On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act of 2020 (HR 1865) into law. The main purpose of this legislation is to continue funding certain government operations. However, the bill also adopts the Setting Every Community Up for Retirement Enhancement (SECURE) Act relating to retirement plans.
The SECURE Act is the most comprehensive retirement legislation passed since the Pension Protection Act of 2006. The law includes sweeping changes that will affect how retirement plans are offered.
As background, the SECURE Act comes after multiple bills attempted to include similar provisions. Specifically, the Retirement Enhancement and Savings Act (RESA) was approved by the Senate Finance Committee and the Family Savings Act was passed by the House in 2018, respectively. The SECURE Act was passed by the House of Representatives in May 2019 and included provisions found in both of those previous bills and added some new provisions.
The SECURE Act (as passed in the appropriations bill) is broken up into four titles, and some of the major provisions are summarized as such:
- Title I: Expanding and Preserving Retirement Savings
- Allows open multiple employer plans, meaning that unrelated employers can band together to offer retirement benefits to their employees
- Increases auto enrollment safe harbor cap to 15%
- Simplifies 401(k) safe harbor, notably eliminating the notice requirement
- Increases tax credit for small employer plan start ups
- Provides credit for small employers that start plans that include automatic enrollment
- Prohibits plan loan distribution through credit cards
- Allows portability of lifetime income investments for defined contribution, 403(b), and governmental plans
- Requires employers to offer 401(k) plan participation to long-term part-time workers
- Provides penalty-free withdrawals for qualified births and adoptions
- Increases the age for required minimum distributions from age 70.5 to age 72
- Allows individuals to continue making IRA contributions after attaining age 70.5
- Title II: Administrative Improvements
- Permits plans adopted by the employer’s tax return due date to be treated as in effect as of the close of the plan year
- Requires annual benefit statements to include a lifetime income disclosure
- Provides safe harbor for fiduciaries that select lifetime income provider
- Title III: Other Benefits
- Expands Section 529 plans to cover additional educational costs, notably including student loan repayment
- Title IV: Revenue Provisions
- Modifies required minimum distribution rules relating to death of the account owner
- Increases penalties for the failure to file a Form 5500
As noted, this legislation will result in an overhaul of many of the retirement regulations that have been in place for decades. Some provisions of the bill are effective immediately, some effective beginning in the plan year after December 31, 2019, while others will become effective at later dates. Retirement plan sponsors should work with their plan advisors, recordkeepers, and other service providers to amend their plan as necessary.
Further Consolidated Appropriations Act of 2020 (SECURE Act begins on page 1532) »