Will the New Executive Order Benefit Retirees?

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Since President Donald Trump took office in 2017, he has signed a long list of executive orders. Some were intended to reverse his predecessor’s executive orders and others fulfilled campaign promises to his electorate. In any case, the President claims he signed more orders during his first 100 days than any other recent president.

One of those orders signed last year was aimed at increasing retirement security for Americans. He said, “We believe all Americans should be able to retire with the confidence, dignity and economic security that you want.”

Essentially, he called on the Department of Labor and the Department of the Treasury to look at raising the age when people with traditional Individual Retirement Accounts, known as IRAs and 401(k)s, must begin making required minimum distributions, or RMDs, which stands now at age 70½; and to look at ways to help small businesses offer retirement plans to their employees.

Here is what happens right now to retirees who have a traditional IRA or 401(k): if you don’t start taking the required distribution, you will get hit with a penalty equal to 50 percent of the RMD amount, plus any taxes you owe. Those with Roth IRAs do not face RMDs.

This seems like a hefty burden to bear, right? Well, the government’s original idea behind the RMDs was to ensure that retirees used their tax-favored savings accounts to provide income during their retirement rather than to pass on wealth to their heirs. It sounds reasonable, except for the mandatory age, which President Trump questions. So, he has given Treasury six months to consider whether it is a good idea to push back that age because we are all living longer and it would spread out our retirement savings over a longer period of time.

There are life expectancy tables that the Treasury Department uses showing that average life expectancy hovers between 78 and 79 years of age. It’s gone up over the last 15 years. The U. S. Chamber of Commerce has suggested pushing the age to 75 because that could encourage people to continue to save during their early retirement years.

Of course, this would also benefit professional financial firms who are holding retirees’ monies in various savings instruments such as stocks, bonds and mutual funds. And BlackRock, one such global investment manager, issued a report last year titled “Roadmap for Improving U.S. Retirement Savings: Making It Easier,” recommending pushing the age back as well.

Others say it wouldn’t matter that much to extend the age because most people are not working anymore at 70½. Still others say this could be a crafty tool for the government to dream up ways to raise taxes in other ways to make up for the lost revenue. Finally, some assert a later RMD date may result in seniors suffering from a lower quality of life because they delay withdrawing funds until it’s too late to enjoy them.

Alongside this call to action from the President to the Labor Department was six months to study whether it would make it easier for small businesses to offer retirement plans to their employees if government regulations were eased. In addition, they would look for ways to expand access to workplace retirement plans for part-time employees, sole proprietors and other nontraditional employer-employee relationships.

This could occur if the federal government helped companies to come together to set up Multiple-Employer Plans, or MEPs, also known as Association Retirement Plans or ARPs.
The common theme here is that many small businesses admit it is cost prohibitive to set up and offer retirement plans on their own. As President Trump explained, “The complexity of current federal regulations makes it extremely difficult for small businesses to afford retirement savings accounts for their great employees. While large companies can afford to deal with these burdensome regulations, and of course, they’ve been reduced very substantially for large companies also, but smaller companies just can’t do it; they can’t handle it.”

The Trump administration noted that last year, about 89 percent of workers at private-sector establishments with 500 or more workers were offered a retirement plan. This number is compared to only 53 percent of workers at private-sector establishments with fewer than 100 workers.

Many experts are in complete agreement with this proposal and have long supported policies that increase multiple employer plans. Prudential, a mega financial, investment and insurance company, issued a statement saying “we are encouraged by today’s action.”

The National Association for the Self-Employed said, “Multiple employer plans are one option in helping pave the way for America’s small business community to enjoy the same retirement security available to the rest of our nation’s great workforce.” ■

Sources: benefitslink.com, employeefiduciary.com and financialtimes.com.