SECURE Act: Part I – Most Significant Retirement Plan Legislation in Over a Decade Requires Immediate Attention by Plan Sponsors!
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With the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act (the “Act”), the need for employer awareness with respect to how this new law impacts them is paramount.
The bipartisan bill, included as part of the broader Further Consolidated Appropriations Act, 2020 and signed into law by the president just before the 2019 holiday season, was designed to make it easier for businesses of all sizes to offer their employees retirement plans and for employees to save for retirement.
The Act includes a myriad of changes for benefit programs (mainly retirement plans). This month’s newsletter focuses on nine of these changes. Next month’s newsletter will include another nine changes by the Act to benefit programs. Most of these changes are effective immediately. Some of the changes are optional while others are mandatory.
- Pooled Employer Plans (PEPs) (Optional): Unrelated employers can now join forces to create a PEP. The regulations for this will likely be similar to multiple employer plans for health insurance (i.e., Association Health Plans) where there must be some nominal nexus between the employers, but this will allow small businesses to offer better options to employees without the overhead of having to manage the plans themselves. The Act also eliminated the “one bad apple” rule and provides a path to deal with situations in which one company in a PEP does not comply with applicable legal compliance requirements. These pooled plans will be eligible for adoption beginning in 2021.
- Simplification of Safe-Harbor Rules for 401(k)s (Optional): For nonelective safe harbor plans (with at least a 3 percent nonelective employer contribution), the Act eliminates the notice requirement, and plan sponsors are permitted to transition to a nonelective safe harbor 401(k) plan at any point before the 30th day before the close of the plan year. After that point, an amendment is permitted, but it must include a nonelective contribution of 4% compensation. Notices are still required for match 401(k) safe harbor plans. This change is effective for plan years beginning after December 31, 2019.
- Portability of Lifetime Income Options (Optional): Participants in 403(b) plans and 457(b) plans can transfer annuities that are no longer authorized to be held as investment options under a qualified defined contribution plan to another eligible employer plan or IRA provided: (i) the lifetime income investment is no longer authorized to be held as an investment option under the plan, and (ii) the distribution is made by direct rollover to a retirement plan or IRA. This change is effective for plan years beginning after December 31, 2019.
- 401(k)s for Long-term Part-time Employees (Mandatory): Starting in 2021, 401(k) plans must include all employees who worked at least 500 hours per year for the previous three consecutive years. Service prior to 2021 will not be taken into account (effectively giving employers until 2024 before part-time workers, if eligible, must be included in the 401(k) plan). This is a lower threshold than the previous 1,000-hour threshold. Employers can exclude employees from both employer contributions and consideration when calculating top-heavy rules.
- Lifetime Income Disclosure (Mandatory): Disclosure statements must now show what income a plan participant can expect over the course of his or her lifetime. This change is effective following issuance of guidance by the Department of Labor (DOL).
- Minimum Distribution Age (Mandatory): The age at which a minimum distribution from a retirement plan must occur is now extended from 70 ½ to 72. This design better aligns with modern attitudes toward retirement age, and it is also a nod to new IRS mortality tables. In addition, individuals who are 70 ½ can now contribute to traditional IRAs. This change is effective for plan years beginning after December 31, 2019. The prior rule continues to apply for employees that already reached age 70 ½ prior to January 1, 2020.
- Withdrawals from Retirement for Birth or Adoption (Optional): To encourage young professionals to save for retirement while focusing on their young families, withdrawals up to $5,000 from retirement savings are now permitted for up to one year following the birth or adoption of a child.
- Increase in Small Employer Pension Plan Startup Tax Credit (Optional): The tax credit is increased to $5,000 to encourage businesses to adopt tax-qualified retirement plans. Additionally, small employers may take advantage of a tax credit to defray the costs associated with setting up new 401(k) plans and SIMPLE IRA plans that feature automatic enrollment. The credit affords each employer up to $500 per year. This change is effective for plan years beginning after December 31, 2019.
The aforementioned is only part of the SECURE Act changes. Other updates, which will be covered in Part II of our newsletter, include increased filing and notice penalties, fiduciary safe harbors on lifetime income options, and a decrease in the in-service withdrawal age for pension and governmental 457(b) plans, many of which went into effect January 1 of this year. Other provisions, such as the permission to consolidate certain Form 5500 filings, will go into effect over the coming years.
The Hall Benefits Law team carefully observed this legislation as it progressed through the House and Senate, and we are actively working with clients to put in place the required changes to plan documents and processes. To learn more about our expertise and the services we offer, call 678-439-6236, or visit the
Hall Benefits Law website
.
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Hall Benefits Law in the News: A Look Back
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Hot Links, featuring pages visited most on our website over the last 30 days, makes it easy for our readers to navigate to popular sections of
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WHERE YOU WILL FIND OUR TEAM
February 12, 2020
What’s New, What to Do, and Protecting Your Crew
February 19, 2020
Webinar
What’s New (the SECURE Act) and What to Do (with SUD Confidentiality Rules)
February 20, 2020
ASPPA Benefits Council of Atlanta
Top Golf Midtown
February 27, 2020
SBEN Regional Forum
Birmingham, AL
March 23–25, 2020
SOAHR Conference
Cobb Galleria Centre
April 30, 2020
Georgia Society of CPAs
Annual Conference
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