The most sweeping pension legislation since the passage of The Pension Protection Act of 2006 was signed into law December 20, 2019.
The “Setting Every Community up for Retirement Enhancements Act” known as the SECURE Act contains provisions that will impact every retirement plan and most individuals in some form or fashion.
Below are the highlights categorized as follows:
Provisions impacting every retirement plan
Provisions impacting participants and individuals
Optional enhancements for existing and new retirement plan sponsors
Unless noted otherwise, the changes below are effective January 1, 2020!
Key provisions impacting every retirement plan:
Long-term Part Time Employees: Going forward employees who work at least 500 hours per year for three consecutive years must be eligible to make 401(k) deferrals into the Plan. They must still meet the Plan’s minimum age requirements (which can’t exceed 21) and can be excluded from certain required discrimination tests. (Effective January 1, 2021).
Form 5500 Penalties: The IRS penalty for late filings has increased to $250 per day, up to a maximum penalty of $150,000 per late filing.
Credit Card 401(k) Loans: 401(k) loans through a designated 401(k) loan credit card are no longer allowed. Yes this really was a thing – though not with intellicents clients!
Key Provisions impacting participants and individuals:
Age 70-1/2 rule changes: Required minimum distributions starting age has been increased from 70-1/2 to age 72. IRA contributions are no longer prohibited at or beyond age 70-1/2 .
Stretch IRA’s eliminated: Stretch IRA distributions have been eliminated and replaced with a mandatory 10-year rule. This means, designated beneficiaries (living human beings or qualifying trusts) must now take distributions over a 10-year period vs. over their life expectancy. Certain classes of people are excluded from this rule such as spouses, disabled or chronically ill beneficiaries, and certain minor children.
Child birth and adoption rule: The 10% early withdrawal penalty has been eliminated for expenses related to childbirth or adoption up to $5,000.
Key Optional Enhancements for Existing and New Plan Sponsors:
Changes to Safe Harbor Plans: 1) Plan sponsors interested in adding safe harbor provisions mid-year can now do so if the plan sponsor commits to an initial non-elective contribution of 4% for the initial year. 2) Increase in the default automatic enrollment maximum contribution from 10% to 15%.
Retirement Plan Lifetime Income Options: New safe harbor provisions have been added for investment options (normally annuities) that provide employees with future life-time retirement income options. Also, this provisions includes how terminated employees can transfer these annuities into an IRA or new employer’s retirement plan.
Pooled Employer Plans: The bill makes it much easier for non-related employers to pool or band together to form a single retirement plan. These types of plans have existed before in what are called Multiple Employer Plans but typically involved related employers. These new “PEP’s” are effective January 1, 2021.
There are many other provisions to the SECURE Act that could impact plan sponsors and individuals.