SECURE Act 2019 for Plan Sponsors
President Trump signed the SECURE Act into law on December 20, 2019 as part of the 2020 appropriations bill. The Act is the most significant reform to our Nation’s retirement system in over a decade. While there are 30 different provisions, we would like to highlight a select few of particular interest or importance to you or your company. Please note the effective date of these provisions is January 1, 2020.
Small Business Startup Credit: The current $500 tax credit cap has been increased to the greater of 1) $500 or 2) lesser of $5,000 or $250 times the # of Non-highly compensated employees.
Small Business Automatic Enrollment Credit: Small employers adopting automatic enrollment provisions are eligible for an additional $500 credit for three years regardless of when it was adopted.
Change of the official Required Minimum Distribution (RMD) Age: If you have participants in your company plan, the required age of RMD has been postponed from the year one turns age 70 ½ to the year one turns age 72. This applies to individuals who turned 70 ½ after December 31, 2019.
Changes Regarding Lifetime Income Options in Defined Contribution Plans: The Act requires benefit statement to annually include an estimate of the monthly income a participant could receive in retirement if a qualified joint and survivor annuity or a single life annuity were purchased. In addition, there is a new safe harbor that plan fiduciaries may rely on in selecting lifetime income investment providers to make available as an investment option. There also a portability provision of the lifetime income investment.
Child Birth or Adoption Distributions: While not required to do so, plans may allow for penalty-free distributions for expenses related to the birth or adoption of a child. In addition, these special distributions can later be repaid to a qualified retirement plan.
Ability for certain part-time workers to participate in retirement savings plans: Under existing law, qualified retirement plans may exclude part-time employees from participation if the employees do not complete 1.000 hours of service in a year. The ACT requires 401(k) plans to extend participation – solely for purposes of making elective deferrals – to any part-time employee who has worked at least 500 hours in each of the preceding 3 consecutive 12-month periods.
Form 5500 Changes: Late filing penalties are increased to $250 per day, capped at $150,000 from $25 and $15,000 respectively.
Elimination of the Stretch IRA: Prior to January 1, 2020, the law allowed a designated beneficiary to “stretch” distributions from a retirement account over the beneficiary’s remaining life expectancy. The SECURE Act places a cap of 10 years for a designated beneficiary and 5 years for a non-designated beneficiary on the time permitted to exhaust the plan or IRA asset. There is an exception for a surviving spouse and a few other types of beneficiaries. This may be a game changer for many people’s estate plans. If you are concerned about the distribution changes or the tax burden of the Act, contact our office to discuss strategies to minimize the effects of the Act.
Should you have questions on any of the new provisions of the SECURE Act, please contact our office to discuss its impact and strategies to consider putting into place.
While there are 30 different provisions, we would like to highlight a select few of particular interest or importance.
Securities and Investment Advisory: Services offered through M Holdings Securities, Inc., a Registered Broker Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors is independently owned and operated. Rose Street Advisors is a member of M Financial Group. #2894555.1