The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which passed on a wave of bipartisan support at the end of last year, is a sweeping change to retirement plan legislation. Last month, we highlighted some of the biggest changes in the SECURE Act. From simplifying and streamlining rules to steps encouraging smaller employers to offer retirement benefits, the Act includes substantial changes, and plan sponsors need to pay attention. As follow up to last month’s newsletter, this article provides an overview of some of the most substantial changes to both health and welfare benefits and retirement plans:
Affordable Care Act (ACA) Implications
While the SECURE Act focuses mainly on retirement planning, there are some provisions that impact health benefits including a repeal of the “Cadillac Tax.” This was a provision in the ACA that imposed a 40% tax on high-cost employer-sponsored health plans. While the cost of the tax was calculated and paid by the employer or plan administrator, it was anticipated that the burden would still have fallen on workers as employers switched to less expensive healthcare plans in order to avoid this tax. Prior to its repeal, the Cadillac Tax was set to take effect in 2018. However, Congress delayed implementation numerous times and recently pushed the effective date to 2022.
The Act also repealed the Medical Device Excise Tax, another ACA provision that imposed a tax on medical devices such as x-rays and hospital beds. Unlike the Cadillac Tax, which was slated to go into effect in 2022, the Medical Device tax went into effect in 2013 and was a source of revenue for the federal government. However, after research showed that the tax had a negative impact on both the medical device industry and on consumers, the tax was suspended and is now repealed.
The Health Insurance Tax (HIT) was also repealed effective for calendar years beginning after 2020. HIT applies to insured employer plans, Medicaid managed care, Medicare Part D, and Medicare Advantage Plans, as well as policies in the individual and small group markets. When passed through to employers, HIT was typically in the range of two to four percent of the premium. HIT was originally effective in 2015, but it was suspended in 2017 and 2019.
Small Employer Tax Incentives to Implement Retirement Plans
One major goal of the SECURE Act is to make it easier, and more likely, that individuals are saving for retirement, even those who work for smaller businesses who have not traditionally provided benefits to workers. Provisions of the SECURE Act aim to defray the startup and administration costs associated with creating a small employer retirement plan. A small employer includes any employer with 100 or fewer employees who received at least $5,000 in compensation from the employer for the prior year. The SECURE Act provides for tax credits, especially if the new tax-qualified retirement plan includes automatic enrollment for employees as they are hired by the business.
The small employer start-up tax credit is equal to
50% of
the greater of (i) $500, or the lesser of: (ii) $250 for each non-highly compensated employee who is eligible to participate in the plan, or (iii) $5,000.
The automatic enrollment tax credit is equal to $500 for three consecutive year, starting with the first taxable year in which a small employer includes an eligible automatic contribution arrangement as part of its 401(k) plan design to increase participation. Generally, a company must pay for these expenses out of company assets (and not plan assets) to be eligible for the small employer tax credits.
Increased Penalties for Filing and Notice Failures
In an effort to encourage complete and timely compliance, the penalties for failure to file Form 5500, withholding notices, and annual registration (where required) are increasing, in some cases,
tenfold!
These increases apply to all forms and notices which must be filed after December 31, 2019. For failing to file a Form 5500, the fee is $250 per day, up to $150,000 (up from $25/day and a $15,000 maximum). Failing to file a registration statement (IRS Form 8955-SSA) carries a penalty of $10 per participant per day, up to $50,000 (increased from $1/day and a $5,000 maximum). Similarly, failing to file a required notification of change has a $10 per day penalty, up to $50,000. Failure to provide a required withholding notice (IRS Form W-4P) now results in $100 per failure. These maximums are calculated per calendar year.
Fiduciary Safe Harbors on Lifetime Income Options
The new law creates a safe harbor for fiduciaries when they select an insurer to provide a guaranteed retirement income (i.e., an annuity). If the fiduciary has a contract with the provider and has followed certain steps, then they are deemed to have satisfied their fiduciary duty of prudence in selecting the insurer. This does not mean they have selected the lowest cost option, but rather that they have considered the options currently available in the market and taken the time to choose the best one for plan participants.
Permission to Consolidate Certain Form 5500 Filings
The new law creates a safe harbor for fiduciaries when they select an insurer to provide a guaranteed retirement income (i.e., an annuity). If the fiduciary has a contract with the annuity provider (i.e., insurance company) and has followed certain steps, including obtaining written representations from the provider regarding licensing, solvency, and other similar matters, then they are deemed to have satisfied their fiduciary duty of prudence in selecting the insurer. This does not mean they have selected the lowest cost option, but rather that they have considered the options currently available in the market and taken the time to choose the best one for plan participants.
The Hall Benefits Law team has been paying attention to this legislation and will continue to watch as the government releases regulations that provide more detail on how the legislation will take effect. We will continue to work with plan sponsors to make the changes to retirement plans to take advantage of this major new law. To learn more about our expertise and the services we offer, call 678-439-6236, or visit the
Hall Benefits Law website
.
