In what has been called the most comprehensive retirement security legislation in a decade, a spending bill that includes the Setting Every Community Up for Retirement Enhancement (Secure”) Act was signed in late December. This means changes to retirement plans going forward. Further, the American Council of Life Insurers estimated that the Secure Act will result in 700,000 more American workers saving for retirement.
When asked his thoughts on the changes, Ted Benna, a former benefits consultant — often called the “Father of 401(k)s” — provided Investment Advisor these comments:
• “Hopefully the operating efficiencies a multiple employer plan can provide will result in reduced fees rather than increasing service provider profits.
• MEPs should help increase coverage among smaller employers.
• MEPs don’t impact the two major compliance issues that make 401(k)s undesirable for many small employers — top heavy and the non-discrimination testing.
• A 401(k) isn’t the best option for many small employers that don’t have retirement plans. As a result, many small employers are likely to be pushed into 401(k)s via MEPs instead of one of the better alternatives.
• There has been a lot of negative reaction to eliminating the stretch IRA. I am in agreement with this change because the reason employees are given tax breaks is to help them accumulate what they need for retirement rather than to pass money to their heirs.” (See more below)
What to Watch For
Taking a broader look at retirement trends in 2020, we asked experts on what to expect, even beyond the Secure Act.
What if the Market Drops?
Benna, 77, believes that another market crash, such as what happened in 2000 or 2008, will have a major impact on two groups: retirees or those close to retirement who “are anticipating heading off into the sunset and their plans get disrupted when [there’s a market break]; and the younger generation. [A market break] will be the first experience of that type for them, and [it will be] unsettling.”
Also, the “persistent low interest rate environment is impacting how people saving for and living in retirement are planning to ensure their retirement needs are met,” according to Dylan Huang, senior vice president and head of retail annuities at New York Life. “Most people have under-saved for retirement, which means that the need to stay in the market is critical.”