Retirement bills that are in the works by a bi-partisan group of Senators could change 401(k) plans starting in 2019. If these bills are passed, it will be the first major change to 401(k) plans in more than a decade. These changes will make it easier for small companies to offer 401(k) plans that will be promoting employee savings. Although the proposals are not yet officially set, some of the proposals being discussed below could help employers implement 401(k) plans and help employees prepare for retirement, so learning about their impact now could save time in 2019.
Among other proposals, a new type of savings account is being considered. This specific proposal will retract a provision that does not allow individuals over the age of 70 ½ from contributing to traditional IRAs. Another proposal is that plans will be required to disclose to employees the monthly annuity income their savings would support. This educates individuals on what their retirement income will look like to better plan. Another proposal is that automatic enrollment would allow employers to raise employee’s savings rates over 10% of their income.
The bill that has attracted support from financial-services companies and AARP is a bill known as “The Retirement Enhancement and Savings Act, or RESA,” or RESA for short. RESA would offer multiple-employer plans, allowing small employers to come together to offer 401(k) plans to their employees. This will reduce fees for small employers, since these fees will be shared among other employers that join a multiple-employer plan. This arrangement is available now, but only to employers with an affiliation. RESA would eliminate this constraint of who can join this arrangement.
Also, RESA would encourage 401(k) style plans to offer annuities, promoting lifetime income streams out of employee’s balances. Among other advantages RESA will offer to employers and employees, a tax credit will be available to small companies to offset the costs of starting a new retirement plan. The annual credit amount would rise from $500 to as much as $5,000 for three years.
These proposals will help promote employee savings as well as make it easier for small companies to offer 401(k) plans. We will continue to monitor these changes as the new year is approaching.
If you have questions about the changes to 401(k) plans, or anything else related to your plan, please call Barnes Dennig at 513-241-8313 or click here to have a member of the employee benefit plan team call you. We hope to speak with you soon!