Retirement reform bill: Key provisions that will affect you
Lawmakers are working on passing comprehensive retirement reform for the first time in more than a decade, with the aim of helping Americans save enough to live comfortably throughout their older years.
“Obviously it was quite a comprehensive bill,” Chad Parks, founder and CEO of Ubiquity Retirement + Savings, told FOX Business. “I think that the best way to characterize this is, it’s kind of cleaning house … [lawmakers] knew they had all these little things that are not quite right.”
Parks said one of the key parts of the legislation is that it aims to increase access to retirement plans – one of the biggest savings barriers right now.
Lawmakers hope to expand access by increasing the amount of tax credits the government will give to small businesses for having plans up to a maximum of $5,000 per year, from $500 per year. For businesses that automatically enroll employees, the maximum is $5,500.
“The government is paying you to put a retirement plan in place,” Parks said.
The tax credit expires after three years.
The bill would also make it easier for companies to band together to offer multi-employer plans, while requiring businesses to allow some part-time workers to participate.
Multi-employer plans are currently available, but the legislation would change one significant rule that might encourage more businesses to participate. The so-called “bad apple” rule refers to the fact that if 10 employers go into a plan together, and one person doesn’t follow the rules, the whole group will suffer. Now, Parks said, businesses would be allowed to outsource two fiduciary rules to address that dilemma.
In order to help Americans stretch out retirement savings over their lifetime, the plan also calls for an annuity option in retirement plans which are fixed sums paid out over a lifetime.
John Iammarino, the principal and founder of Securus Financial, told FOX Business the annuity option is particularly important since future retirees don’t have a pension, like their parents and grandparents did.
“It doesn’t matter how much money you have if you don’t turn it into a predictable lifetime income stream,” Iammarino said. “The annuity option [gives people] the ability to have a predictable income stream and helps alleviate some of that pressure from Social Security.”
Another pair of provisions target the flexibility of accounts: People would be allowed to stash money into IRA accounts beyond the current age limit of 70 1/2. It would also delay when individuals are required to begin taking required minimum distributions to 72, from 70 1/2.
Iammarino said he doesn’t think raising the contribution threshold will have that significant of an impact on most people, but delaying the age at which individuals would be required to withdraw funds from their accounts allows for nearly two extra years of planning and delays potentially being pushed into a higher tax bracket.
Among the changes that could be negative for retirees is the potential elimination of stretch IRAs. The new law says people who inherit an account must drain it within 10 years, while the current law allows them to stretch it out over a lifetime. Iammarino noted this is unfortunate for legacy planning and is something he would definitely hate to see disappear.
Overall, however, he is optimistic about what lawmakers are trying to accomplish.
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“At the end of the day, today’s retirement is on the employee,” Iammarino said. “I don’t think the bill’s going to have an overall impact on people’s ability to save, but I do think people over the long haul will be happier in retirement with their annuity option.”
The bill passed the House last week, in a vote of 417-3, which Parks noted is a pretty remarkable margin in today’s political climate. It will be taken up by the Senate.