The SECURE Act

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On December 20, 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was included in the bipartisan spending bill signed by President Trump. The Act is the most impactful retirement plan legislation since the Pension Protection Act of 2006. We have pulled together a summary of the Provisions below. In later articles, I will be describing the various Sections of the Act, the practical impact of each Section and the due dates for implementing the changes.

 

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Allowing Participation of Part-time Workers 

Employees who work 3 consecutive 12-month periods with at least 500 hours each year must be allowed to make 401(k) deferrals. If there is an age requirement, the age requirement must be satisfied by the last day of the 3rd year. These employees may be excluded from nondiscrimination, top-heavy and coverage rules. They may also be excluded from employer contributions.


Details of the SECURE Act 
Part One:
Covering
Long-Term
Part-Time Workers

IRA Age Limit

The prohibition on traditional IRA contributions after age 70 1/2 is removed. 

 
Details of the SECURE Act 
Part Two:
Provisions Related to Attainment of Age
70 1/2

 

 

Age Requirement for RMDs

The required minimum distribution age is increased to 72.

Safe Harbor Plans- Notice requirement

 Notice requirement is eliminated for safe harbor nonelective contributions

 

 

Details of the SECURE Act - 
Part Three:
Rules Related to
Safe Harbor Plans 

 

Safe Harbor Plans- Nonelective Contributions

Can be elected as late as 30 days before the end of plan year (current rules require an amendment prior to the beginning of the plan year).

Nonelective contribution could be elected as late as the close of the following plan year but the contribution must be 4% (instead of 3%). 

Withdrawals for Birth or Adoption

Penalty free withdrawals from retirement plans or IRA of up to $5,000 will be allowed for birth or adoption. These distributions are not subject to mandatory withholding. The distribution may subsequently be repaid.

 

Details of the SECURE Act - 
Part Four:
Withdrawals for Birth or Adoption 

Required Minimum Distributions

Death distributions from a contribution plan or IRA must be made by the end of the 10th calendar year after death, with exceptions for spouses, disabled or chronically ill individuals, children who have not reached age of majority, or beneficiaries who are not more than 10 years younger than the account owner.

 

Credit for Auto Enrollment

New 401(k) plans and SIMPLE plans that incorporate auto enrollment will receive a $500 credit for 3 years.  Existing plans that convert to auto enrollment will also be eligible for the credit.

 

Compensation for Basis of IRA Contributions

Stipends and non-tuition fellowship payments paid to graduate and post-doctoral students will be treated as compensation and used as basis for IRA contributions.

 

Plan Loans via Credit Cards

Plan loans are no longer allowed through credit cards or similar arrangements.

 

Lifetime Income Options

Lifetime income investments may be directly transferred from one employer-sponsored retirement plan to another, or to an IRA.

 

Increase Auto Enrollment Cap

The automatic escalation cap will increase from 10% to 15%.

 

Due Date for Adopting a New Plan

A plan will be considered adopted for a particular year as long as it is adopted before the due date of the business tax return (including extensions).

 

Multiple Employer Plans (MEPs) or Pooled Employer Plans (PEPs)

Plans using a pooled provider which is a named fiduciary and administrator may participate in a Multiple Employer Plan (MEP).  Each Employer in the MEP is treated as the Plan Sponsor with respect to the assets attributable to its Employees.

 

Multiple plans may participate in a Pooled Employer Plan (PEP) treated as a single plan as long as the pooled provider is a named fiduciary; there is a designated trustee; each employer maintains responsibility for investing and managing the assets attributable to its own employees (unless delegated to another fiduciary).  Each Employer in the PEP is treated as the plan sponsor with respect to the assets attributable to its employees.

 

There will be simplified annual reporting for any plan covering fewer than 100 participants OR any plan with fewer than 1,000 participants as long as no single employer has 100 or more participants.

 

Combined Annual 5500 Reporting for unrelated employers using same platform

All members of a group of plans may file a single aggregated Form 5500 if the plans all have the same trustee(s); same fiduciaries; same administrator; same plan year and same investments.

 

Lifetime Income Disclosure and Provider

Defined contribution plan statements must include a lifetime disclosure at least once every 12-months that illustrates monthly payments.  The DOL is instructed to develop a model disclosure and determine assumptions to use when converting the plan balance into an income stream.

 

Adding Annuity Option to Plan

Fiduciaries are given a safe harbor with respect to selecting guaranteed retirement income contracts offering lifetime income benefit options.

 

Section 529 Plans

Expanded to cover costs for apprenticeships and up to $10,000 of student loan debt.

 

Penalty for Failure to File Tax Return

Increased penalty is lesser of $400 or 100% of the amount of the tax due.

 

Penalty for Failure to File 5500

New penalty is $250 per day, up to $150,000.

 

Credit for Start-Up Costs

Credit will be greater of $500 OR the lesser of (1) $250 x number of eligible NHCEs or (2) $5,000.  Credit will apply for 3 years.

 

Section 403(b) Plans

Custodial accounts that terminate may distribute the assets in kind to the new custodial account of the participant.  

 

403(b)(9) Church Plans

Church-controlled organizations may cover duly ordained, commissioned or licensed ministers, regardless of source of compensation; employees of tax-exempt organization controlled by church or convention or association of churches; and certain employees after separation from service with church.

 

 

 

author

Annemarie Keehn has worked for over 30 years in the field of Defined Contribution Plan Administration. She graduated from Indiana University with a Bachelor of Science in Business Management. Anne joined RMS as an Account Executive in 2007. Her areas of expertise include qualified retirement plan administration and consulting, plan document underwriting, and compliance. She focuses the majority of her time at RMS on new client implementation and onboarding as well as assisting with marketing and new business initiatives. She also maintains the plan document used by the firm and performs special research projects. Anne has been awarded the designations of Qualified 401(k) Administrator and Qualified Pension Administrator from the American Society of Pension Professionals & Actuaries and has been approved by the Internal Revenue Service as an Enrolled Retirement Plan Agent.

 

  

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