Big Changes for Retirement Plan Savings: The SECURE Act of 2019

On December 20, 2019, President Trump signed into law the most comprehensive pension reform legislation since the Pension Protection Act of 2006.

As part of the budget funding bill for the remainder of the current fiscal year, the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) was included in the Further Consolidated Appropriations Act, 2020.

The SECURE Act includes many provisions aimed at incenting employers to maintain qualified retirement plans, providing easier access to employees to the private-sector retirement system, and increasing “retirement readiness” among plan participants.  In addition to the “expanding and preserving retirement savings” provisions, there are provisions meant to improve plan administration and finally revenue generating provisions.

The following are highlights of many of the Act’s provisions that specifically impact small business retirement plans. 

Expanding and Preserving Retirement Savings

Required Minimum Distributions (RMDs): Effective for Distributions made after 12/31/2019 for individuals who turn 70 ½ after 12/31/2019

• The starting age for Required Minimum Distributions is raised from 70 ½ to age 72

 Rules Relating to Safe Harbor 401(k) Plans: Effective Date: Plan Years beginning after 12/31/2019

• Safe Harbor Notice eliminated for plans utilizing nonelective contributions to satisfy safe harbor

• Employers may adopt a nonelective safe harbor up until the 30^th day prior to the end of the plan year

• Nonelective safe harbor may be adopted after the 30^th prior to end of the plan year and up until the close of the following plan year, if the nonelective contribution is at least equal to 4% of compensation (not 3%)

Small Employer Pension Plan Startup Credit: Effective Date: Tax Years beginning after 12/31/2019

• The annual $500 maximum credit has been increased to the greater of (1) $500, or (2) $250 times the number of Non-Highly Compensated Employees eligible for the Plan, or $5,000

• The credit is still limited to 50% of the actual annual expenses associated with the Plan

• The credit still applies to same three-year period

Small Employer Automatic Credit: Effective Date: Tax Years beginning after 12/31/2019

• An annual tax credit equal to $500 for the first three years during which the Plan includes a provision for automatic enrollment

• Applies to existing plans that add automatic enrollment provision

• Does not appear to require the Plan cover any Non-Highly Compensated Employees

401(k) Arrangements Must Allow Long-Term, Part-Time Employees to Participate: Effective Date: Plan Years beginning after 12/31/2020; Periods of Service before 1/1/2021 Not Considered

Dual Eligibility Requirement: Employee must either One Year of Service (1,000-hour requirement) OR three (3) consecutive years with at least 500 hours of service

• Applies to only Employee Elective Contributions (Traditional Salary Deferrals and Designated Roth Contributions) and NOT to any Employer Contributions

• No Impact on Coverage or Nondiscrimination Testing

• No Top-Heavy Minimum Required

Other Provisions

• Withdrawals of up to $5,000 used for adoption or childbirth expenses will be exempt for the 10% premature distribution tax – Effective for Distributions made after 12/31/2019

• Individuals age 70 ½ and older are permitted to make contributions to traditional IRAs –Effective for Tax Years after 12/31/2019

• Lifetime Income Option Investments are permitted to be transferred to another qualified plan or IRA, if option is no longer permitted to be held by current plan-Effective for Plan Years after 12/31/2019

• Distribution of Plan Loans Proceeds are no longer permitted to be made by Credit Cards – Effective for Loans made after 12/21/2019

• Permits “Pooled Employer Plans” for unrelated employers- Effective for Plan Years beginning after 12/31/2020

Administrative Improvements and Provisions

Plans Adopted by Filing Due Date for Year May be Treated as in Effect as of Close of Year:  Effective Date: Plan Years beginning after 12/31/2019

Permits businesses to treat qualified retirement plans adopted before the due date (including extensions) of the tax return for the taxable year to treat the plan as having been adopted as of the last day of the taxable year

• Does not apply to 401(k) arrangements

Disclosure regarding Lifetime Income: Effective Date: For PPA Statements provided more than 12 months after DOL issues guidance, model disclosure and assumptions

• Requires PPA Statements to include an illustration of monthly income amounts, assuming participant’s entire account balance were used to provide a monthly lifetime income stream

• Plan Sponsors and Fiduciaries will have no obligation for the plan to provide or guarantee illustrated monthly amounts

Other Provisions

• Provides optional safe harbor for Plan Fiduciaries in selecting Lifetime Income Providers – No Effective Date

• Directs IRS/DOL to provide for combined Annual Reporting (Form 5500) for plans with the Trustees, Plan Administrator, and named Fiduciaries under ERISA – Effective for Plan Years beginning after 12/31/2021

• Plan Amendments – A remedial amendment period for any SECURE Act required amendments is provided until the 2022 plan year

Revenue Provisions

Modification of Required Distribution Rules for Designated Beneficiaries:  Effective Date:  Applies to Distribution with Respect to Employees Who Die after 12/31/2019

• Designated beneficiaries, other than surviving spouses (with a few other exceptions), of retirement plan and IRA accounts are generally required to distribute entire accounts no later than the end of the 10^th calendar year following death of the plan participant or IRA owner

• Other exceptions include beneficiaries who are (1) not more than 10 years younger than the deceased, (2) disabled or chronically ill and (3) minors

Increased Penalties for Failure to File Retirement Plan Returns:  Effective Date:  Applies to Returns, Notices and Statements required to be filed or provided after 12/31/2019

• Penalties increased ten-fold

• Fee for Failure to file a Form 5500 increased from $25 per day to $250 per day, with the maximum amount per Form increased from $15,000 to $150,000

• Form 8955-SSA penalties for failure to file increased from $1 per day per participant (maximum $5,000) to $10 per day per participant (maximum $50,000)

• Notification of Withholding of Income Tax penalties increased from $10 to $100 dollars each failure, with the maximum being increased from $5,000 to $50,000

• Fees related to Failure to Report Plan Name Change, Name or Address change of Plan Administrator, Plan Termination or Plan Merger increased from $1 per day per failure to $10 per day per failure, with the maximum amount being increased from $1,000 to $10,000

While the scope of the new law is vast, Benetrends will continue to provide updates regarding these changes.  As the longest provider of ROBS (Rollovers as Business Startups) funding, we stay on top of regulatory changes so our clients can be assured of plan compliance.  If you are looking for small business funding, we can help. Schedule a consultation today.