The inclusion of the Secure Act in the bipartisan federal funding bill expected to be approved by Congress this week was something of a surprise and is likely to cause some significant disruption, according to a recent column in Forbes.
The Secure Act — or the Setting Every Community Up for Retirement Enhancement Act — is meant to allow small business owners access to multiple-employer plans, with the goal of lowering their costs of offering retirement savings plans to workers.
The House of Representatives and Senate leaders reached a deal Monday to include the Secure Act in the federal government appropriations bills for fiscal year 2020. The full House of Representatives passed the package on Tuesday. The package would need to be passed by Congress before midnight Friday to prevent a government shutdown.
One of the Secure Act's most important provisions is the removal of the required minimum distribution provisions for stretch individual retirement accounts, Jamie Hopkins writes in a column for Forbes.
As a source of tax revenue, the provision will lead to a tax hike for many and “will cause chaos” for several types of trusts, according to Hopkins, director of retirement research at Carson Wealth.
So-called “pass-through trusts,” for example, will have to be revised, as the current language could lead to heirs of trusts being restricted from accessing them and “massive tax bills down the line,” he writes.
Additionally, while the Secure Act will be a boon for the insurance industry, thanks to provisions for easier inclusion of annuities in 401(k) plans, it could both help and harm consumers, according to Hopkins.
Availability of lifetime income can help prolong the life of a retirement income portfolio — but the provision is also lowering or doing away with certain fiduciary requirements when it comes to vetting insurers and their products, he writes.
Finally, the bill will create immediate, significant repercussions for financial professionals as well as consumers as far as their need to prepare, according to Hopkins.
It will require financial advisors to undergo additional training, attorneys to review their trusts and estate planning documents, CPAs to take into account its tax implications and consumers to revise their retirement and estate plans, he writes.