On December 20, 2019, President Trump signed into law, as part of the 2020 Appropriations Bill, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. This is the first major legislation affecting retirement plans since the Pension Protection Act of 2006.
The Act contains provisions to encourage the growth of 401(k) plans. Perhaps the most significant change is the increased ability of unrelated employers to join a multiple employer plan, referred to as a “Pooled Employer Plan”. Previously, an employer was not permitted to participate in a multiple employer plan unless the employer had a “commonality of interest” (e.g., the same industry or geographic area) with the other employers. The Act eliminates the commonality of interest requirement. The Act requires the appointment of a “Pooled Plan Provider” to be the administrator and fiduciary under ERISA, and requires registration of the Pooled Plan Provider with the Internal Revenue Service and the Department of Labor. A Pooled Employer Plan facilitates economies of scale that can result in lower administrative costs thereby making it easier for employers to offer retirement plans for their employees. The Pooled Employer Plan provisions are effective for plan years beginning in 2021.
A partial list of other changes includes:
- Increase in Automatic Enrollment Limit. Under current law, 401(k) plans are permitted to enroll participants automatically, with a limit of 10%. The limit is increased to 15% for plan years beginning in 2020.
- Small Employer (under 100 employees) Tax Credit for Starting a Plan. The credit, limited to 50% of qualified costs, is increased. The credit is available for 3 taxable years beginning with 2020 plan years.
- Increase in Required Beginning Date. The new law increases the age of the required beginning date for IRAs and qualified plans from 70½ to 72. This is effective for distributions required to be made after December 31, 2019 for employees and IRA owners who attain age 70½ after December 31, 2019.
- Long Term Part-Time Employees Permitted to Participate in 401(k) Plans. A 401(k) plan must permit an employee to make elective deferrals if the employee has worked at least 500 hours per year for at least 3 consecutive years and is age 21 by the end of the 3-year period. This rule does not require participation in matching or employer contributions unless the employee otherwise satisfies the conditions for such participation. This provision applies to plan years beginning in 2021 with respect to service beginning in that year.
- Lifetime Income Disclosure. ERISA is amended to require a defined contribution plan benefit statement to include an estimate of the monthly lifetime retirement income at least once in a 12-month period. This new rule will not apply until 12 months after regulations and a model notice are issued.
- 5500 Penalties. Penalties are increased for failing to file a Form 5500 from $25 per day to $250 per day, not to exceed $150,000. This increase applies to 5500s required to be filed after December 31, 2019.
- Plan Amendments are not required until the end of the 2022 plan year.
The law includes changes that not only affect employer-sponsored retirement plans, but also impact individual retirement estate planning, due to changes regarding the commencement and distribution of post death distributions. These changes generally eliminate “stretch” payments to beneficiaries, other than “eligible designated beneficiaries,” such as a spouse.
This information is for educational purposes only to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.