By Richard G. Schwartz and Nicholas J. Waddles

Seyfarth Synopsis: The SECURE Act—just signed into law late last week—includes probably the most comprehensive revisions to the law governing employer-sponsored retirement plans since the Pension Protection Act of 2006. Many of the provisions will not be effective until after 2020, but some provisions go into effect immediately. For the most part, the SECURE Act provides additional flexibility for both employers and employees; however, as with all tax acts, it’s not all good news.

Several of the SECURE Act provisions will require employers to closely consider the new rules and determine whether—and how—to incorporate them into their existing retirement plans. Here’s a highlight of the more significant new rules, based on the date the provisions go live:

Effective January 1, 2020

  • Employers may now adopt a tax-qualified retirement plan retroactive to the beginning of a plan year as late as the employer’s tax return deadline for that prior year
  • Establishment of a fiduciary safe-harbor for plan sponsors that adopt a “life-time income investment” (i.e., annuity) distribution option under a defined contribution plan
  • Penalty-free in-service withdrawals of up to $5,000 for adoption or childbirth-related expenses
  • Increase in the required minimum distribution age from 70 1/2 to 72
  • Increase in the cap on defined contribution plan auto-escalation provisions from 10% to 15%
  • Elimination of the advance notice requirement for a non-elective contribution safe harbor plan, as well as the ability to adopt such a safe-harbor plan design at any time before the end of the plan year
  • Non-discrimination testing relief for defined benefit plans frozen to new participants (referred to as a “soft freeze”)
  • Clarification of the rules relating to the termination and distribution of 403(b) custodial accounts

Effective After 2020

  • Establishment of “pooled employer plans”, that allow unrelated employers to participate in a “single” retirement plan
  • Establishment of a “life-time income” (i.e., annuity) annual disclosure requirement for defined contribution plans
  • Non-discrimination testing relief for 401(k) plans that allow “long-term” part-time employees (those who work at least 500 hours each year for three consecutive years) to make employee contributions

This is just a snapshot of the SECURE Act provisions that affect employers that sponsor retirement plans. Be on the lookout for additional Beneficially Yours blog posts and a Seyfarth Legal Update that will take a deeper dive into the plan sponsor and plan participant provisions of the SECURE Act . . . coming to your inbox soon‼