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Analyzing the SECURE Act's Implications

Last Friday, the most substantial legislation affecting retirement since the Pension Protection Act of 2006 became law. Known as the SECURE Act (for Setting Every Community Up for Retirement Enhancement), the legislation was attached at the last minute to the government appropriations bills for fiscal year 2020.

Major provisions of the SECURE Act include:

  • Increasing the age for required minimum distributions from 70½ to 72
  • Requiring disclosures for how a participant’s balance would translate into a future income stream
  • Modifying the safe harbor around the selection of a lifetime income provider, so fiduciaries can rely on the assurances of state insurance regulators that providers are adequately capitalized
  • Allowing 529 distributions to be used to repay student loans (up to $10,000 annually)
  • Increasing the limit on auto-escalation from 10% to 15%

(Estimate reading time: 1 min 13 sec)

The bill also paves the way for open multi-employer plans (MEPs) by removing the need for employers in a MEP to share a common affiliation. It also removes the so-called “bad apple rule,” referring to a rule that if one plan in the pool is no longer a qualified plan, the entire pool loses its qualified status.

Bottom Line: Given its sweeping nature, the impact on policy cannot be underestimated within the retirement industry as major changes (target date funds, auto features, etc.) were largely driven by previous regulatory and legislative catalysts.