Insight

Now That We Are SECURE: The SECURE Act Brings Important Changes to Retirement Plans

The SECURE Act aims to make retirement plans easier for Americans.

SECURE Act Brings Changes to Retirement Plans
JC

Jesse St. Cyr

February 13, 2020 08:00 AM

In December 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which is primarily intended to help Americans save for retirement. Now that the SECURE Act has been enacted, we wish to summarize some of its key provisions and what they mean for retirement plan sponsors and participants.

Changes Affecting Most Plans

Expanding part-time employee inclusion in 401(k) plans. Effective for plan years beginning after Dec. 31, 2020, the SECURE Act requires the inclusion of long-term part-time employees (those who work 500 or more hours in at least 3 consecutive years) in the elective deferral feature of the plan. The three consecutive year period does not begin until Jan. 1, 2021, so employers will not have to permit employee deferrals until 2024. The rule will not apply to employees covered by a collectively bargained plan.

Participant statements must contain lifetime income disclosure. The SECURE Act will require sponsors to provide participants annual estimates of the amount of monthly annuity income the participant’s account balance could produce in retirement. These disclosures will not be required until after the Department of Labor provides model disclosures, issues guidance, and outlines required assumptions.

Increasing the age for required minimum distributions. Effective for individuals turning 70 ½ after Dec. 31, 2019, the SECURE Act raises the age at which required minimum distributions must commence from 70 ½ to 72.

Increased late filing penalties. Effective for notices required to be filed or provided after Dec. 31, 2020, IRS penalties for late filings of Forms 5500 will increase to $250 per day from the previous $25 penalty, with the maximum penalty increased from $15,000 to $150,000. The 8955-SSA penalties are also increasing from $1 per day per unreported participant to $10, jumping from a $5,000 to a $50,000 maximum. And the penalty for Form 8822-B (used to notify the service of a change in plan administrator and/or change in address) will increase from $1 per day to $10, with the maximum increasing from $1,000 to $10,000.

Changes Affecting Safe Harbor 401(k) Plans

Increased limit on certain automatic contributions. Effective for plan years beginning after Dec. 31, 2019, safe harbor 401(k) plans that use automatic enrollment to satisfy the nondiscrimination testing safe harbors (qualified automatic contribution arrangements or QACAs) will be permitted to increase the cap that applies to automatic deferral percentages from 10 percent to 15 percent for plan years after a participant’s first plan year.

Greater flexibility for nonelective safe harbor plans. Effective for plan years beginning after Dec. 31, 2019, safe harbor 401(k) plans that use nonelective contributions to satisfy the nondiscrimination testing safe harbors will no longer need to provide annual safe harbor notices to participants. In addition, employers will be allowed to amend their plans to become nonelective safe harbor 401(k) plans any time before the 30th day prior to the end of a plan year (or later if at least a 4 percent nonelective contribution is provided).

Lifetime Income and Other Changes Affecting Distributions

Fiduciary safe harbor for selection of lifetime income providers. The SECURE Act provides a fiduciary safe harbor to protect employers who choose to include guaranteed retirement income contracts in their retirement plans as long as they follow certain procedures in selecting the contracts.

Portability of lifetime income options. Effective for plan years beginning after Dec. 31, 2019, plans may allow a participant to transfer certain “lifetime income investments” that are no longer authorized to be held as an investment option under the plan to another retirement plan or to the IRA without regard to the plan’s general restrictions on in-service distributions.

Changes to required minimum distributions after death. For participants who die after Dec. 31, 2019, the SECURE Act generally requires that all distributions after the death of the participant be made by the end of the 10th calendar year following the year of the participant’s death (instead of five years or the life expectancy of the beneficiary). This requirement does not generally apply to distributions to surviving spouses, certain disabled beneficiaries, and minor children of the participant.

Permitting penalty-free distributions upon birth or adoption. Effective for distributions after Dec. 31, 2019, the SECURE Act creates a new permissible qualified distribution event: the birth or adoption of a child. Parents who give birth to or adopt a child may receive a distribution of up to $5,000 without incurring an early withdrawal penalty, provided the withdrawal is within one year of date of birth or date the adoption is finalized. These distributions are also allowed to be repaid to the plan.

Miscellaneous Changes

Introducing a new tax credit for automatic enrollment. Effective for taxable years beginning after Dec. 31, 2019, the SECURE Act provides a new annual tax credit of up to $500 to certain small employers who adopt a new plan or amend an existing plan to provide for automatic enrollment.

Multiple employer plans. Effective for plan years beginning after Dec. 31, 2020, employers will have more flexibility to join with unrelated employers in a single retirement plan, thanks to a new type of open multiple employer plan called a “pooled employer plan.” In addition, effective for plan years beginning after Dec. 31, 2020, errors by one employer participating in multiple employer retirement plans will not jeopardize the entire plan.

Testing relief for certain closed pension plans. Effective immediately, the SECURE Act provides nondiscrimination testing relief for closed defined benefit plans by making it easier for such plans and related defined contribution plans to use cross-testing. In addition, the act provides closed defined benefit plans with relief from certain coverage and minimum participation requirements.

Repealing the age limit for traditional IRA contributions. Effective for tax years beginning on Jan. 1, 2020, the SECURE Act removes the 70 ½ age limit for contributions to traditional IRAs. If you were age 70 ½ or older before Dec. 31, 2019, then you are not allowed to make a contribution for the 2019 tax year but may resume making contributions beginning in the 2020 tax year.

Conclusion

Now that the SECURE Act has been enacted, plan sponsors should consider how the act’s changes will affect their plans. On a positive note, plan amendments for the SECURE Act will not generally be required until 2023, but plan sponsors should take care to note when any optional provisions are implemented to ensure the plan is documented properly at that time. The full text of the SECURE Act is available here.

Poyner Spruill LLP Partner Jesse St.Cyr has experience working with a diverse range of benefits and compensation matters including those involving mergers and acquisitions, qualified and non-qualified deferred compensation, equity compensation, welfare benefits, fringe benefits, and executive employment and severance agreements. He can be reached at jcyr@poynerspruill.com and (919) 783-2880.

Related Articles

IN PARTNERSHIP

Look Out Below


by Mary Jo Larson

Employee 401(k) and other pension plans that include company stock can be a financial minefield. What’s a responsible fiduciary to do to lessen the risk of a plummeting share price—and the risk of a subsequent “stock-drop” lawsuit from aggrieved workers?

Navigating Employee 401(k) and Pension Plans

Hey, Big Lender


by Catherine M. Brennan and Latif Zaman

A contentious proposed federal rule would establish “true lender” guidelines for banks and third parties. Does Colorado show the way forward?

Financial Institution

Trending Articles

2025 Best Lawyers Awards Announced: Honoring Outstanding Legal Professionals Across the U.S.


by Jennifer Verta

Introducing the 31st edition of The Best Lawyers in America and the fifth edition of Best Lawyers: Ones to Watch in America.

Digital map of the United States illuminated by numerous bright lights

Unveiling the 2025 Best Lawyers Awards Canada: Celebrating Legal Excellence


by Jennifer Verta

Presenting the 19th edition of The Best Lawyers in Canada and the 4th edition of Best Lawyers: Ones to Watch in Canada.

Digital map of Canadathis on illuminated by numerous bright lights

Legal Distinction on Display: 15th Edition of The Best Lawyers in France™


by Best Lawyers

The industry’s best lawyers and firms working in France are revealed in the newly released, comprehensive the 15th Edition of The Best Lawyers in France™.

French flag in front of country's outline

Announcing the 13th Edition of Best Lawyers Rankings in the United Kingdom


by Best Lawyers

Best Lawyers is proud to announce the newest edition of legal rankings in the United Kingdom, marking the 13th consecutive edition of awards in the country.

British flag in front of country's outline

Announcing the 16th Edition of the Best Lawyers in Germany Rankings


by Best Lawyers

Best Lawyers announces the 16th edition of The Best Lawyers in Germany™, featuring a unique set of rankings that highlights Germany's top legal talent.

German flag in front of country's outline

Prop 36 California 2024: California’s Path to Stricter Sentencing and Criminal Justice Reform


by Jennifer Verta

Explore how Prop 36 could shape California's sentencing laws and justice reform.

Illustrated Hands Breaking Chains Against a Bright Red Background

Celebrating Excellence in Law: 11th Edition of Best Lawyers in Italy™


by Best Lawyers

Best Lawyers announces the 11th edition of The Best Lawyers in Italy™, which features an elite list of awards showcasing Italy's current legal talent.

Italian flag in front of country's outline

Combating Nuclear Verdicts: Empirically Supported Strategies to Deflate the Effects of Anchoring Bias


by Sloan L. Abernathy

Sometimes a verdict can be the difference between amicability and nuclear level developments. But what is anchoring bias and how can strategy combat this?

Lawyer speaking in courtroom with crowd and judge in the foreground

Things to Do Before a Car Accident Happens to You


by Ellie Shaffer

In a car accident, certain things are beyond the point of no return, while some are well within an individual's control. Here's how to stay legally prepared.

Car dashcam recording street ahead

The Push and Pitfalls of New York’s Attempt to Expand Wrongful Death Recovery


by Elizabeth M. Midgley and V. Christopher Potenza

The New York State Legislature recently went about updating certain wrongful death provisions and how they can be carried out in the future. Here's the latest.

Red tape blocking off a section of street

Find the Best Lawyers for Your Needs


by Jennifer Verta

Discover how Best Lawyers simplifies the attorney search process.

A focused woman with dark hair wearing a green top and beige blazer, working on a tablet in a dimly

Tampa Appeals Court ‘Sends Clear Message,” Ensuring School Tax Referendum Stays on Ballot


by Gregory Sirico

Hillsborough County's tax referendum is back on the 2024 ballot, promising $177 million for schools and empowering residents to decide the future of education.

Graduation cap in air surrounded by pencils and money

Key Developments and Trends in U.S. Commercial Litigation


by Justin Smulison

Whether it's multibillion-dollar water cleanliness verdicts or college athletes vying for the right to compensation, the state of litigation remains strong.

Basketball sits in front of stacks of money

Is Premises Liability the Same as Negligence?


by Jeremy Wilson and Taylor Rodney Marks

In today's age, we are always on the move, often inhabiting spaces we don't own. But what happens when someone else's property injures you or someone you know?

A pair of silhouetted legs falling down a hole with yellow background

Woman on a Mission


by Rebecca Blackwell

Baker Botts partner and intellectual property chair Christa Brown-Sanford discusses how she juggles work, personal life, being a mentor and leadership duties.

Woman in green dress crossing her arms and posing for headshot

Best Lawyers Celebrates Women in the Law: Ninth Edition


by Alliccia Odeyemi

Released in both print and digital form, Best Lawyers Ninth Edition of Women in the Law features stories of inspiring leadership and timely legal issues.

Lawyer in green dress stands with hands on table and cityscape in background