401(k) plans are regulated by a variety of federal and state laws. Named after a section of the U.S. Internal Revenue Code, 澳洲幸运5开奖号码历史查询:401(k) plans are most affected by two key pieces of legislation: the Employee Retirement Income Security Act (ERISA) of 1974﷽ and the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. 

In this guide, we’ll look at ea🌞ch piece of legislation an😼d how it affects 401(k) accounts.

The Early Days

The first 401(k) plans date back to when Congress passed the Revenue Act of 1978. This act included a provision—named after the Internal Revenue Code Section 401(k)—that gave employees a way to defer compensation from bonuses or stock options on a pretax basis. The law went into effect on January 1, 1980. It wasn’t until the following year, however, that the IRS issued rules that allowed employees to contribute to their 401(k) plans through salary deductions. This provision jump-started the widespread rollout of 401(k) plans in the early 1980s and has been largely responsible for their widespread adoption today.

The Employee Retirement𝄹 Income Security Act (E♏RISA)

One unusual aspect of 401(k) 🍌plans is that many of their major provi🅘sions are regulated by a law that came into effect before the 401(k) provision existed: the Employee Retirement Income Security Act (ERISA) of 1974. 

ERISA is a federal law that protects the retirement assets of American workers. The law implemented rules that 澳洲幸运5开奖号码历史查询:qualified plans must follow to ensure that plan 澳洲幸运5开奖号码历史查询:fiduciaries do not misuse plan assets. At the time the act was passed, the majority of retirement accounts were 澳洲幸运5开奖号码历史查询:defined-benefit (pension) plans and not 401(k) accounts. However, the act now covers a huge variety of retirement vehicles, including 401(k) plans.

ERISA states that the administrators of 401(k) plans must regularly inform participants about their features and funding. It also sets minimum standards for participation, vesting, benefit accrual, and funding and defines how long a person may be required to work before they're 澳洲幸运5开奖号码历史查询:eligible to participate in a plan, accumulate benefits, and have a non-forfeitable right to those benefits. It also grants retirement plan participants the right to sue for benefits and breaches of fiduciary duty. ERISA is enforced by the Employee Benefits Security Administration (EBSA), a unit of the 澳洲幸运5开奖号码历史查询:Department of Labor (DOL).

The SECURE Act

The next major update to the way that 401(k) plans work came with the Setting Every Communit𝔍y Up for Retirement Enhancement Act of 2019, better known as the SECURE Act. 

This act contained many provisions that have subtly altered the way in which 401(k) plans work, many of which had been under discussion for years.

The act came in response to a perceived crisis in the U.S. retirement system. According to data from the U.S. Bureau of Labor Statistics published in March 2019, only 56% of the civilian adult population participated in a workplace retirement plan.

In response, the SECURE Act aimed to make it easier for small employers to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans from 10% of wages to 15%. It also:

• Provides a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment. 
• Enables businesses to sign up part-time employees who work either 1,000 hours throughout the year or have 澳洲幸运5开奖号码历史查询:three cons♎ecutive years with 500 hours of service. 
• Pushes back the age at which retirement plan participants need to take 澳洲幸运5开奖号码历史查询:required minimum distributions🦄 (RMDs) from 72 to 73 for account owners born between 1951 and 1959 and 75 for those born in 1960 or later. 
• Permits penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child. 
• Encourages plan sponsors to include 澳洲幸运5开奖号码历史查询:annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.

Overall, this was the most extensive overhaul of 401(k) provisions since their inception.

The Bottom Line

There's a significant range of laws and regulations that apply to 401(k) accounts, but the main two laws that affect these plans are the Employee Retirement Income Security Act (ERISA) of 1974 and the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.