Jan 1, 2020
In this episode of Inside the Plan with the 401(k)
Brothers, Bill Bush and Andy Bush, advisors at Horizon
Financial Group, discuss New Year’s Resolutions plan participants
should consider for the year 2020. In addition, they talk about the
newly passed and signed SECURE Act, the most significant retirement
plan legislation to be enacted in over a decade.
According an article in US News, 80% of New Year resolutions
fail by the 2nd week of February! Ouch. Here we offer 7
resolutions you should consider making, when it comes to your
company retirement plan account:
- Set up your online account access. This sounds
simple, but you’d be surprised at how few people actually do this.
We live in the digital age, where you can do just about anything on
your phone or computer. So, make the leap and set up your online
- Log in to your online account at least 3 times this
year. (Spread throughout the year, of course). Check
things out, review your balance, see what your return is, and look
at your fund options. Opt for electronic delivery of your
statements, if you can. The point is, you have access, so use it
regularly. And if you log in 3 times or more this year, you’ll be
using the tool more than most participants.
- Use your provider’s online calculator 1 time this
year. “Am I doing enough”? A common question when it comes
to retirement savings. What does the percentage you’re saving now
going to mean in the future? Most providers we deal with have
online calculators to help you answer those questions. Usually, you
can add in other outside funds, including your spouse’s info, as
well as Social Security into the calculator to help you figure if
you are on track or not. It’s an exercise worth doing once a
- Increase your contribution. This also is a way
to help you reach what may be another of your resolutions: save
more money. Check with your plan administrator to see how often you
can change your contribution rate (these vary by plan). At the next
opportunity, think about upping your rate by a percent or 2. Over
time, it could make a big impact in your account…and your future
self will thank you! Your online calculator can help you figure out
what the impact might be.
- Learn the maximum you can contribute, and set a goal to
reach it. Many folks often aren’t sure of the maximum they
can defer to a company retirement plan. For instance, some think
they can only put in what the company match is…NOT TRUE. The annual
limits are actual dollar amounts, and vary depending on the type of
plan you are in. If you try to max-out your contribution each year,
remember some of the limits have changed for 2018, so you may need
to change your contribution rate. (for 401k, 403b, and most 457
plans the limit is now $19,500…for those 50 and older, you have
available catch-up contribution opportunities also.) For more
information on the limits, ask your plan administrator.
- Review your asset allocation. Whether you do
this online, or with your next quarterly statement, it’s worth
taking a look at, at least once a year. There has been solid growth
in the stock market over the past year, so is your percentage of
equities in your portfolio still consistent with your risk
tolerance and time horizon? Worth checking out. You may need to
re-balance…or set your account up to automatically rebalance
online, if available.
- Review your beneficiary designation. If you’ve
had a significant change in your life recently, you may need to
update the beneficiary/beneficiaries on your account. Marriage,
divorce, death of a spouse, or other events could trigger the need
to review this, but sometimes it’s overlooked.
Good luck with those resolutions! If you need any help with your
retirement account, give us a call at 225-612-3820.
SECURE ACT PROVISIONS:
Delayed Required Distributions
For participants in 401(k) and other defined-contribution
plans, or individual retirement account (IRA) holders, the
bill allows retirees to delay taking required minimum distributions
(RMDs) until age 72, up from the current age of 70 1/2. RMDs are
the minimum amount participants must withdraw from their retirement
accounts each year, set by actuarial tables. The change
applies only to people who turn 70 1/2 after Dec. 31,
In a related development, the IRS proposed changes to the RMD
rules on Nov. 7, updating the life expectancy tables used
in calculating required distributions. The new tables were
developed based on projected mortality rates for 2021 and, if
finalized, they would reflect longer life expectancy assumptions
and, consequently, reduce required distribution amounts.
To address the 401(k) plan "annuity conundrum," the
SECURE Act creates a safe harbor that employers can use when
choosing a group annuity to include as an investment within a
defined-contribution plan, with new provider-selection rules. For
instance, the legislation will protect employers from liability if
they select an annuity provider that, among other requirements, for
the preceding seven years has:
- Been licensed by the state insurance commissioner to offer
guaranteed retirement income contracts.
- Filed audited financial statements in accordance
with state laws.
- Maintained reserves that satisfy all the statutory requirements
of all states where the annuity provider does business.
The SECURE Act also increases the portability of annuity
investments by letting employees who take another job or retire
move their annuity to another 401(k) plan or to an IRA without
surrender charges and fees.
. The SECURE Act authorizes a solution
for companies to include in their plans insured guaranteed lifetime
Annual Disclosure of Projected Income
```The SECURE Act will require plan sponsors to annually
disclose on 401(k) statements an estimate of the monthly payments
participants would receive if their total account balance were used
to purchase an annuity for the participant and the participant's
surviving spouse. The DOL will devise assumptions 401(k) plans can
use to estimate the monthly income workers’ 401(k) balances are
likely to generate over their lifetime, and the disclosure must be
made on workers’ 401(k) statements a year after regulators finalize
those assumptions. The Secretary of Labor is also directed to
develop a model disclosure.
Other Defined-Contribution Plan
The SECURE Act will also:
- Require employers to include long-term part-time
workers as participants in defined-contribution plans
except in the case of collectively bargained plans. Eligible
employees will include those who completed at least 500 hours of
service each year for three consecutive years.
- Provide penalty-free withdrawals from retirement
plans of up to $5,000 within a year of the birth or
adoption of a child to cover associated expenses.
- Prohibit the distribution of plan loans through savings
plan credit cards so that funds are not easily
available for routine or small purchases.
- Permit employers to add a safe harbor
feature to their existing 401(k) plans once the year
has started if they contribute at least 4 percent of employees' pay
instead of the regular 3 percent. This flexibility will help
employers to correct failed ADP/ACP or top-heavy
tests by shifting to a safe harbor plan and making a 4
percent nonelective contribution to participants.
- Extend the period of time for companies to adopt new
plans beyond the end of the year to the due date for
filing the company tax return, giving employers additional time to
cover their employees with a profit-sharing contribution.
- Convert custodial accounts from
terminated 403(b) plans into IRAs.
- Impose a new 10-year distribution maximum for death
benefits from IRAs and defined-contribution plans for
nonspouse beneficiaries. Currently, spending down from inherited
accounts can be stretched over the life of beneficiaries to
mitigate taxes. This provision is intended to generate tax revenue
and offset the cost of the act's tax credits.
- Eliminate the age limit for traditional IRA
contributions. Those who are still working can
continue to contribute to a traditional IRA, regardless of their
age, instead of eligibility to contribute ending at age 70