The SECURE Act: A (Very) Brief Introduction

By: Ashley N. Trotto, Esq.

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement ("SECURE") Act into law. The following is a brief overview of some of the key changes as they relate to retirement plan administration:

Safe Harbor 401(k) Notices: The safe harbor notice requirement for nonelective contributions is eliminated. Employees must still be allowed to make or change elections at least once per year.

• Effective for plan years beginning after Dec. 31, 2019.

Repeal of maximum age for traditional IRA contributions: Individuals over age 70 ½ may continue to make contributions to traditional IRAs.

• Effective for contributions and distributions made for tax years after Dec. 31, 2019.

401(k) Plans must allow long-term, part-time employees to participate: 401(k) plans must have a dual eligibility requirement under which an employee is eligible if he or she:

1. works at least 1,000 hours in one year (the current rule); or
2. works 500 hours in three consecutive years.

• Effective for plan years beginning after Dec. 31, 2020.

Penalty-free withdrawals in case of birth or adoption: Permits a plan to make in-service distributions up to $5,000 for expenses related to the birth or adoption of a child and excepts any such distribution from the 10% early withdrawal penalty for participants under age 59 ½.

• Effective for distributions made after Dec. 31, 2019

Increase in age for required minimum distributions: Increases the required minimum distribution age from 70 ½ to 72.

• Effective for distributions made after Dec. 31, 2019 for individuals who attain age 70 ½ after such date.

Modification of required distribution rules for designated beneficiaries: Distributions to individuals other than the surviving spouse of the employee, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee, or child of the employee who has not reached the age of majority are generally required to be distributed by the end of the 10th calendar year following the year of the employee's death.

• Effective for distributions with respect to employees who die after Dec. 31, 2019 

For government plans, the effective date is Dec. 31, 2021

Plan sponsors generally have until the last day of the first plan year beginning on or after Jan. 1, 2022 to amend their plans to comply with SECURE Act provisions. Governmental plan sponsors have until the last day of the first plan year beginning on or after Jan. 1, 2024.

Note: Although employers can delay amendment of their plans, some provisions of the Act are already in effect and changes to plan administration or employee communications may be required immediately or in the near future.

Over the next few months, we will be diving further into the SECURE Act and its effect on our clients. We are already planning our spring seminar on this topic, so keep an eye out in your email for an invitation. We’d love to see you there! Also, be on the lookout for additional information on the SECURE Act as it relates to estate planning.

As always, for any of your Employee Benefits needs, please contact us at (865) 546-7311.