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Employers Can Get $16,500 to Set Up Retirement Plans: Secure Act

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President Donald Trump signed the legislation creating the Further Consolidated Appropriations Act, 2020, Friday.

The president’s signature brought the “Setting Every Community Up for Retirement Enhancement Act of 2019″ (Secure Act) to life, and it set legislative analysts poring through the 1,773 pages of the PDF to see what’s really in there.

(Related: Life and Annuity Players Prepare to Pop Secure Act Champagne Bottle Corks)

Two sections getting more detailed attention are Section 104 of the Secure Act, which increases the maximum tax credit available to employers that set up retirement plans, and Section 105, which increases the maximum tax credit available to employers that set up plans with automatic enrollment features.

Retirement Plan Tax Credits

The old tax credit was a maximum of $500 per year for three years for setting up a retirement plan — or a total of $1,500 over three years.

An employer can now get up to $5,000 per year for three years for setting up a plan, and $500 per year for three years for including an automatic enrollment feature. That means the total tax credit, over three years, could be $16,500.

To get the maximum possible tax credit, an employer has to make 20 non-highly-compensated employees eligible for the new retirement plan.

The Kiddie Tax

Legislative analysts are also giving more attention to a Secure Act provision that eliminates the “Kiddie Tax” — a provision in the Tax Cuts and Jobs Act of 2017 (TCJA) that changed the tax treatment of children’s unearned income.

Drafters included the provision to counter wealthy family’s tax planning strategies. But the provision ended up leading to dramatic increases in tax bills for low-income and moderate-income students using scholarships to pay for college.

Marc Cadin, chief executive officer of the Associated for Advanced Life Underwriting, and AALU members worked to point out that the provision has also hurt the children of service members who have died in combat. Families ended up having to pay more taxes on the benefits the children received as a result of the deaths of their parents.

Industry Reactions

Some companies and groups sent out celebratory announcements after Congress completed work on the FCAA 2020 package, and before the president signed it.

Some waited until right before, or right after, the president signed the legislation to celebrate.

Here’s a look at excerpts from some of the statements that came out right around the signing time:

John Carter, president of Nationwide Financial

“With record low unemployment rates making it harder for small businesses to retain top talent, paired with America’s growing retirement preparedness challenge, the Secure Act offers a solution for making workplace retirement plans easier to offer: open multiple employer plans (MEPs). MEPs allow small businesses to pool their resources to offer a workplace retirement plan that is cost effective and administratively simpler….

I“Nationwide is a strong supporter of enhancements to our retirement system that enable and protect the future for Americans and small businesses.”

Paula Nelson, president, retirement at Global Atlantic

“We view the Secure Act as the most comprehensive retirement security legislation in more than a decade and are pleased that it’s been signed by the President. At Global Atlantic, we would like to see all Americans achieve their retirement income goals, and we believe this will help by providing more access for working Americans to obtain guaranteed income products in their workplace retirement plans. Along with some of the Secure Act’s other provisions, this will help retirees ensure that they do not outlive their savings.”

Graham Cox, executive vice president and head of retirement and income solutions group at MetLife

“This legislation modernizes the nation’s retirement system by expanding access to solutions that will help workers live more confidently in retirement. It’s no longer enough that employees save for retirement — they need help understanding how to generate a steady level of income. Through the provisions of the Secure Act, employees can better understand the potential danger of outliving their savings and reduce the risk that they run out of money in retirement.”

Susan Neely, president of the American Council of Life Insurers

“We commend President Trump for signing the Secure Act into law as part of the spending package. And we applaud the bill’s bipartisan champions in the House and Senate and the leadership of Chairman Richard Neal and Ranking Member Kevin Brady and Chairman Chuck Grassley and Ranking Member Ron Wyden. Their determination made good public policy that’s been in the works for a decade become law.

“The Secure Act expands access to retirement plans for millions of Americans and allows older workers to contribute more to their IRAs. It also makes it easier for small businesses to band together to provide retirement plans for employees — leading to at least 700,000 new savers.

“As consumers’ retirement needs evolve, we look forward to working with policymakers on additional bipartisan solutions to help all Americans position themselves to achieve financial security in retirement.”

Implementer Reaction

Human Interest is one of the 401(k) plan providers that’s been publishing detailed analyses of the Secure Act all along.

Diana Torzewski, the company’s senior manager of customer experience, said the increase in the Small Employer Plan Start-Up Credit, to $15,000 over three years, from $1,500, will prompt many more employers to offer retirement plans.

Torzewski called the extra tax credit for employers that set up plans with automatic enrollment features “a hidden gem.”

“We find that when a small business automatically enrolls its teammates and provides some level of match, 92% of employees take advantage,” Torzewski said. “This has huge potential to impact the 86% of small business employees who don’t have access to this fundamental wealth-building benefit.”

Budget Watchers’ Reactions

The U.S. federal government has been generating about $3.5 trillion in revenue per year and spending more than $4 trillion per year.

The Committee for a Responsible Federal Budget is pointing to estimates that FCAA 2020 provisions may add about $50 billion in debt per year over the next years, or $500 billion in extra debt over the next decade, and $2 trillion in extra debt over the next 20 years.

Maya MacGuineas, the group’s president, issued the following statement:

“This bill is so fiscally reckless, it leaves one worried not just about the debt, but about our ability to govern. Our massive and growing debt leaves us weakened and vulnerable and jeopardizes our position as an economic superpower. Keep in mind all this borrowing is not for policies that can be justified as pro-growth, helping those in need, or even good policy — they are special-interest giveaways that reflect Washington at its worst.

“The half-a-trillion in new debt in this bill, combined with the $1.7 trillion budget deal earlier this year, means we will have added $2.2 trillion to projected debt levels over the next decade in this year alone. Already, the deficit was the worst it has ever been when the economy was this strong; there is no justification to worsen it further.

“This latest round of tax cuts will bring back special-interest zombie tax extenders that everyone agreed to let die two years ago and repeals the Cadillac [plan] tax something that experts from all sides of the aisle agree would have helped to contain health care costs. Due to the cynical actions of the majority of our political leaders, health care costs will grow more quickly, wages will grow more slowly, and special-interest giveaways will continue to litter the tax code.”


The text of FCAA 2020 is available here.

— Read Health Coverage May Get $348B Spending Bill Booston ThinkAdvisor.

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