Short for “Setting Every Community Up for Retirement Enhancement,” the SECURE Act of 2019 (the “Act”) that recently passed through the House Ways and Means Committee, and the similar Retirement Enhancement and Savings Act of 2019 from the Senate, aim to make significant retirement plan upgrades. The bill passed through committee unanimously and quickly, and it contains a handful of improvements for 401(k) plans and a few other provisions. On May 23rd the House of Representatives passed the bill with an overwhelming majority.

Provisions Aimed at Increasing Participation and Employee Savings in 401(k) Plans

  • The cap on auto-escalation of employee contributions increases to 15% from the current cap of 10%.
  • Small businesses starting 401(k) plans and/or including plans with automatic enrollment will get an increased tax credit.
  • Graduate students and post-doctorate students will be able to contribute to 401(k)s based on their graduate stipends and fellowships.
  • Home healthcare workers can include “difficulty of care” payments in their calculation of compensation.
  • Penalty-free withdrawals covering birth and adoption, a provision designed to encourage young savers to use a 401(k) rather than saving for maternity leave separately.
  • The bill will add safe harbor practices to protect employers who choose a group annuity plan to support their 401(k) plan income stream options.
  • The Act requires plans to inform participants how much their monthly retirement income will be based on their assets in the plan. The bill also includes protections for employers when plan participants complain about the retirement income projection.

Additional Bill Provisions

In addition to the parts of the new bill that address retirement, there are a few extra details.

  • Section 529 education savings accounts are expanded to include apprenticeships and homeschooling expenses.
  • Workers of any age can now contribute to IRAs.
  • The bill eliminates required mandatory distributions beginning at age 70 ½ rather than the current requirement of 72 years of age.
  • Provisions to make it easier for small businesses with fewer employees to offer retirement plans by allowing two or more otherwise unrelated employers to join a pooled employer plan. This would be done in tandem with a pooled plan provider who is responsible for ensuring the plan and the businesses are in line with ERISA and other federal and state regulations.
  • The Act increases penalties when plan sponsors fail to file tax returns on time.
  • The bill provides for an accelerated required rate for IRA and 401(k) heirs to take distributions.