Ice Miller LLP: Insights

House Passes Retirement Legislation

On May 23, 2019, the House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 ("SECURE Act"). Previously approved by the House Ways and Means Committee on April 2, the SECURE Act includes changes to required minimum distributions, penalties, and church plan requirements. We have summarized below some of the key aspects of the bill that would impact qualified governmental plans and church plans.

Plan Loans. The bill prohibits plans from making loans through the use of a credit card or similar arrangement. The prohibition would become effective on the date the bill is enacted.
Portability of Lifetime Income Options. The bill allows qualified defined contribution plans, section 403(b) plans, or governmental section 457(b) plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan or IRA of lifetime income investments or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held as an investment option under the plan.
Treatment of Custodial Accounts on Termination of Section 403(b) Plans. The Treasury is directed to issue guidance to provide that, if an employer terminates a 403(b) custodial account, the distribution upon termination may be the distribution of an individual custodial account in kind to the participant or beneficiary, which shall continue to be maintained as a 403(b) custodial account.
Clarification of Retirement Income Account Rules for Church Plans. The bill seeks to clarify that the following individuals may be covered by plans of church-controlled organizations: duly ordained, commissioned, or licensed ministers (regardless of the source of compensation); employees of tax-exempt organizations that are controlled by, or associated with, a church or association of churches; certain employees after separation from service with a church, association of churches, or tax-exempt organization that is controlled by a church or association of churches.
Withdrawals for Individuals in Case of Birth or Adoption. The bill permits penalty-free withdrawals of up to $5,000 if the withdrawal is made during a 1-year period beginning on the date of the birth of the individual's child or on the date the individual finalizes an adoption (excluding adoption of the child of the taxpayer's spouse).
Required Beginning Date. The bill increases an individual's required minimum distribution age from age 70½ to age 72, acknowledging increases in life expectancy. If the bill is enacted, the amendment would apply to distributions required to be made after December 31, 2019 with respect to individuals who attain age 70½ after such date.
Fiduciary Safe Harbor for Selection of Lifetime Income Provider. Under ERISA, an optional safe harbor is established for meeting the fiduciary duty in selecting insurers for a guaranteed retirement income contract. While not directly applicable to governmental plans, this could provide a useful "roadmap" for governmental plans considering this option.
Benefits for Volunteer Firefighters and Emergency Medical Responders. The bill reinstates for tax year 2020 (January 1, 2020 – December 31, 2020) an individual taxpayer gross income exclusion for qualified state or local tax benefits and qualified payments available for members of qualified volunteer emergency response organizations. The bill increases the exclusion for qualified reimbursement payments (available for each month of volunteer service) from $30 to $50.
Modification to Required Minimum Distribution Rules. For certain defined contribution plans, when (1) the employee dies before distribution of his entire interest, and (2) distributions following the employee's death are to be made to designated beneficiaries who are not "eligible designated beneficiaries," the bill requires the distributions must be made within 10 years of the employee's death. An "eligible designated beneficiary" includes a surviving spouse, a child of the employee who has not yet reached the age of majority, an individual who is disabled or chronically ill, and an individual who is not more than 10 years younger than the employee. While this new rule would go into effect for distributions with respect to employees who die after December 31, 2019, for governmental plans (as defined by Code 414(d)) the rule would apply with respect to employees who die after December 31, 2021.
Penalties. The bill increases failure to file penalties, including the following increased penalties under Code § 6652(e): the failure to file penalty is $105 per day, not to exceed $50,000; the failure to file a registration statement penalty is $2 per participant per day, not to exceed $10,000; the failure to file a notification of change penalty is $2 per day, not to exceed $5,000; and the failure to provide a required withholding notice penalty is $100 for each failure, not to exceed $50,000 for all failures during any calendar year.

We will continue to monitor developments of this legislation as it is considered by the Senate. Additionally, we are monitoring the bill introduced in the Senate on May 14, 2019, entitled: the "Retirement Security and Savings Act of 2019" ("RSSA"). RSSA proposes a broad set of retirement related reforms (it contains over 50 new provisions) which, if signed into law, would have a much broader impact on public and private retirement plans/systems than the provisions proposed in the SECURE Act.

For more information about how the SECURE Act might affect your employee benefit plans, please contact Audra Ferguson-Allen, Rob Gauss, Tara Schulstad Sciscoe, Chris Sears, or the Ice Miller LLP Employee Benefits attorney with whom you work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.