The SECURE Act

The SECURE Act of 2019 (Setting Every Community Up for Retirement Enhancement) is a wide-ranging act, spanning nearly 40 provisions It is the most comprehensive retirement savings package to become law since the Pension Protection Act of 2006, and seeks to improve access to employer sponsored retirement savings plans, increase savings levels within plans, streamline administration of plans and provide for a wider range of options for generating retirement income.

Being that it was signed into law, with overwhelming bipartisan support, as part of a government funding package on December 20, 2019, we wanted to summarize a number of the provisions.

Changes to IRAs and Retirement Plans

 

Mandatory RMD Age Increase
Required minimum distributions (RMDs) will begin in the year after an individual turns 72, up from the current 70 ½.
Effective in 2020 for those who attain age 70 ½ in 2020 or later.  Those reaching age 70 ½ in 2019 need to continue to take RMDs in 2020.

Removal of Age Limit for Traditional IRA Contributions
If a person is working and has earned income, non-rollover contributions to traditional IRAs are permitted after age 70 ½, similar to Roth IRA contributions.  Effective in 2020 for contributions made for 2020 or later.

Inherited IRA and Defined Contribution Plan Distribution Requirements
The balances of inherited IRAs and inherited defined contribution plan accounts are required to be distributed by the end of the tenth year after the IRA owner or plan participant dies, with exceptions for certain types of beneficiaries, including spouses and minor children, who are still permitted to take distributions over their life expectancy.  Non-individual beneficiaries, like estates, trusts, and charitable organizations have a five-year window to distribute assets.
Generally effective for deaths in 2020 or later.

Auto Enrollment Safe Harbor Cap Increase
The cap on auto escalation of employee deferrals is raised from 10% to 15% for employees enrolled through auto enrollment under certain automatic enrollment safe harbor plans.
Effective in 2020.

New Baby Withdrawals
Withdrawals of up to $5,000 from IRAs or employer plans in the year following the birth or adoption of a child may be allowed.  The 10% early withdrawal penalty tax would not be assessed.  Similar to rollover contributions, the funds could be recontributed at a later date.
Effective in 2020.

Access for Long-Term Part-Time Workers
401(k) plans are required to include employees who work 500 hours or more per year for three consecutive years for purposes of making elective deferrals, although employer matches are not required.  These employees also receive vesting service credit.
Effective in 2021, though service prior to 2021 need not be counted, so impact to employees unlikely to begin before 2024.

Lifetime Income Disclosure
On an annual basis, 401(k) account balances are required to be translated into a monthly annuity payment on participant disclosures.
Effective 12 months after the Department of Labor finalizes the rules around permissible assumptions for the calculation of monthly annuity payments.

Changes to 529s

 

New Uses for 529 Plans
529 plans can be used to pay for apprenticeship program expenses and as much as $10,000 over a person’s lifetime for student loan payments.
Effective for all distributions beginning in 2019.

Increase Availability of Annuities Within Retirement Plans

 

Annuity Provider Selection Safe Harbor:
Plan sponsors are allowed to rely on written representations from insurers for purposes of conducting periodic review and for the insurer’s status under state insurance laws for the purpose of considering the insurers’ financial status.
Effective upon the law’s enactment.

Annuity Portability
Lifetime income investments can be transferred among retirement plans when the option is no longer authorized by the original plan.
Effective in 2020.

Changes to Retirement Plan Administration

 

Streamlined Plan Administration
The annual safe harbor notice requirement for plans designed to avoid nondiscrimination testing is eliminated for plans that satisfy the safe harbors by using non-elective contributions.  In addition, non-elective safe harbor contributions can be added to a plan mid-year provided certain conditions are met.  Finally, plans that have the same trustee, named fiduciary, and investment options can file a single Form 5500.
Effective in 2020.

Incentives for Small Employers
Employers with fewer than 100 employees can receive a 50% tax credit for retirement plan startup costs as high as $5,000, up from the current $500 cap.  Also, small employers can receive a credit of up to $500 per year for up to three years for including automatic enrollment in their plans.
Effective in 2020.

Expansion of MEPs

 

Open Multiple Employer Plans (MEPs)
Unrelated employers can join together to create retirement plan administered by a third party.  MEPs can work through a pooled plan provider (PPP) that would be named the fiduciary and plan administrator and would be subject to registration, examination, audit, and investigation by the Departments of Treasury and Labor.
Effective in 2021.

“One Bad Apple” Relief
MEPs will not be treated as failing if one employer within the MEP does not meet its obligations to the plan.
Effective in 2021.