On December 20th, 2019, the Secure Act was signed into Law, a bill to help employers implement retirement plans for their employees. Please find below some of the many changes, affecting qualified retirement plans, brought about with this bill:
• Increase of tax credit limit for small employer pension plan start-up costs: Existing tax credit of $500 for a plan’s start-up costs has been increased to as much as $5,000 per year for the first three years, encouraging small employers to adopt plans.
• Automatic enrollment tax credit: Small employers (<100 participants) who add an automatic enrollment feature to their new or existing plan will receive a $500 tax credit for 3 years.
• Timing of adoption of plans: Pension and Profit-Sharing plans can be adopted up to the due date of the employer’s federal income tax return and treated as having been adopted as of the last day of the prior tax year.
• Expanded coverage for long term part-time employees: 401(k) plans must now allow those that have attained age 21 and work 3 consecutive years with at least 500 hours will now be eligible to make 401(k) contributions into the plan. They will remain ineligible for employer contributions and for testing purposes. This begins with plan years after 12/31/2020 and service is disregarded prior to 2021.
• Notice requirements related to nonelective safe harbor plans: The required annual notice will be eliminated for plan utilizing a safe harbor nonelective contribution.
• Safe harbor 401(k) plan conversion – Plan Sponsors will be able to convert their existing 401(k) plan to a safe harbor non elective plan at least 31 days before the close of the plan year or by the close of the plan year if the employer makes a non-elective safe harbor contribution of at least 4%.
• Increase of age for Required Minimum Distributions (RMDs): The RMD age has increased from 70.5 to 72. These is effective for distributions made after 12/31/2019 with respect to individuals who attain the age of 70.5 after such date. If RMDs have started, they will remain to be required.
• Penalty free withdrawals for birth or Adoption: New parents can now withdraw up to $5,000 forma retirement account within a year of a child’s birth or adoption without the 10% penalty generally imposed to those under the age of 59.5.
• Requirements for new Multiple Employer Plan: Employers with no business or industry relationship may participant in pooled employer plans also referred to as “open MEPS”.
For an in-depth look at the SECURE Act and the implications to Retirement Accounts, please visit: https://www.congress.gov/bill/116th-congress/house-bill/1994/text
Lifetime Benefit Solutions, Inc. is not a law firm, has not reviewed that information for legal sufficiency, and does not give legal or tax advice. The sponsoring employer should have this information reviewed by its own legal counsel for compliance with ERISA, tax requirements, and other applicable laws and regulations.