On December 19, 2019, the Senate passed, as part of the Further Consolidated Appropriations Act 2020 (Public Law No. 116-94), the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Division O pg. H.R. 1865-604). It is touted as the most significant retirement act since the Pension Protection Act of 2006. President Trump signed the bill December 20, 2019.
The SECURE Act implements several key changes to the retirement landscape, including, but not limited to:
- Tax credits for employers starting employer-sponsored retirement plans and incentives for auto-enrolling employees;
- Simplification of the rules and notice requirements related to qualified nonelective contributions in safe harbor 401(k) plans;
- Allows unrelated businesses to join together to create multi-employer 401(k) plans (also called pooled employer plans), reducing the costs and administrative duties that each individual employer would otherwise bear alone;
- Allows retirees to delay taking required minimum distributions until age 72 (up from age 70 ½);
- Requires that employers include long-term part-time workers as participants in defined-contribution plans (eligible part-time employees must work 500 hours per year for three consecutive years and be age 21 years or older);
- Requires that plan sponsors annually disclose on 401(k) statements an estimate of the monthly payments the participants would receive if their total account balance were used to purchase an annuity for the participant and the participant’s surviving spouse;
- Imposes a 10-year distribution limit for most non-spouse beneficiaries to spend down inherited IRAs and defined contribution plans;
- Increases IRS penalties for failing to submit or untimely submitting forms and notices; and
- Provides penalty-free withdrawals from retirement plans of up to $5,000 within a year of a birth or adoption.
Importantly, the SECURE Act provides for an extended remedial amendment period. Although plans must comply with the SECURE Act’s provisions in operation starting with the effective dates, the “plan documents can be updated to incorporate the required plan provisions by a later date—the last day of the first plan year beginning on or after Jan. 1, 2022, unless the Secretary of Treasury provides an extension.”
The SECURE Act would implement numerous additional changes and alterations to the retirement landscape. Many employer-sponsored 401(k) plans will require an update or amendment within the required deadlines.