The Secure Act Ushers in New Retirement System

By Bill Barks
Director, Retirement Plan Services
Last month, the President signed into law the “Setting Every Community Up for Retirement Enhancement Act” (the “Secure Act”). Among other things, this act simplifies the administration of the retirement system and allows people more opportunities to increase their savings for retired life.
One of the major benefits of the Secure Act is the provision that allows employers to establish a qualified retirement plan after the close of the taxable year but before the tax filing date. Previously, the plan would have had to have been established by the last day of the employer’s tax year. This enables the employer to retroactively count their contribution to the plan as a deduction on that tax return. (Employee deferrals do not qualify here.) This provision is effective for plans adopted during taxable years beginning after Dec. 31, 2019.
Small employers — those with no more than 100 employees receiving at least $5,000 — setting up a new plan will receive a considerable tax credit under the Secure Act. The tax credit for the first three years after the implementation of a new plan will equal 50% of the plan’s startup costs up to the greater of $500 or $250, multiplied by the number of Non-Highly Compensated Employees eligible to participate up to a maximum of $5,000. This marks a significant increase from the current limit of 50% of the startup costs up to a maximum credit of $500 per year for the first three plan years. If the plan sponsor adds auto enrollment to an existing plan or if it is part of a new plan, they are then eligible for an additional small employer tax credit equal to $500 per year for up to three years.
Another effort to increase coverage is a new mandate for long-term part-time employees, which is effective for plan years beginning after December 31, 2020. Any part-time employee who has not satisfied a 401(k) plan’s eligibility conditions must be allowed to participate and make elective contributions as long as they have completed consecutive 12-month periods of employment and were credited with at least 500 hours of service in each period. Employer contributions wouldn’t be required until the employee fulfilled the plan’s normal eligibility requirements.
The Secure Act also makes the following changes:
  • Increases the age to 72 (previously 70.5) after which required minimum distributions (RMD’s) must be taken from certain retirement plan accounts
  • Simplifies the rules for small business owners to set up “safe harbor” retirement plans that are less expensive and easier to administer (Increases the automatic safe harbor deferral maximum from 10% to 15%)
  • Allows penalty-free distributions of up to $5,000 from qualified retirement plans and IRA’s for births and adoptions
  • Requires the inclusion of lifetime income disclosures, making retirement savers provide monthly payment projections based on their current savings
  • Removes the provision known as the “stretch IRA,” which has allowed non-spouses inheriting retirement accounts to stretch out disbursements over their lifetimes (the new rules will require a full payout from an inherited IRA within 10 years of death)
For more information about how the Secure Act could affect your company’s retirement plan, please contact Bill Barks at (317) 613-7867 or email him at [email protected].