President Trump will sign an executive order today directing the Treasury Department to review rules requiring minimum distributions from defined contribution plans beginning at age 70 1/2. In addition, the executive order will direct the government to look into making it easier and more cost-effective for small businesses to offer 401(k)-type plans. Both initiatives may take as much as 180 days to a year to review and approve, but it is a start.
Allowing defined contribution participants to spread their retirement savings over a longer period should protect those with longer life spans from running out of savings prematurely. Since a review is to be taken details on just how the additional time will work are not forthcoming.
With regard to the commingling of small business 401(k)s, multiemployer plans have existed for years among businesses with similar trades, but this effort being considered would permit small business of any kind to join together to find economies of scale in offering these retirement benefits. The hope is that by commingling these plans they will become less costly and burdensome to administer. However, Small Business Majority founder and CEO John Arensmeyer. “Secure Choice” retirement-savings programs “add no cost or fiduciary responsibility to an employer, and are public-private partnerships that allow private-sector employees to contribute to an individual retirement savings account through modest payroll deductions.” (WSJ)
The move away from traditional defined benefit plans has been done primarily because of the expense and liability carried by management. If in fact the commingling of these plans somehow increases the liability of small businesses they are less likely to use them.
Both of these proposals are part of a broader piece of legislation known as the Retirement Enhancement and Savings Act (RESA), which has bi-partisan support, but regrettably, it hasn’t advanced this year. A majority of our future and present retirees are in desperate need of help in building an appropriate retirement nest egg. This legislation and others, including the Butch Lewis Act, need to be supported now.