Opinions November 19, 2019

Why Americans Need the SECURE Act

The president and chief operating officer of Nationwide Financial makes a case for how passage of the SECURE Act will improve Americans’ retirement security.

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In an increasingly competitive economy, it’s time for Congress to pass the SECURE [Setting Every Community Up for Retirement Enhancement] Act to help small businesses provide their millions of employees a workplace retirement plan.

Small-business employees are the backbone of our communities and the American economy. Comprising over 40% of the American workforce, small businesses face challenges, such as retaining top talent in an ever-tightening labor market.

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When it comes to recruiting and talent retention, 88% of small-business owners that offer a 401(k) plan to their employees say being able to do so is beneficial, and 84% say their employees view it as a necessary benefit, according to a recent Nationwide business-owner survey1. More importantly, 51% of workers over the age of 50 say an employer-sponsored retirement plan will be their main source of income in retirement2.

However, many small-business owners can’t provide a retirement plan due to costs, management requirements and complexity. This means the financial futures of almost half of the American workforce could be at risk because they lack access to these critical saving tools. We must do more to remove barriers for small-business owners who want to provide a plan to their employees.

Earlier this year, the Department of Labor (DOL) issued a rule to allow “association retirement plans (ARPs)”—a type of multiple employer plan (MEP). However, the rule’s narrow scope and limits on employer eligibility make it unlikely for ARPs to have any significant impact for most small businesses. Fortunately, the SECURE Act contains a provision that would eliminate the remaining barriers to open MEPs and provides a clear path for small businesses to pool their resources and offer retirement plans that are cost-effective and administratively simpler.

This is why Congress must pass the SECURE Act. The SECURE Act moves past the DOL’s rule to remove the association requirements, broadening the options for which employers can band together in a MEP. With fewer restrictions and more choices, employers will be able to find the MEP that best suits them and their business.

The SECURE Act levels the playing field between large and small employers when it comes to offering a workplace retirement plan, creating increased competition. In fact, a recent Nationwide business-owner survey3 shows that 59% of business owners think the SECURE Act will have a positive impact on their ability to offer a 401(k), and 80% say passage of the act will let them offer a 401(k) plan that rivals those at large corporations.

To help ensure small-businesses’ needs are addressed and their employees are supported, Nationwide has been engaged with lawmakers on open MEPs, and other legislative reforms to the U.S. retirement system, for the past decade. We also advanced another provision to increase access to workplace retirement plans by providing small-business owners a financial incentive to offer their employees a plan. The SECURE Act provides for an annual tax credit, which covers up to $5,000 of plan costs for the first three years an employer makes a plan available.

Small-business owners are looking to Washington to ensure they—and their employees—can balance their financial needs of today while preparing for the future. Now is the time for the Senate to pass the SECURE Act and help small businesses offer the workplace retirement plans that are critical to their employees’ retirement security.

1 Nationwide Business Owners Survey, 2019 Survey Report/September 12, 2019

2 Nationwide Retirement Institute Consumer Social Security Public Relations Study, March 2019

3 Nationwide Business Owners Survey, 2019 Survey Report/September 12, 2019

John Carter is president and chief operating officer of Nationwide Financial.
Ask the Experts November 19, 2019

Ask the Experts – Turning After-Tax Account to Emergency Savings in 403(b) Plans

Experts from Groom Law Group and Cammack Retirement Group answer questions concerning retirement plan administration and regulations.

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“We sponsor an ERISA 403(b) plan that has historically allowed for after-tax contributions, but that feature has been largely dormant. However, I read a recent PLANSPONSOR article about how a 401(k) plan sponsor was able to successfully utilize its after-tax source as an emergency savings account within the retirement plan. Can this be done in a 403(b) plan as well? If so, are there any drawbacks to this solution? We have been investigating automated emergency savings account options as part of a strategy to promote the overall financial wellness of our employees?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

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Thank you for your question! It is indeed possible for a 403(b) plan’s after-tax contribution source to be designed as an in-plan emergency savings account, though you should consult with your retirement plan counsel to determine whether such a design would work in your particular plan. Note that contributions to such an after-tax emergency savings account, would NOT be subject to the 402(g) limit on elective deferrals, so these contributions could be made in addition to such deferrals.

However, as we discussed in our Ask the Experts column on after-tax rollover strategies, there are some potential hurdles to the effectiveness of this approach, as follows:

1)         After-tax contributions to most retirement plans (with the exception of governmental and non-electing “steeple” church plans/QCCOs) are subject to the same actual contribution percentage (ACP) testing as employer matching contributions. This form of nondiscrimination testing is less likely to pass if individuals who are highly compensated employees (defined in 2020 as those who earned more than $125,000 in 2019) contribute large after-tax amounts, which are permitted since after-tax contributions are not constrained by the 402(g) elective deferral limit (but see item 2) on the 415 limit, below). Thus, even if a plan permits after-tax contributions for an emergency savings fund or other purposes, higher earners may be restricted by such testing from contributing significant amounts.

2)         If a participant already receives a large employer contribution to the plan in question (or any other plan that would be subject to the same 415 limit) that contribution could impact the participant’s ability to make after-tax contributions.

3)         Though a plan may be designed to permit withdrawals of after-tax contributions, earnings on such contributions would be subject to taxation when withdrawn, as well as a 10% penalty if the participant is younger than 59 ½, (note that there are exceptions to the penalty; for example, if a participant terminates employment on or after the calendar year in which he/she turns age 55).

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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