On Dec. 20, 2019, President Donald Trump signed into law the provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) which contains several provisions that will impact qualified retirement plans. Below is a high-level summary of some of the changes contained in the SECURE Act and the effective dates for these changes.
Age-Related Required Minimum Distributions
For participants that attain age 70.5 after Dec. 31, 2019, required minimum distributions need not begin until April 1 of the year following the year they turn 72. Participants who are not 5% (or greater) owners may continue to delay beginning required minimum distributions until they retire.
Post-death Required Minimum Distribution for Beneficiaries
The SECURE Act eliminates the ability to “stretch” required minimum distributions over the life expectancy of a designated beneficiary. Under the new rules, a deceased participant’s plan account balance must generally be completely distributed (to a designated beneficiary) by the end of the tenth year following the year of the participant’s death. This new rule does not apply if the designated beneficiary is a surviving spouse, disabled, chronically ill, not more than 10 years younger than the participant, or a minor child of the participant. This new rule is effective for distributions related to participants who die after Dec. 31, 2019.
Lifetime Income Disclosures Required on Participant Statements
The SECURE Act mandates that participant statements include lifetime income estimates at least once per year. The SECURE Act further requires the Department of Labor (DOL) to issue model disclosures and appropriate assumptions. The lifetime income disclosure requirement will become effective 12 months after the DOL issues its guidance.
Required Eligibility for Long-term Part-time Employees
If an employer offers a 401(k) plan, effective for plan years beginning after Dec. 31, 2020, part-time employees that work at least 500 hours in three consecutive 12-month periods must be allowed to make deferrals into the 401(k) plan. As long as no employer contributions are required for these long-term part-time employees under the terms of the plan, they need not be included in the plan’s compliance testing.
Penalty-free Withdrawal Allowed Upon Birth or Adoption
Effective for plan years beginning after Dec. 31, 2019, plans may allow participants to withdraw up to $5,000 penalty-free for expenses related to the birth or adoption of a child. The withdrawal must be made within one year of the birth or adoption. The withdrawal may be recontributed to the plan as a rollover contribution.
Increase in Maximum Auto-Increase Limit for Qualified Automatic Contribution Arrangement Plans
Effective for plan years beginning after Dec. 31, 2019, plans that use the 401(k) Qualified Automatic Contribution Arrangement Safe Harbor are permitted to automatically increase participants' deferral election percentage up to a maximum of 15%. The previous maximum auto-increase limit was 10%.
Nonelective 401(k) Safe Harbor Plan Changes
Effective for plan years beginning after Dec. 31, 2019, the SECURE Act makes the following changes for nonelective 401(k) safe harbor plans:
- The safe harbor notice requirement is eliminated.
- Plan sponsors may adopt the 3% nonelective safe harbor mid-year as long as the plan is amended at least 30 days prior to the end of the plan year.
- Plan sponsors may adopt a 4% nonelective safe harbor anytime prior to the due date for making Average Deferral Percentage (ADP) refunds (generally the last day of the following plan year).
Pooled Employer Plans (Open Multiple Employer Plans)
Effective for plan years beginning after Dec. 31, 2020, the SECURE Act allows unrelated employers to participate in a single plan. Pooled employer plans are intended to allow small employers/plans to generate some economies of scale.
Late 5500 Filing Penalties Increase
Effective for forms due after Dec. 31, 2019, the IRS late filing fee for Forms 5500 increases from $25/day to $250/day with the maximum per form going from $15,000 to $150,000. If eligible, these late filing fees may be reduced by filing under the Delinquent Filer Voluntary Correction Program.
There are many more changes made by this legislation. The focus of this update has been on the issues that will have the greatest impact on Associated Bank’s retirement plan clients.
Landon is Senior ERISA & Compliance Advisor | Wealth Management & Institutional Services, Associated Trust Company, N.A.