Market Beat: Multiple employer retirement plans
September 6, 2018
Recently President Trump issued an executive order directing the Department of Labor to consider making some regulatory changes to retirement plans.
The same order also directed the Secretary of the Treasury to study the current distribution rules.
One of the changes that they will be analyzing is to allow the use of multiple employer plans, also known as MEPs. The cost of administering retirement plans can be fairly high which makes them difficult for many smaller employers to establish. Approximately one-third of the private sector workforce does not have access to retirement plans due to the high cost according to Labor Secretary Alexa Acosta.
MEPs will allow employers to collaborate in order to establish 401k retirement plans. By pooling together employers should be able to lower their costs considerably.
Under the current rules smaller employers that find 401k plans to be unaffordable can opt for other retirement plans like the SEP or the SIMPLE. SEP stands for simplified employee pension and SIMPLE stands for savings incentive match plan for employees. These plans are available at relatively low cost for smaller employers.
The Treasury department will be evaluating the RMDs, or required minimum distributions, from retirement plans. Currently, mandatory distributions are required starting in the calendar year that you reach age 70 ½. According to a study by Ameriprise Financial, 68 percent of retirees only take out the minimum distribution. They will be studying life expectancy tables and period distributions to determine if changes can be made that will allow retirees to keep funds in their retirement plans for a longer period of time. That may be able to help people maintain their retirement funds in a tax sheltered account and preserve their retirement income for a longer period of time.
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Having access to employer-sponsored retirement plans at work will help people start their retirement savings. Individuals can always establish IRAs and should do so if they don't have a retirement plan at work. Most people are much more likely to start a retirement plan if the funds are automatically deducted from their paycheck.
Employer sponsored plans can also have a matching dollar contribution from the employer. The matching dollar means that the employees contribution will double before it's even invested.
There's also a bipartisan proposal in Congress now known as RESA, the retirement enhancement and savings act, that will allow employers to get together to sponsor retirement plans.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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