On December 19th, President Trump signed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) into law. This act aims to bolster retirement security with numerous provisions.
The SECURE Act focuses in part on providing retirement access to many workers who currently don’t have access to a workplace retirement plan, reducing some of the administrative burden on employers of providing a retirement plan, and preventing older Americans from outliving their retirement plan assets. We’ll focus on the key takeaways for Defined Contribution (DC) plans:
Important Provisions for Plan Sponsors
- Employers with up to 100 employees are eligible for a tax credit equal to the greater of 1) $500 or 2) the lesser of (a) $250 for each eligible non-highly employee or (b) $5000.
- Employers with up to 100 employees are eligible for a credit of $500 per year, up to three years beginning with the first year the employer includes automatic enrollment in the plan. (NOTE: this is not limited to start up plans!)
- The deadline for adopting a retirement plan has been extended from the last day of the taxable year of the employer to the due date of the employer’s tax return for the year, including extensions.
- The penalties for failing to comply with the reporting and disclosure requirements have been increased substantially.
Important Provisions for All Plans
- Plan loans made through credit cards or similar arrangements are prohibited after 12/31/2019.
- A distribution up to $5,000 from a qualified retirement plan for the “qualified birth or adoption” of a child 1) could be made regardless of whether an in-service distribution is permitted under the Plan, and 2) is exempt form the 10% early distribution penalty.
- The age triggering Required Minimum Distributions (RMDs) is increased from age 70.5 to age 72. This change applies to RMDs made after December 31, 2019 with respect to individuals attaining age 70.5 after that date.
Important Provisions for 401(k) Plans
- The cap on automatic escalation previously set at 10% is increased to 15% effective for plan years beginning after 12/31/19.
- The safe harbor notice requirement is eliminated to plans using the safe harbor non-elective contribution method to satisfy the safe harbor. The safe harbor notice is still required for employer matching contribution safe harbor.
- The ability to add a safe harbor non-elective contribution provision to the plan has been liberalized to allow a plan to be amended:
- Any time before the 30th day before the close of the plan year, without any other restrictions under current law; or
- On or after the 30th day before the close of the plan year as long as the non-elective contribution s at least 4%.
- Employers maintaining a 401(k) plan will be required to allow employees who complete at least 500 hours of service in three consecutive years to participate in the salary deferral portion of the plan. Employees who are eligible under this new rule can be excluded from coverage testing, ADP testing, as well as application of top heavy vesting and contribution rules. Employers can continue to impose an age requirement of 21 for these long-term part-time employees. NOTE: the 12-month periods prior to January 1, 2021 are not taken into account in determining the three consecutive years time period, meaning the earliest employees will be eligible under this provision would be 01/01/2024.
Important Provisions for 403(b) Plans
- The Secretary of Treasury will issue guidance on the methodology for an employer to terminate and distribute assets of a 403(b) plan invested in custodial accounts by June 19, 2020.
- Clarification of individuals who are considered employees of church-related organizations and, therefore, able to participate in a 403(b)(9) retirement income account.
This information is just an overview of some of the more important provisions included in the SECURE Act legislation that generally take effect on January 1, 2020.
If you have any questions regarding these and other provisions and how they may apply to your particular circumstances, please do not hesitate to contact your BPAS team.
Maryann Geary, CPC, ERPA, is Executive Vice President of BPAS Plan Administration & Recordkeeping Services.