When Congress passed the “Setting Every Community Up for Retirement Enhancement (SECURE) Act” on December 19, 2019, it was introducing several new opportunities for plan sponsors. Specifically, the SECURE Act:
- Expands eligibility rules for long-term, part-time employees so that employees who work at least 500 hours in three consecutive 12-month periods now can participate in their plans with the exclusion of collectively-bargained plans. This rule is effective for plan years beginning after 12/31/20, but for determining the three consecutive 12-month periods, 12-month periods occurring before 1/1/21 don’t need to be considered.
- Unrelated smaller employers can join together and create a multiple employer plan in order to benefit economically. There no longer needs to be what the Department of Labor had required by way of “commonality of interest” among the participating employers. Under the SECURE Act, these organizations can be represented as “pooled plan providers” thereby enabling them to reduce their administrative costs of providing benefits by leveraging their larger group’s economies of scale. This rule is effective for plan years beginning after 12/31/20.
- A new income tax credit is available for costs paid or incurred by small employers relating to their establishing a retirement plan. Under the SECURE Act, the annual start-up credit for small employers introducing a retirement plan has been increased from $500 to up to $5,000.
- The percent cap on automatic enrollment contributions to safe harbor 401(k) plans has been increased from 10% to 15% after an employee’s first plan year of participation.
- Non-elective 401(k) plan safe harbor rules and notice requirements have been simplified under the SECURE Act which also provided greater flexibility to add or change safe harbor non-elective contributions to plans mid-year.
- Retirees can now delay required minimum distribution payments until age 72 effective for required distributions made after 12/31/19 for individuals who attain age 70-1/2 after that date. Those participants who attained age 70-1/2 during 2019 must still have received required minimum distribution payments by April 1, 2020. This is only if a plan adopts this change.
There are several other changes introduced by the SECURE Act relating to both retirement and health and welfare plans. For a complete breakdown of the legislation’s provisions, visit: https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf