MEPs and PEPs – The SECURE Act creates a new form of “open” MEP known as a Pooled Employer Plan (“PEP”). This provision will enable unrelated employers to participate in a single retirement plan, with a single Form 5500 and independent qualified plan audit requirement. These rules are effective for plan years beginning in 2021.
Single 5500 – As an alternative to participating in a MEP, the Act permits defined contribution plans with the same trustees, named fiduciaries, administrator, plan year, and investments/investment options to file a single, consolidated Form 5500 to reduce administrative costs. This option is effective for 2022 plan year filings.
Participation for Part-Time Employees – Under the new rules, employees who complete at least 500 hours of service for three consecutive 12-month periods must be eligible to participate in the 401(k) component of their employer’s plan. Employees eligible under this new rule will not be required to receive any employer contributions and will be excluded from nondiscrimination testing and top-heavy. This provision is effective 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 that are required to be allowed to defer under this rule will be in 2024.
Increase in RMD Age – The age that triggers an individual to begin Required Minimum Distributions is increasing from age 70½ to age 72. This provision is effective for individuals who attain age 70½ after December 31, 2019.
Modified RMD Rules for Inherited Accounts – The 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 employees who die after December 31, 2019.
Increased Ceiling for QACA Deferrals – The maximum deferral amount for Qualified Automatic Contribution Arrangements (“QACAs”) is increased from 10% to 15% of compensation after the “initial period,” generally the first year+ of participation. This provision is effective for plan years beginning after December 31, 2019.
Safe Harbor Nonelective Notice Eliminated – Safe harbor 401(k) plans using the nonelective contribution option to satisfy the ADP safe harbor are not required to provide an annual safe harbor notice to participants. The notice requirement still applies to plans using a safe harbor matching contribution option and plans that wish to use the ACP safe harbor. This provision is effective for plan years beginning after December 31, 2019.
Mid-Year Adoption of Safe Harbor Status – A plan may be amended to adopt the ADP safe harbor features using the 3% nonelective contribution option at least 30 days before the end of the plan year. Alternatively, a plan can adopt the ADP safe harbor prior to the last day of the plan year, provided the employer uses a 4% nonelective contribution (instead of 3%). This option is available for plan years starting after December 31, 2019.
Mid-Year Adoption of New Plan – A qualified plan may be adopted up to the due date of the employer’s tax return, including any extensions; however, this rule does not apply to 401(k) deferral features. This provision is applicable for plan years beginning after December 31, 2019.
Credit Card Participant Loans Are Taxable Distributions – Participant loans via a credit card (or similar arrangement) are taxable, even if they otherwise avoid the deemed distribution rules. This provision is effective December 20, 2019.
Lifetime Income Projection – Participants will be required to receive a lifetime income disclosure (a projection of annuitized monthly income) on their benefit statement at least annually. The DOL will develop a model disclosure and regulations, and the law limits the responsibility of plan fiduciaries who comply with the rules. This requirement is not applicable until at least 12 months after the DOL issues the necessary guidance.
Distributions for Birth or Adoption – Participants may be permitted to obtain a distribution of up to $5,000 related to the birth or adoption of a child. The distribution is exempt from the 10% premature distribution penalty tax. This provision is available for distributions after December 31, 2019.
Other Provisions – Other notable provisions include:
Permanent Nondiscrimination Relief for Closed DB Plans – Certain closed DB plans that continue to accrue benefits for existing participants are provided permanent nondiscrimination and coverage testing relief, effective December 20, 2019.
In-Service Distributions in Pension Plans – Under the new rules, pension plans may permit in-service distributions beginning at age 59½ under certain circumstances, for plan years beginning after December 31, 2019.
Increased Penalties – IRS penalties for failure to file the Form 5500, Form 8955-SSA, or to issue a rollover notice to participants are 10 times higher than before, effective for due dates after December 31, 2019.
Annuity Options in DC Plans – A 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, 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 distribution options. Both provisions are effective for plan years beginning after December 31, 2019.
Amendment Deadline – Plans will have to be amended to reflect the requirements of the SECURE Act by the end of the first plan year beginning on or after January 1, 2022.