The SECURE Act Facts: What You Need to Know Now
To the surprise of many, significant retirement plan legislation, known as the SECURE Act, was signed into law by President Trump on December 20, 2019, thanks to its attachment to a must-pass budget appropriations bill. While comprehensive coverage of the Act will be the feature of upcoming thought leadership, here are some SECURE Act facts about which retirement plan sponsors and participants should be aware:
- There is not a lot to worry about — In the Act, there are no changes as comprehensive as, for example, the recent IRS hardship distribution regulations - and most of the more significant changes are positive. Even the one rather onerous provision, a new requirement that certain long-service part-time employees be permitted to make elective deferrals, only applies to 401(k) plans.
- Age 70½ is gone — In 1962, someone thought that it was a good idea to confuse retirees by using a half-year convention instead of a retiree’s actual birthday. Nearly 60 years later, that error has finally been rectified, and, as an added bonus, required minimum distributions (RMDs) will now commence at age 72. Keep in mind, though, that this change does NOT apply to retirees who turned age 70½ in 2019. If they have not received their RMD for 2019, they must take the distribution by 4/1/2020, and then take their 2020 distribution by 12/31/2020.
- There are some heavily-hyped provisions, but the proof is in the pudding — For example, annuity providers were a big winner under the SECURE Act, as a lot of annuity-friendly provisions were added, such as a simple safe harbor that plan sponsors can use to select a lifetime income annuity provider for their plan, as well as a required inclusion of lifetime income projections on benefit statements. Will more plans actually offer annuities due to these changes (many of which are high-cost and difficult to understand)? Will more historically annuity-hesitant participants use them? The new rule that allows smaller employers to band together to form pooled employer plans to increase purchasing power appears more promising, but even the success of this provision is not guaranteed.
- It’s not ALL good news — Late fees for 5500s and Form 8955-SSAs have increased tenfold, as has the penalty for failure to provide withholding notices. And the so-called “stretch” provision, which allowed individuals with large retirement plans and IRA account balances to minimize the tax burden on their beneficiaries by stretching out required distributions over a beneficiary’s lifetime, has been largely gutted.
- Little in the way of immediate action is required — While a handful of provisions are already effective, such as a new optional withdrawal feature that allows participants to take penalty-free distributions for birth and adoption expenses, no immediate plan amendments are required. In fact, the remedial amendment period for plan amendments related to the SECURE Act provisions will not conclude until the 2022 plan year, at the earliest.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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