Seniors, businesses grapple with landmark retirement law

Seniors are coming to terms with the changes from a landmark new retirement law, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which took effect in January.

The law, which House Ways and Means Committee Chairman Richard Neal (D-Mass.) called one of his “top priorities,” is expected to expand access to retirement accounts for 700,000 people and create new paths to save.

But its biggest changes will come for the employees of small companies, who have long found it difficult to offer retirement options such as 401(k)s to their workers. The SECURE Act removes restrictions on groups of small employees, allowing them to band together on a retirement plan, taking advantage of the economies of scale larger businesses have access to.

“The SECURE act is the most comprehensive reform of the retirement landscape since 2006,” says Chris Spence, senior director of federal government relations at TIAA, a financial services group.

“It’ll make a big difference in the small employer market, because small employers who have been reluctant to adopt a retirement plan can now take advantage of economies of scale,” he added.

Until now, businesses needed to have some common thread, such as membership in the same trade group, in order to join forces in offering a retirement plan. The SECURE Act eliminates that provision. And as a critical safeguard, it limits the damage one errant employer can do to the entire retirement fund if they break regulations.

The law goes even further, providing financial incentives for employers that automatically enroll their workers and giving them a tax credit to cover costs of starting up their retirement program.

Employees of small businesses, Spence says, should make sure their bosses know the option is available and ask them to join a multiemployer plan if they haven’t.

President Trump signed the SECURE Act in December after its inclusion in a year-end spending deal from Congress. Lawmakers touted the measure as a significant improvement to how Americans save for retirement.

“This legislation will help more Americans save for their retirement and help more American businesses invest in their employees’ future financial security,” said Senate Finance Committee Chairman Chuck Grassley (R-Iowa) when the bill passed.

But while the expanded access for savers is good news, experts say people approaching retirement need to pay attention to other important provisions of the SECURE Act.

In particular, the law allows retirement savers to wait an additional two years before they have to start drawing funds from their accounts.

Previously, people couldn’t simply leave their accounts untouched once they reached the age of 70 1/2, a provision that remains in place for those who had reached that age before the law took effect.

As of this year, however, people can wait until the age of 72 to start drawing down their retirement accounts, giving them more time to focus on saving.

The plan will also increase the cap on how much workers can contribute to their retirement accounts, increasing the amount they can save in tax-optimized accounts.

“We think it’s a big deal because it’s foundational to closing the retirement savings gap in this country,” says Susan Neely, CEO of the American Council of Life Insurers.

Neely says that among the many key regulatory changes are measures that will make it easier for employers to include annuities in their retirement offerings. Because an annuity pays out a fixed amount until someone dies, it offers stronger protections as people live longer.

Similarly, the law will require retirement benefits statements to include estimates of how overall savings levels will translate to monthly income in retirement.

“You should know that you’re going to have the option to contribute more to your account, that you will have an illustration to how your retirement savings are adding up, and how they’ll translate into monthly lifetime income when you do retire,” she said.

“These kinds of things can sound small, but they are actually meaningful in terms of nudging people to take advantage of these vehicles and help themselves,” she added.

Spence agrees.

“For most people they see that amount of money and it’s more than they’ve ever had in one place, so they might think it’ll be enough. That looks different when you see it as a monthly amount,” he said.

The SECURE Act offers some of the most significant changes and expansions to retirement savings since 2006. “It’s a really good piece of policy that we’re really thrilled has passed,” said Neely.

Still, lawmakers and advocates say there is more work to be done to help Americans prepare for retirement and Congress is looking at more changes.

Neal has a proposal to offer automatic enrollment to retirement plans, with an opt-out provision, to all workers, even if their employers don’t currently offer one.

Across the Capitol, Sens. Rob Portman (R-Ohio) and Ben Cardin (D-Md.) have a bill that would help low-income earners and older people without enough savings boost their retirement accounts.

“There’s plenty to do,” Spence says.