Recently, the Trump administration has voiced concerns about the retirement readiness of many Americans. For example, a report released by Northwestern Mutual earlier this year revealed that about one out of every five Americans has no money at all saved for retirement.
In addition, one out of every three baby boomers has less than $25,000 saved for retirement, according to the report. As a result, Northwestern Mutual anticipates that 38 percent of Americans won’t be able to retire until they’re at least 70 years old.
Removing Hurdles to Offering Retirement Plans
In an effort to try to help individuals and couples save more money for retirement, President Trump signed an Executive Order (Strengthening Retirement Security in America) in August directing the U.S. Treasury and Labor departments to issue new rules making it easier for small businesses to offer retirement plans to their employees.
According to the Trump administration, barely half (53 percent) of businesses with fewer than 100 workers offer their employees a retirement plan. In comparison, nine out of ten businesses with 500 or more employees offer a workplace retirement plan.
More specifically, these departments have been directed to remove regulatory hurdles that prevent small businesses from forming multi-employer Association Retirement Plans. Current rules limit the formation of such plans to businesses that share common characteristics, like operating in the same industry.
In response, the Labor Department announced a Notice of Proposed Rulemaking in October that would allow associations of employers in a city, county, state or multi-state metro area to offer Association Retirement Plans. Sole proprietors and their families would be permitted to join these plans and Professional Employer Organizations (PEOs) would be allowed to sponsor them.
The Executive Order also directs the departments to look for other ways to reduce bureaucratic barriers small businesses face to offering retirement plans to their employees. According to the administration, 71 percent of small and mid-sized business owners say that high costs due to regulatory burdens and other factors deter them from offering a retirement plan.
These bureaucratic barriers include required employee benefit plan notices and disclosures. According to the Executive Order, these numerous, complex and costly notices may discourage businesses from offering plans. “Improving the effectiveness of required notices and disclosures and reducing their cost to employers promote retirement security by expanding access to workplace retirement plans,” the Executive Order states.
Reexamining Required Minimum Distributions
In addition, the executive order directs the Treasury department to reexamine the life expectancy and distribution period tables that govern required minimum distributions (RMDs) from qualified retirement plans.
“Outdated distribution mandates may also reduce plan effectiveness by forcing retirees to make excessively large withdrawals from their accounts,” states the Executive Order. This, in turn, could potentially leave retirees with insufficient savings in their later years.
Currently, retirees must begin taking RMDs from retirement accounts when they reach 70½ years of age. The Treasury department will determine whether the life expectancy and distribution period tables should be updated to reflect current mortality rates, as well as whether annual or other periodic updates should be made to RMDs.
Watch Developments Closely
If you own a small or mid-sized business, you should keep an eye on these developments and how they might impact your ability to offer a retirement plan to your employees.
Please contact us if you have more questions about small business retirement plans and required minimum distributions.