Will the SECURE Act lead to cash-strapped employers pooling employee retirement resources?
In the wake of a global pandemic, everything is being re-thought. For employers, that's true from how and when they will re-open their offices to what steps they'll take to arrive at a "new normal" when they get there.
But even before the entire economy was under siege, there was one shift that was already underway, flying decidedly below the radar: how certain small and mid-sized employers will provide retirement plan solutions to their employees. That change may now arrive faster than anyone ever anticipated.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act generally became effective this January. The bill included reforms to defined-contribution (DC) plans, defined-benefit (DB) plans and IRAs. The most notable change in the SECURE Act was the way it virtually killed the "Stretch IRA," capping the time period (with exceptions) that beneficiaries must take distributions from inherited IRAs at 10 years.
Now, in light of the COVID-19 pandemic that has left most employers reeling, businesses have not only thought about how to survive in the short term, but also how some financial burden can be mitigated when coronavirus is firmly in the country's rearview mirror.
That's where the Multiple Employer Plan (MEP) provision of the SECURE Act comes in. A MEP is a single plan maintained by two or more unrelated employers. The SECURE Act allows unrelated employers to band together to create these pooled employer plans (i.e., open MEPs) effective for plan years beginning after Dec. 31, 2020.
The new rules have massive cost savings potential for small businesses, taking the onus off the employers by potentially reducing investment management fees, lessening administrative duties, and limiting fiduciary liability.
Sounds like something that could appeal to pretty much every company right now, doesn't it?
Even before this crack, small businesses had always told anecdotal tales about how it was hard to keep star employees because of the burdensome costs of some of the facets of employment that those workers usually covet, whether it be retirement plans, health insurance, etc. While the world is currently upside down, there will be a day when small businesses around the country re-open. After the initial honeymoon phase of people being back in the workforce, it's likely the same questions will arise, with a more dire slant.
Employees are likely to take stock of what they need to secure their financial futures. Major traumatic events tend to shape how people approach the rest of their lives. Virtually everyone has a story about a parent or grandparent who lived through the Great Depression and kept a year's supply of canned goods in the basement just in case. This generation of Americans is likely to go through the same thing.
Prior to the pandemic, nearly half of Americans said they would not be able to write a $500 check in case of an emergency. Now, once millions re-enter the workforce, it wouldn't come as a shock for savings and retirement to be prioritized over flash purchases. That means small businesses will have to be ready for solutions for employees to secure their final futures. MEPs may be the silver bullet.
As the world returns from the brink, everyone will have more questions than answers, which is why the time is better than ever for small businesses to leverage every benefit at their disposal to make their re-entry as seamless as possible. Employers that band together in a MEP could not only gain a competitive advantage in their hiring process, but find another small way to keep themselves financially viable. That's why we may just see the SECURE Act and its MEP provision become one tool that emerges as a much bigger factor for small businesses post COVID-19 than it would have been before the crisis.