The SECURE Act Changes Retirement Plan Rules

As part of the federal spending bill, the government enacted the Setting Every Community Up for Retirement Act of 2019, or the “SECURE Act.” It includes extensive changes to pension and retirement plan rules. Here are some of the key highlights.

• Part-time Employees. 401(k) plans beginning after December 31, 2020 must provide coverage to long-term, part-time employees working at least 500 hours in three consecutive 12-month periods.
• 401(k) Safe Harbor. Safe harbor plans can increase the cap by raising payroll contributions to 15% of an employee’s paycheck; an annual safe harbor notices is no longer required only for nonelective contribution 401(k) safe harbor plans; and traditional 401(k) plans can convert mid-year to nonelective contribution 401(k) safe harbor plans.
• Pooled Employer Plans. For plan years beginning after December 31, 2020, two or more unrelated employers can join together in one single pooled plan, with one plan document, one filing, and a single plan audit.
• Plan Distributions. There is a penalty-free withdrawal up to $5,000 for expenses related to and within one year of the birth or adoption of a child; mandatory distributions begin at age 72 rather than 70½; and minimum distributions must be made by the 10^th year following a participant’s death, with limited exceptions for spouses, disabled beneficiaries, and minor children.
• New Lifetime Income Disclosure. Employers must provide plan participants with an annual disclosure of the estimated monthly income the participant would receive if their balance were paid in a single life annuity or a joint survivor annuity. The Department of Labor will be developing a model disclosure for this purpose.
• Increased Tax Credits for Small Employers. Employers with 100 or fewer employees can receive a tax credit for 50% of a plan’s start-up costs, up to $5,000, for implementing new retirement plan. There is also a $500 credit for the first three years for adding auto enrollment to a plan.
• Increased Penalties. Failure to file Form 5500 has an increased penalty to $250 per day, up to $150,000; and failure to file Form 8955-SSA increases penalties to $10 per participant per day, up to $50,000.

Action Items