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The SECURE Act — What You Need to Know

In the ASPPA Webcast “The SECURE Act – What You Need to Know,” Bob Kaplan and Robert M. Richter reviewed major provisions of the SECURE Act that will affect the design and administration of retirement plans. Kaplan and Richter are the American Retirement Association’s Director of Technical Education and Retirement Education Counsel, respectively.
Following are highlights of Kaplan and Richter’s remarks.
Required Minimum Distributions
The SECURE Act increased the age for required minimum distributions (RMDs) from 70½ to 72, a change that is effective for distributions after Dec. 31, 2019 for those who turn 70½ after that date.
One of the changes to RMDs that they suggested may be more unwelcome is the elimination of the “stretch” IRA, which Richter said applies regardless of whether an RMD has started or not.
Still, Richter said of changes concerning the RMD, “We have the transition pain, but this is a good change.”
Election of Safe Harbor 401(k) Status
The SECURE Act eliminates the annual safe harbor notice for plans that use the nonelective contribution to satisfy the safe harbor. The notice requirement remains in place, however, for plans that use the matching contribution to satisfy the safe harbor. These provisions are effective for plan years beginning after Dec. 31, 2019. Richter noted that “calendar year plans don’t have to worry about this. But non-calendar year plans should be concerned.”
The SECURE Act also provides that plans must still provide each eligible employee with an effective opportunity to make a change in election. The law also did not repeal the annual notice requirement for eligible automatic contribution arrangements (EACAs). And a QACA with a non-elective safe harbor contribution would still need the EACA notice if the plan wanted to include a permissive withdrawal provision.
A change to the election of safe harbor status that the SECURE Act did make is that now an amendment to adopt a safe harbor non-elective provision can be made after the start of a plan year:
  1. if elected up to 30 days before the end of the plan year; or
  2. if elected before the deadline for correcting the ADP/ACP test — the last day of the subsequent plan year. If this option is used, then the 3% non-elective limit must be increased to 4% if done beyond those deadlines.
QACA Deferral Date
The SECURE Act leaves the QCA maximum contribution rate the same as it was before enactment — 10% of the maximum in the first period. It sets a 15% maximum for all subsequent years, effective for plan years beginning after Dec. 31, 2019.
Small Employer Automatic Enrollment Credit
The SECURE Act provides a tax credit of up to three years for adopting an automatic enrollment provision. It applies to new plans or existing plans that add such a provision. Kaplan said that it is important to note that it is only applicable if the plan maintains the automatic contribution arrangement for that year.
Increased Penalties
There are higher IRS penalties for filing errors made after Dec. 31, 2019; however, Kaplan and Richter noted, the penalties imposed by the Department of Labor are unaffected.
What’s Next
Richter and Kaplan outlined matters that are unclear in the wake of the enactment of the SECURE Act.
  • It is unclear whether plans can retain an RMD age of 70½, they said. If they can, are the amounts paid before a participant attains age 72 eligible for a rollover? “These are the kind of questions where we are going to need guidance from the IRS,” said Richter.
  • Richter told attendees that there may be an issue concerning whether pension plans have an NRA of 59½. He suggested that one may want to wait until there is guidance on the matter before acting on that provision.
  • Kaplan indicated that there is a need for guidance regarding the SECURE Act provision permitting qualified childbirth and adoption expenses to be distributable events, and he suggested preparing in advance for its promulgation. “Be ready when prioritizing. Know what your plan of action is going to be” when guidance is issued, he remarked.
  • The SECURE Act directs the Treasury Department to issue guidance within six months concerning the provision that allows custodial 403(b)(7) accounts of terminating plans to be distributed in kind to participants or beneficiaries, and treats them as tax-deferred until amounts are actually distributed from the account. “We do need guidance on this one,” said Kaplan.
Action Steps
Kaplan and Richter made some suggestions regarding actions one can consider taking in the aftermath of the SECURE Act becoming law. These include:
  • Try to identify those who will turn 70½ this year, and consider whether the instructions for what they need to do are clear.
  • Regarding the death RMD rules, Kaplan argued that “what’s important here is communications. We’ve got to be on top of the options people have. We need to be on top of the rules.”
  • Communicate the small employer automatic enrollment provision to existing clients who may be candidates for automatic enrollment. Also communicate it to referral sources such as CPAs and advisors.
Available on Demand
The ASPPA webinar “The SECURE Act – What You Need to Know” is available on demand. It can be accessed here.