Last week Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act as part of the legislative package of spending bills. President Trump signed the legislation on Friday to implement the first major retirement plan legislation since the Pension Protection Act of 2006. As often occurs with major Tax legislation, employers will need to quickly review the legislation as some of the provisions are effective as early as January 1, 2020. The following are some of the important provisions in the 119 pages of legislation.
The SECURE Act requires participants’ defined contribution benefit statements to include, annually, a lifetime income disclosure describing the monthly payments the participant would receive if the participant’s total account balance in the plan was annuitized. This is designed to inform employees how their 401(k) plan accounts will translate into income at retirement. In addition, the SECURE Act facilitates 401(k) and other plans to offer guaranteed lifetime income options through annuities by establishing a safe harbor for plan fiduciaries responsible for reviewing the financial capabilities of insurers offering the lifetime income contracts. The existing rules related to multiple employer plans (MEPs) have been amended to allow two or more unrelated employers to join a pooled employer plan, producing economies of scale that in theory will expand access and lower both employer and plan participant cost. Whether that becomes a reality will depend in part as with any legislation on the implementing regulations to be adopted by the IRS and US Department of Labor.
The SECURE Act significantly changes the 401(k) plan eligibility rules for part-time employees requiring participation after working three consecutive years with at least 500 hours of service in each year. Previously, employers only had to offer participation after completion of 1,000 hours of service in a year. The SECURE Act also includes changes to the Section 401(k) plan safe harbor rules. Lastly, because the Act also makes profound changes to the rules governing distributions from retirement plans and individual retirement accounts (“IRAs”), business owners and individuals intending to defer taxation on IRA and retirement plan accounts will need to revisit their estate plans.
These are but six of the SECURE Act changes to retirement plans, which depending on how one counts them, number over thirty. Some of the changes will require future amendments to retirement plans before the end of 2022 to either implement the change or restructure the retirement plan in light of the new requirements. Employers are encouraged to consult with their retirement plan advisors to discuss how the SECURE Act will impact them.