By Johnny Wentzell | photos PROVIDED
On May 23, 2019, the House passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) by a vote of 417-3. This bipartisan legislation represents the first major retirement reform in over a decade and includes several key changes that may affect the design and administration of employer-sponsored retirement plans.
- Increase cap on default contribution rate under certain safe harbor plans. The legislation would increase the cap on the default rate for automatic deferral contributions under a qualified automatic contribution arrangement safe harbor plan from 10% to 15%.
- Flexibility to adopt 401(k) safe harbor plan mid-year. A plan sponsor would be able to adopt a non-elective safe harbor plan after the beginning of the plan year by making a 4% non-elective safe harbor contribution.
- Prohibition on making plan loans through credit or debit cards. Retirement plans would be prohibited from making plan loans available through credit or debit cards.
- Coverage for long-term part-time employees. For non-union defined contribution plans, eligible employees would include employees who complete at least 500 hours of service a year for three consecutive years.
- Penalty free withdrawals for birth or adoption related expenses. Participants would be permitted to take penalty free retirement plan withdrawals of up to $5,000 for expenses related to the birth or adoption of a child within one year of the child’s birth or adoption.
This bipartisan legislation represents the first major retirement reform in over a decade and includes several key changes…
- Delay age to begin required minimum distributions. The SECURE Act would increase the beginning date for required minimum distributions from age 70½ to age 72.
- Extend time period for employers to adopt retirement plans. The legislation would allow employers to adopt a qualified retirement plan after the close of the taxable year in which the plan becomes effective as long as the employer adopts it by the deadline for filing the employer’s tax return for that year (including extensions).
- Consolidated Form 5500 reporting for related plans. Under the SECURE Act, a plan sponsor may be eligible to file a consolidated Form 5500 on behalf of two or more plans, provided those plans are defined contribution plans with the same trustee, named fiduciary, plan administrator, plan year and investment options.
- Additional required disclosures of lifetime income projections. The legislation would require sponsors of defined contribution plans to issue an annual notice to participants describing the monthly income a participant’s account balance would produce if benefits were paid in the form of a single life annuity and a joint and surviving spouse annuity.
- Fiduciary protection for selection of lifetime income provider. To encourage defined contribution plan sponsors to add lifetime income options to their plans, the SECURE Act includes a safe harbor for fiduciaries who add a lifetime income product to their plans after a diligent search.
- Eliminate stretch IRAs for non-spouse beneficiaries. The legislation eliminates so-called stretch IRAs by requiring distributions to non-spouse death beneficiaries to occur over a maximum of ten years rather than over the beneficiary’s lifetime.
It is possible that the final bill may differ from the House bill as the SECURE Act must still pass the Senate and be signed into law by President Trump. However, after passing the House with overwhelming bipartisan support, it is likely that some form of significant retirement reform will become law in the near future.
Jackson Lewis is a law firm providing premier workplace law representation to management. Johnny Wentzell is a Principal of Jackson Lewis’s Greenville office.