement, according to a report released in March by the Government Accountability Office. About 20% of households did have access to a pension or other defined benefit plan. But 29% of older Americans had neither a pension nor assets in another retirement account.

It’s a complex problem, driven in part by a shift away from traditional pensions toward a do-it-yourself savings system.

Research has shown one of the most effective ways to get people to save is through access to a workplace retirement plan. But millions of Americans do not have access to such plans, particularly at small businesses where the cost and complexity hinders some companies from establishing one.

So this legislation is important because it removes some of those barriers, said Phil Waldeck, president of Prudential Retirement. The legislation would eliminate other hurdles that keep other people from saving in other settings.

It’s not a cure all but experts say it’s a step in the right direction.

Rhian Horgan, founder and CEO of Kindur, a startup that aims to help people navigate retirement, said she thinks it is “the most meaningful piece of retirement-focused legislation we’ve seen in decades.”

WHAT’S NEXT FOR THE SECURE ACT?

The bill was approved in the House with a 417-3 vote and now goes to the Senate. Given the overwhelming bipartisan support in Congress and among industry leaders, it’s likely to move forward, said Elizabeth Kelly, senior vice president of operations at United Income, who once worked as the special assistant to the president on the National Economic Council under the Obama administration.

There is a similar Senate bill, known as the Retirement Enhancement and Savings Act, but the Secure Act has many of the same provisions. But even the backers of the Senate bill spoke out in favor of the Secure Act Thursday, suggesting its passage is likely. The bill would then head to the president.