On Friday, December 20, the SECURE Act (officially titled the Setting Every Community Up for Retirement Enhancement Act) was signed into law. Commonwealth is currently reviewing the new regulations and analyzing how to interpret them. We will, of course, communicate with you again as soon as we have determined what effect—operational or otherwise—the SECURE Act will have on your clients, including both individuals and retirement plan sponsors.
How Will This Legislation Affect Individuals and Retirement Plan Sponsors?
Below are some highlights regarding the effects of this new law. The SECURE Act will:
- Modify the required minimum distribution (RMD) rules for designated beneficiary accounts. RMDs are now required to be made within ten years of an account owner’s death. Those excepted from this rule include the surviving spouse, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the account owner, or a child of the account owner who has not yet reached the age of majority.
- Expand qualified tuition expenses under Section 529 of the Internal Revenue Code. Qualified expenses will include apprenticeships; up to $10,000 of qualified student loan repayments (including those for siblings); and tuition for private elementary, secondary, or religious schools.
- Allow open multiple employer plans (MEPs). Open MEPs permit unrelated small businesses to band together in an open retirement plan arrangement. This enables companies with smaller plans to take advantage of economies of scale and employ features that typically are available only in larger plans.
- Allow long-term, part-time employees to participate in the retirement plan. Employers are required to offer eligibility to these employees once they complete either one full year of service (with more than 1,000 hours worked) or three consecutive years of service with at least 500 hours worked per year.
- Raise the age for RMDs from 70½ to 72. As a result, retirement savings can last longer into retirement years as the life expectancy of Americans increases.
- Offer tax credits to businesses that offer an automatic enrollment provision to their employees in 401(k) and SIMPLE IRA plans. This change incentivizes business owners and organizations to make saving easier for employees.
- Require lifetime income projections to appear on plan participant benefit statements. As a result, retirement savers are provided a clearer picture of their retirement savings progress.
The provisions of the SECURE Act go into effect on January 1, 2020. Given the proximity of the act’s passage to its effective date, however, a remedial amendment period clause allows employers to make changes to their plans by the 2022 plan year (or the 2024 plan year for certain governmental plans). This clause will help ease the administrative burden on employers to comply with the new law.
For retirement plan administrators and business owners who offer a workplace retirement plan to their employees, the signs are clear: lawmakers are focused on improving the American retirement system through increased—and easier—access to retirement savings vehicles, particularly workplace retirement plans.
To prepare for the SECURE Act’s impact on your company’s retirement plan, review your plan’s provisions and features with your third-party administrator, service providers, and plan advisor. Determine what plan amendments are required, as well as what enhancements can be made. These are good first steps toward setting your company’s retirement plan up for future success, given the monumental legislative changes the SECURE Act brings.