The SECURE Act and the Impact on Your Qualified Retirement Plan

February 28, 2020

By Compensation Planning & Employee Benefits Group

As you have heard, on December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) was signed into law, bringing with it a number of significant changes to qualified retirement plans. The law took effect on January 1, 2020, although certain provisions relating to qualified retirement plans may have a later effective date. Further guidance is needed on many of the changes.

The following chart summarizes the key provisions of the SECURE Act, the effective dates and how these provisions may affect your qualified retirement plan:

ProvisionDescription of SECURE Act ProvisionEffective Dates
Increase in Age for Required Minimum Distributions ("RMDs") from 70-1/2 to 72The age that triggers a participant to begin receiving RMDs from the plan is increased from age 70-1/2 to age 72.Effective for distributions made after December 31, 2019, for individuals turning 70-1/2 after December 31, 2019.
Post-Death RMDs Accelerated for IRAs and Defined Contribution PlansThe new rules eliminate the “stretch IRA” and require that inherited defined contribution and IRA accounts be fully distributed within 10 years following the year of the participant’s death. A lifetime distribution option remains available for spouses, minor children, and chronically ill or disabled individuals.Applies to distributions with respect to participants who die after December 31, 2019.
Penalty-Free Withdrawals for Childbirth or AdoptionParticipants may be permitted to obtain a distribution from the plan of up to $5,000 for expenses related to the birth or adoption of a child. The distribution is exempt from the 10 percent premature distribution penalty tax.Effective for distributions after December 31, 2019.
New Plan Adopted by Filing Due Date for Year May be Treated as in Effect as of Close of YearA qualified plan may be adopted up to the due date of the employer’s tax return, including any extensions; however, this extension does not apply to 401(k) deferrals.Applicable for plans adopted for taxable years beginning after December 31, 2019.
Participant Loans Through Credit Cards are ProhibitedPlan loans made through the use of any credit card or similar arrangement are treated as a taxable distribution.Effective for loans made after December 20, 2019.
Portability of Annuity Options in Defined Contribution PlansA safe harbor is established for plan fiduciaries with regard to the selection of an annuity provider. In addition, if a plan ceases to offer an annuity investment option under a defined contribution plan, the participant may directly roll the annuity to another plan or IRA or have the annuity distributed by the plan, regardless of the plan’s in-service distribution options.Both provisions are effective for plan years beginning after December 31, 2019.
Disclosure Regarding Lifetime IncomeParticipants in defined contribution plans must receive a lifetime income disclosure (a projection of annuitized monthly income) on their annual benefit statements. The DOL will develop a model disclosure and regulations, and plan fiduciaries will not have fiduciary responsibility for providing estimates if they use the DOL assumptions and guidance.This requirement is not applicable until at least 12 months after the DOL issues the necessary guidance.
Increased Penalties for Failure to File Form 5500 and Other Filing PenaltiesForm 5500 – Penalty for failure to file Form 5500 increased from $25 to $250 per day, with a maximum penalty increased from $15,000 to $150,000.

Form SSA-8955 (Annual Registration Statement) – Penalty for failure to file registration statement increased from $1 to $10 per participant, per day, with a maximum penalty increased from $5,000 to $50,000.

Notification of change in status – Penalty for failure to file a required notification of change in status increased from $1 to $10 per participant, per day, with a maximum penalty increased from $1,000 to $10,000.

Withholding notices – Penalty for failure to provide a required withholding notice increased from $10 to $100 for each failure, with a maximum penalty increased from $5,000 to $50,000.
Effective for returns, statements and notifications that are required to be filed or provided after December 31, 2019.

The following provisions apply to 401(k) plans and certain safe harbor 401(k) plans:

ProvisionDescription of SECURE Act ProvisionEffective Dates
Participation for Long-Term Part-Time EmployeesPart-time employees who work at least 500 hours of service in three consecutive 12-month periods (and have reached age 21) must be eligible to participate in the 401(k) component of their employer’s plan, but they are not required to receive any match or employer contributions.Effective generally for plan years beginning after December 31, 2020; however, employee service prior to that date may be disregarded for purposes of this rule. As a result, the first time part-time employees are required to be allowed to defer under this rule will be in 2024.
Mid-Year Adoption of Safe Harbor StatusA plan may be amended to adopt the ADP safe harbor features using 3 percent nonelective contribution option at any time before the 30th day before the end of the plan year. If the plan is amended after that deadline, the nonelective contribution must be 4 percent.Available for plan years starting after December 31, 2019.
Safe Harbor Plans Using Nonelective Contribution – Safe Harbor Nonelective Notice Requirement EliminatedSafe harbor 401(k) plans using the nonelective contribution to satisfy the ADP safe harbor are no longer required to provide an annual safe harbor notice, as long as participants are allowed to make or change an election at least once a year.

Note: The safe harbor notice requirement still applies to plans using a safe harbor matching contribution and plans that will use the ACP safe harbor.
Effective for plan years beginning after December 31, 2019.

Note: Safe harbor plans with nonelective contributions and ACA, EACA or QACA enrollment feature must continue to provide annual automatic enrollment notice.
Qualified Automatic Contribution Arrangements ("QACAs") – Increase in 10 Percent Cap for Automatic Enrollment Safe Harbor After First Plan Year401(k) plans with QACAs were prohibited from enrolling an employee or automatically escalating contributions in excess of 10 percent of compensation. This limit is increased to 15 percent for years after the initial 10 percent year. Effective for plan years beginning after December 31, 2019.

The following provisions apply to certain pension plans:

ProvisionDescription of SECURE Act ProvisionEffective Dates
Reduced Minimum Age for In-Service Distributions from Pension Plans (From 62 to 59-1/2)Pension plans may permit in-service distributions beginning at age 59-1/2 under certain circumstances.Effective for plan years beginning after December 31, 2019.
Permanent Nondiscrimination Relief for Closed Defined Benefit Pension Plans Certain closed defined benefit pension plans that continue to accrue benefits for existing participants are provided permanent nondiscrimination and coverage testing relief.Effective December 20, 2019.

Amendment Deadline

The deadline for amending your qualified retirement plan to reflect the requirements of the SECURE Act is the end of the first plan year beginning on or after January 1, 2022. For many plans, the deadline will be December 31, 2022.

If you have questions, please contact:

Debra J. Linder
Thomas B. Henke
James B. Platt