State of the Union Highlights and Notes for Employers to Rememberby LifeInc Retirement Life,Inc.Retirement Services
With the President’s State of the Union Address, many people are left wondering how the proposed changes to our retirement system affect them, their savings, and their obligations as an employer. While there many controversial topics covered, one of the more widely accepted was the proposals around retirement plans, as a means to getting America better prepared for retirement. So what does this mean to you and your business?The simple answer is, nothing, yet…….
While there are several proposed changes, one change that impacts employers the most, is that employers that are not currently offering a plan would be required to offer an IRA or 401(k), with an auto-enrollment feature. This rule is currently proposed for employers with 10 or more employees, and employerswould also be eligible to receive up to a $4,500 tax credit for the cost of starting one.
If you are a business that currently sponsors a 401(K)
Plan, SEP or SIMPLE IRA, then your plan will continue to
operate as it has going forward, but there are likely changes coming down the
road if these rules are enacted. The silver lining is that employers with
existing plans could get a $1,500 tax credit for adding auto-enrollment
features, but the current language doesn’t seem to require they be added to
existing plans in the current proposal.
Including Part Time Employees
One of the largest proposed changes that could impact current businesses with 401(K) Plans is the proposed change to include employees who have worked at least 500 hours in a year, for three consecutive years. Current regulations allow for employees to be excluded from participation if they never work 1,000 hours in a given year. While the rules will likely be a phased in, or have a grace period for enacting them, it would be wise for current plans to look at their current plan design, if the rules are enacted. Many plans are currently designed with these current rules in mind, so plans that have been able to pass discrimination tests in the past, could face new problems if these employees are brought into the plan only to opt out of contributing, or only do so at lower rates.
What to Do Now?
The next key item to point out is that while these tax incentives are enticing, the important thing to do is, monitor the situation, and wait to see if these proposals to become law. While these provisions seemed widely supported in congress, many others did not. This means the proposed Retirement Plan rules could be dragged into the larger fight with the more polarizing proposals. Unfortunately, this means that if you were looking at adding an automatic enrollment feature to you plan in the beginning of 2015, you are faced with a tough decision of whether to move forward, or to wait for possible tax advantages. There is always a chance that the proposal goes through for the 2015 tax year, but if the proposal get delayed as a result of some of the more politically decisive issues, then you could miss out on these tax savings if the proposals are delayed till 2016. Of course, if you wait, there is just as much chance that the proposals never get enacted, and you delayed the auto-enrollment needlessly, further delaying time employees could be building towards retirement.
While these are currently only proposed rules, many of them are jointly supported as a way to better prepare our nation for retirement. There are many other more controversial proposals from the speech with the opportunity to derail the proposals around retirement plans. As always, make sure you are working with a retirement plan professional so they can help apply current and prosed changes to your specific situation.
Created on Dec 12th 2017 09:44. Viewed 333 times.