Assurance Financial Services (AFS) is releasing this regulatory update to inform you that SECURE Act (Setting Every Community Up for Retirement Enhancement), one of the most significant pieces of retirement legislation in more than a decade, has passed congressional approval. The SECURE Act draws from several bipartisan bills and seeks to make it easier for businesses to offer retirement plans and for individuals to save for retirement.
There are numerous components to this legislation and varying plan effective dates, but here are a few priority areas to focus on:
- Required Minimum Distribution (RMD) Age: Participants reaching age 70½ in 2020 and beyond have additional time before they must take RMDs. The new law allows these individuals to delay RMDs until April 1st of the year following the year in which they turn 72. Those who have already turned 70½ must continue to take RMDs as required under the old law.
- Safe Harbor Updates: There are several changes that are specific to Safe Harbor plans:
- For QACA Plans: Removal of the 10% cap to permit escalations up to 15% after the first year
- The elimination of the annual notice for plans relying on a qualified nonelective contribution
- Additional flexibility for employers that adopt a nonelective Safe Harbor design mid-year
- Beneficiary Payment Changes: The old so-called “stretch” rules that allowed beneficiaries to stretch distributions from inherited accounts have been eliminated, effective for deaths occurring after 2019. Note: For governmental and collective bargaining plans, the provision may not be effective until a later date. Now, most individuals inheriting an IRA or plan account must generally receive the payments within 10 years.
- Penalty-Free Withdrawal Option: Participants are entitled to penalty-free withdrawals of up to $5,000 for a new baby or adoption. The participant can opt to repay the withdrawal amount, but it is not a loan and doesn’t adhere to standard loan policies. Participants should understand that while the withdrawal isn’t subject to the 10% penalty, taxes would still apply.
- Expanded Access: SECURE Act aims to increase access and coverage through new types of plans, greater incentives for small employers to start plans with automatic enrollment, and eligibility for long-term, part time employees:
- Increased tax credit limitation for small employer plan startup costs as well as small employers that implement automatic enrollment within a startup plan
- Multiple Employer Plans (MEP) / Pooled Employer Plans will allow two or more unrelated employers to join together under a common plan administrator; the “one bad apple” rule is eliminated with further guidance forthcoming
- Dual-eligibility requirement in which an employee must complete one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes more than 500 hours of service
- Longevity Options: SECURE Act opens up the gates for more employers to offer annuities as options within their plan by offering some fiduciary safe harbors for annuity selection. Participants should understand the complexities of annuities before utilizing.
AFS will continue to monitor and share any updates related to SECURE Act. Please reach out to your AFS representatives with any questions that you may have.
You will also likely receive information pertaining to SECURE Act from your plan provider and/or third-party administrator. Please review this information carefully, as it may impact plan options and administration. For more information about SECURE ACT, please visit this helpful resource page from our partners at National Association of Plan Advisors (NAPA).