SECURE Act signed into law on December 20, 2019

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was included in the bipartisan spending bill signed into law on December 20, 2019.

The SECURE Act includes provisions that affect tax-qualified retirement plans and individual retirement accounts. Other provisions of the spending bill affect executive compensation and healthcare benefits.

What you should know

  • Requires employers to allow long-term, part-time workers to make elective deferrals into their workplace 401(k) plan. (Effective for plan years beginning after December 31, 2020, but hours of service during 12 month periods beginning before 2021 are not taken into account.)
  • Requires benefit statements to plan participants to include a lifetime income disclosure at least once during any 12 month period. (Effective one year after DOL issues interim final rules, model disclosures, and assumptions.)
  • Makes it easier for employers to offer lifetime income products in defined contribution plans by addressing portability concerns and by offering a fiduciary safe harbor for the selection of the lifetime income provider. Allows a participant distribution of the investment, without regard to other plan-level restrictions, in the event of a plan level decision to eliminate the option. This may allow for the avoidance of some or all of the potential penalties, charges, and fees. Distribution of the investment must be made in the form of a direct trustee-to-trustee transfer to another retirement plan or a qualified distribution annuity. (Effective for plan years beginning after December 31, 2019.)*
  • Fiduciaries are offered a safe harbor to satisfy the prudence requirement applicable to the selection of the lifetime income investment provider. In part, the safe harbor allows reliance on specific representations from the provider and shields the fiduciary from liability with respect to participant losses in the event of the provider’s failure to meet its financial obligations under the contract. (Effective on date of enactment.)
  • Changes plan distribution rules:
    • Increases the required minimum distribution age from 70.5 to 72. (Effective for participants who turn 70.5 after December 31, 2019.)*
    • Reduces the earliest age a participant could receive an in-service distribution from a pension or money purchase pension plan from 62 to 59.5. (Effective for plan years beginning after December 31, 2019.)
    • Allows for penalty free withdrawals of up to $5,000 for expenses related to the birth or adoption of a child and also repayment of such amounts to the plan. (Effective for distributions after 2019.)*
  • Changes other safe harbor rules by eliminating the annual notice requirement for providing a minimum 3% nonelective contribution to participants as well as by allowing the plan to elect into the 3% safe harbor at any time before the close of the plan year. An even later election is allowed if the nonelective contribution is at least 4% and the plan is amended by the end of the following year. (Effective for plan years after 2019.)
  • Retains the 10% cap on qualified automatic contribution arrangements (QACA) during a participant’s first year of participation but allows the rate to be increased to 15% in subsequent years. (Effective for plan years beginning after December 31, 2019.)
  • Additional provisions include:
    • Removes the restrictions on unrelated employers joining a multiple employer plan (MEP)
    • Eliminates the “one bad apple” rule for MEPs (further guidance forthcoming)
    • Prohibits the distribution of plan loans through credit cards or similar arrangements
    • Increases the late filing penalties for Form 5500; increased to $250 per day, capped at $150,000

*These provisions also apply to 403(b) plans.

is the new age for required minimum distributions, raised from previous age of 70.5
is the increased cap for automatic escalation of deferral rates in safe harbor plans, up from 10%
can now be withdrawn from plans penalty-free to cover costs of birth or adoption of a child