Designed to help individual Americans save for retirement, the Setting Every Community Up for Retirement Enhancement (SECURE) Act has implications for business, as well. Here are 10 provisions that could affect your employee retirement plans.
5 provisions that impact all plans
1. Increased RMD age. Plan participants now have the option to wait until age 72 to begin taking required minimum distributions. This new delayed required distribution age is only available for participants who will turn 70-1/2 after Dec. 31, 2019. Participants already receiving RMDs must continue to receive those distributions.
2. Lifetime income estimates. Retirement plan statements will be required to share an annual “lifetime income disclosure.” This disclosure will show the monthly payment that a participant could receive if their total account balance were used to provide a lifetime income stream, such as an annuity. This provision becomes effective one year after the Department of Labor issues additional guidance, including model disclosures.
3. Increased 5500 penalties. Failure to file your Form 5500 on time will now cost you more. The Form 5500 penalty increased to $250 per day, with a cap of $150,000, for each late filing.
4. Penalty-free withdrawals for birth/adoption. Plan participants are now allowed to withdraw up to $5,000 for costs related to having or adopting a child, without paying a 10% penalty. (The penalty still applies if a participant adopts a spouse’s child.) This change may particularly help employees with high deductible health plans and low health savings account balances. Plan sponsors will need to add the new distribution option to forms and inform participants.
5. Part-time employee eligibility. Beginning Jan. 1, 2021, employers must allow part-time employees to participate in the employer retirement plan if they complete either 1,000 hours of service in a single year or 500 hours each year for three consecutive years, and if they are at least 21 years old by the end of the three years. To reduce tracking challenges, some employers may opt to allow all employees to participate in their plan.
5 provisions that impact new plans
1. Safe harbor notice elimination. New and existing plans that make a 3% non-elective safe harbor contribution will no longer be required to provide participants with an annual safe harbor notice. Administratively, this will make it easier to sponsor such plans. Businesses without a safe harbor plan also now have more time to establish one — until 30 days prior to the end of their plan year (or longer if the plan meets certain requirements).
2. Start-up credit. Small businesses starting a new retirement plan can now recoup a portion of start-up costs via an increased tax credit. The credit applies for the first three plan years and is the greater of $500 or $250 per non-highly compensated employee, up to a maximum of $5,000.
3. Auto-enroll credit. In addition to the start-up credit, the Act introduces a new tax credit (up to $500 per year for up to three years) for small employers who sponsor a new retirement plan that includes automatic enrollment. A small employer that converts an existing plan to an auto-enroll also qualifies for the credit.
4. Multiple employer plans. Starting Jan. 1, 2021, unrelated employers are allowed to join pooled plans (multiple employer plans). This should allow more employers to offer retirement plans, while potentially lessening the administrative cost and hassle.
5. Deadline extension for plan adoption. Businesses wishing to save some tax dollars now have a longer time to adopt a new plan for the prior tax year. Businesses can adopt a new plan for the prior year up to the tax return deadline (including extensions).
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Effective dates vary for these provisions, and additional requirements, restrictions and other details apply, so you should consult with your tax and legal advisors about your particular circumstances. To learn more about how Hancock Whitney can help administer your retirement plans, schedule time to talk with Hancock Whitney Retirement Plan Services.
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