The SECURE Act (Setting Every Community Up for Retirement Enhancement) became law in late December 2019. The law represents a sweeping update to many regulations related to retirement plans. We applaud Congress for passing this historic act and helping to make retirement readiness a more accessible goal for more Americans.
Below is a high-level overview of some of the key provisions for plan sponsors.
If you have questions on how the provisions of the SECURE Act may affect your plan, please contact your MMA consultant.
Key Provision of the SECURE Act Impacting Defined Contribution Retirement Plans
- New required eligibility for part-time, long-term employees (effective plan years beginning after 2020) – Plans will need to allow workers who have worked 3 consecutive years with at least 500 hours each year eligibility in the plan to make elective deferrals. (Note: Plans do not need to provide employer contributions to this group and they will be excluded from testing)
- Safe harbor plan updates (effective plan years beginning after 2019) – 1) Plans may now adopt certain Safe Harbor Provisions during a plan year rather than waiting for the first day of a plan year. 2) The notice requirement for certain non-elective contributions will be eliminated. 3) The cap on auto-escalation in a Qualified Automatic Contribution Arrangement or (QACA) was increased from 10% to 15%.
- Lifetime income updates – 1) Plans will have new safe harbor protections for selecting and monitoring annuity offerings in a retirement plan (no stated effective date, waiting on guidance). 2) Retirement Plan Recordkeepers must provide participants with an annual lifetime income disclosure (12 months after DOL provides guidance). 3) Enhanced portability provisions for investments in a plan that provide for Guaranteed Lifetime income (effective plan years beginning after 2019).
- Updated access to retirement funds (effective for distributions made after 2019) – Participants will now have access to penalty-free withdrawals for the birth or adoption of a child (up to a maximum of $5,000).
- New employer tax credit for automatic enrollment (tax years beginning after 2019) – A new tax credit of $500 for new plans that include automatic enrollment. This tax credit is also available to existing plans that convert to auto enrollment.
- Increased tax credits to small employers for plan set up costs (tax years beginning after 2019) – The tax credit has increased to 50% of the greater of $500 or $250 per each Non-Highly Compensated employee up to a max of $5,000.
- Increased penalty for late filings of form 5500 (effective for filings due after 2019) – The penalty has increased from $25 to $250 per day for each day the filing is late.
- Combined Form 5500 reporting (effective for filings for plan years after 2021) – Certain common defined contribution plans can file a consolidated form 5500.
Other key provisions in the SECURE Act to be aware of
- Required Minimum Distribution Starting Date extended (for individuals who reach 70 ½ after 2019) – The starting age for Required Minimum Distributions has been raised from 70 ½ to 72.
- Open Multiple Employer Plans (MEPs) (effective plan years after 2020) – Employers with no business or industry relationship will now have the ability to come together to offer a Multiple Employer Plan or (MEPs). The ‘one bad apple’ rule has been eliminated.
- Elimination “Stretch” IRAs (effective for distributions due to death after 2019) – Non-spouse beneficiaries must now withdraw inherited retirement accounts within 10 years.
- Elimination of maximum age to make IRA contributions (effective for tax years after 2019) – There will no longer be an age limit for IRA contributions.
- Qualified Disaster distributions (effective for losses after 2017) - Provides for special rules for qualified disaster distributions and waives 10% penalty.
- 529 Plan Distributions (effective for distributions after 2018) – Creates new allowable distribution type from 529 plans to cover repayment of Student Loans.
Many of the changes will require plan amendments and updates and we will be working with each to assist you with the process as more details become available.
Timing Note - The SECURE Act provides a remedial amendment period until at least the end of the 2022 plan year for adopting any plan amendment required under the SECURE Act. The amendment deadline may be further delayed by Treasury Department guidance.
View SECURE Act Provisions Overview