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Overview of Key Provisions
Top 10 Key Provisions
- Open Multiple Employer Plans / Pooled Employer Plans – The SECURE Act allows unrelated small employers to band together in “open” 401(k) multiple-employer plans (MEPs; also referred to as pooled employer plans (PEPs)). This reduces the costs and administrative duties that each employer would otherwise bear alone. The Act also eliminates the “one-bad-apple” rule under which a violation by one employer participating in a MEP can trigger severe penalties for the compliant employers in the MEP.
- Safe Harbor 401(k) Plans and Timing of Plan Amendments and Adoptions – The SECURE Act very generally permits employers to add a safe harbor feature to their existing 401(k) plans during the year; such additions are even permitted very late in the year and after the end of the year if the employer contributes at least 4 percent of employees’ pay instead of the regular 3 percent. It also allows employers to adopt a plan for a taxable year as long as the plan is adopted by the due date for the employer’s tax return for that year (including extensions).
- Startup Credit for Small Employer Plans and New Credit for Small Employer Plans Adopting Automatic Enrollment – The SECURE Act increases the business tax credit for plan startup costs to make setting up retirement plans more affordable for small businesses. The tax credit will increase from the current cap of $500 to up to $5,000 in certain circumstances. It also encourages small-business owners to adopt automatic enrollment by providing a further $500 tax credit for three years for plans that add auto-enrollment.
- Post-70½ IRA Contributions – The prohibition on making deductible contributions to a traditional IRA after age 70½ is repealed.
- Long-Term Part-Time Employees – The SECURE Act requires employers to include long-term part-time workers as participants in defined-contribution plans except in the case of collectively bargained plans. Eligible employees will have completed at least 500 hours of service each year for three consecutive years, and are age 21 or older. However, these participants can be excluded from employer contributions, nondiscrimination and top-heavy requirements. Previously, part-time workers could be excluded if they haven’t worked 1,000 hours in a 12-month eligibility period.
- Plan Withdrawals for Birth or Adoption – The SECURE Act allows an exception to the 10 percent penalty for birth or adoption. New parents can now withdraw up to $5,000 from a retirement account within a year of a child’s birth or adoption without the 10 percent penalty those younger than 591/2 would normally owe. The distribution, which is still subject to tax, can be repaid to a retirement account.
- Increased Required Beginning Date – The SECURE Act increases the age triggering the required beginning date for plans and IRAs to 72.
- Consolidated Form 5500 Reporting for Similar Plans – The SECURE Act offers a consolidated Form 5500 for certain defined-contribution plans with a common plan administrator to reduce administrative costs, but also increases penalties for failure to file retirement plan returns, such as Forms 5500, required notifications of registration changes and required withholding notices.
- Fiduciary Safe Harbor for Selecting Annuity Providers – The SECURE Act creates a safe harbor that employers can use when choosing an annuity provider to provide annuity distributions under a defined-contribution plan.
- “Stretch” RMD – The SECURE Act imposes a 10-year distribution limit for most non-spouse beneficiaries to spend down inherited IRAs and defined-contribution plans. Before passage of the Act, withdrawals from inherited accounts could be stretched over the life of beneficiaries to mitigate taxes.
529 Funds can be used to pay student loan debt
- Applies to distributions made after Dec. 31, 2018
Modified required minimum distributions rules for IRA beneficiaries
- Applies to distributions with respect to employees who die after Dec. 31, 2019
- Effective 1/1/2020, a penalty-free withdrawal, up to $5,000, can be taken for childbirth or adoption expenses up to one year post childbirth or adoption.
Elimination of age restriction for traditional IRA contributions
- Contributions made for tax years after Dec. 31, 2019
Increased Required Minimum Distributions age
- Effective January 1, 2020, the Required Minimum Distribution (RMD) rules have been modified to increase the age on which a participant must take an RMD from age 70.5 to age 72 for individuals born on or after 7/1/1949.
Increased tax credits available to small business owners
- Businesses may be eligible for a tax credit up to $5,000 of the administrative costs in the first three years of a new plan. Applies to taxable years beginning after Dec. 31, 2019.
Increased penalties for failing to file Form 5500
- Applies to returns, statements and notifications required to be filed, and notices required to be provided after Dec. 31, 2019
Extended Year-end deadlines for adopting a plan
- In accordance with The Secure Act, employers now have until their tax filing deadline, plus extensions, to establish a plan. Applies to plans adopted for taxable years beginning after Dec. 31, 2019.
Election of Safe Harbor 401(k) Status
- Employers can amend to Safe Harbor 401(k) Plan up to 12 months after plan year end. Requires a 3% or 4% contribution depending on amendment date. Applies to plan years beginning after Dec. 31, 2019.
Wider accessibility to pooled employer retirement plans
- Plan years beginning after Dec. 31, 2020
Part-time employees now eligible for employer retirement plan
- Applies to plan years beginning after Dec. 31, 2020; 12-month periods beginning before Jan. 1, 2021 shall not be taken into account
*If you have additional questions, PFG recommends consulting with your accountant or financial advisor.