Proposed Retirement Plan Changes
The coming federal budget will include a few changes to retirement accounts, including a new retirement plan called the myRA.
- Pooled 401(k) plans. Setting up and managing a 401(k) plan can be burdensome for small businesses. Under current law, employers with a "common bond" can form pooled 401(k) plans, and share the administrative work and costs. Obama will propose removing the "common bond" requirement in an effort to encourage more small employers to set up pooled retirement accounts. The rule change would also allow non-profits to create retirement accounts for contractors and self-employed individuals who aren't eligible to participate in existing workplace retirement plans.
- Automatics IRAs. Employees are frequently automatically enrolled in the company 401(k) plan unless they opt out. Obama's proposal would require employers with more than 10 workers to automatically enroll employees in an IRA if they don't provide another type of retirement benefit. Companies with 100 or fewer employees who sign their workers up for the automatic IRA would also receive a tax credit of up to $3,000. Workers who are not automatically enrolled in the IRA would be eligible to participate on their own if their income is below a certain cutoff.
- Bigger tax breaks for employers. Small businesses currently get a tax credit when they set up a new retirement plan. Obama wants to triple the existing credit to $1,500 per year for up to three years for small employers offering a new retirement plan. Small businesses that add automatic enrollment to their existing retirement plan would also get a tax credit of $500 per year for up to three years.
- Part-time employee participation. Employers are allowed to exclude part-time employees from participating in the company retirement plan. Obama is proposing that all employees who work at least 500 hours per year for three or more years be eligible to participate in an employer's existing retirement plan. This change would proposedly provide a million people with access to retirement plans.
- Portable benefits. Obama's budget will propose funding pilot programs that will make retirement benefits more portable as people change jobs. Nonprofit organizations and states would receive funding to design and evaluate retirement benefits that can accommodate job changes, intermittent deposits, unpredictable work patterns and contributions from multiple employers.
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Gene M. Bowman, Attorney & CPA