Last Friday, President Trump signed an executive order that spurs the Departments of Labor and Treasury to push forward several bipartisan changes to how retirement plans operate.
Here are the big initiatives:
1) Review Required Minimum Distribution (RMD) rules with an eye towards starting them later than age 70 ½ and/or reducing them once they start;
2) Consider creation of pooled Multiple Employer Plans, allowing pooling of 401(k) plans with other companies to reduce plan costs.
3) Review paperwork and administrative requirements for employers’ workplace retirement plans with the intent of lowering costs and spurring retirement plan adoption among small and medium businesses.
No changes are certain, and any changes would take months or years to go into effect.
First, A Review of Required Minimum Distributions There are many benefits of investing in a 401(k) or IRA, most especially the tax deferred growth of invested assets. But among their drawbacks is that those over age 70 ½ are required to withdraw (and incur taxes on those withdrawals) a certain amount of money each year even if they don’t want or need that money. The age RMDs kick in hasn’t changed since the 1980s when average lifespans for 65-year old’s were approximately 3 years shorter than they are now.
They could opt to push back the age at which RMDs kick in or lower the percentage amount per year.
Next, Pooled Employer Plans
The order asks to allow small businesses to jointly offer 401(k) plans across unaffiliated entities via a mechanism known as open Multiple Employer Plans. The practical impact should be to significantly reduce the cost and complexity for an employer to start and maintain a 401(k) plan, which should increase the number of employers offering 401(k)s, although participation will still be voluntary.
Paperwork and Administrative Burden
The order will also call on the Labor and Treasury departments to consider ways to reduce paperwork and administrative burdens that might prevent businesses from offering retirement savings plans.
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