Secure Act Brings Changes to Retirement Plans; Cadillac Tax Poised for Repeal
President Trump is poised to sign into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act, a bill aimed to help employers create and run retirement plans for workers. While many of the Act’s provisions focus on small employers, there are a few changes to 401(k) plans that will affect employers of all sizes.
In particular, the Act:
- Allows automatic-enrollment safe harbor plans to increase the cap on raising payroll contributions from 10 percent to 15 percent of an employee’s paycheck, while giving employees an opportunity to opt out of the increase.
- Allows retirees to delay taking required minimum distributions (RMDs) until age 72, up from the current age of 70-1/2.
- Increases the portability of annuity investments by letting employees who change jobs or retire move their annuity to another 401(k) plan or to an IRA without surrender charges and fees.
- Provides penalty-free withdrawals from retirement plansof up to $5,000 within a year of the birth or adoption of a child to cover associated expenses. The withdrawal will be exempt from the 10 percent penalty on pre-retirement withdrawals, but the distribution is still subject to tax. This exception is limited to $5,000 over the plan participant’s lifetime. The birth or adoption distribution amount can be re-contributed back to a retirement account.
The above provisions will take effect with tax years beginning on or after December 31, 2019.
The SECURE Act was one of several bills passed by Congress this week and awaiting President Trump’s signature. Another bill, an end-of-year spending bill, finally and permanently repeals the Cadillac Tax. The Cadillac Tax, which was scheduled to take effect January 2022, would have imposed a 40 percent excise tax on the cost of employer health plans in excess of annual cost thresholds.
For more details on the SECURE Act, click here.