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SECURE Act Becomes Law - Private Sector Retirement Plan Considerations SECURE Act Becomes Law - Private Sector Retirement Plan Considerations

SECURE Act Becomes Law - Private Sector Retirement Plan Considerations

This publication summarizes requirements and considerations for plans other than governmental plans.

On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act became law when President Trump signed Congress’s year-end spending package. Some have called the SECURE Act the most comprehensive piece of retirement legislation in more than ten years. This e-alert summarizes key requirements and considerations for private sector retirement plans.

Pooled Employer Plans for Unrelated Employers

The SECURE Act contains provisions that enable unrelated employers to participate in open multiple employer plans (MEPs), which the Act refers to as “pooled employer plans” and treats as single plans for ERISA purposes. A pooled employer plan is a qualified defined contribution plan or a plan that consists of individual retirement accounts and is maintained by a designated “pooled plan provider.” The pooled plan provider is the named fiduciary and the administrator for the plan and must maintain a $1 million ERISA bond. The pooled plan provider is required to register with the IRS or DOL and is subject to audit, examination and investigation by the Treasury Department and the DOL. Specific Form 5500 filing requirements also apply. Each employer that participates in a pooled employer plan is the plan sponsor for the portion of the plan attributable to its employees. Such plan sponsors have limited fiduciary responsibilities, but they are still responsible for selecting and monitoring the pooled plan provider and any other plan fiduciary they appoint.   

The SECURE Act eliminates the “one bad apple rule,” under which a failure by one employer (or the plan) to comply with applicable requirements can cause disqualification of the plan for all participating employers, for plans maintained by pooled plan providers and certain other MEPs. The plan and the employer must satisfy specific requirements to qualify for this relief (such as spinning off the assets and liabilities for the portion of the plan responsible for the compliance failure), and the employer that causes the compliance failure is responsible for any liabilities under the plan attributable to its employees participating in the plan.

These changes apply for plan years beginning after December 31, 2020.

Safe Harbor 401(k) Plan Requirements

The SECURE Act contains a few changes for certain safe harbor 401(k) plans. For qualified automatic contribution arrangements (QACAs), the Act raises the 10% automatic escalation limit to 15% for years after the first plan year in which a participant is automatically enrolled. The default contribution rate in the first plan year following automatic enrollment still may not exceed 10%.

For plans that are designed to satisfy the safe harbors by using non-elective contributions, the SECURE Act eliminates the safe harbor notice requirement. In addition, the Act permits a plan to be amended to become a non-elective safe harbor plan for a plan year (1) any time before the 30th day before the end of the plan year (without being required to satisfy the additional conditions imposed by current regulations), or (2) on or after the 30th day before the end of the plan year if the amendment is made by the end of the next plan year and the non-elective contribution is at least 4%.

These changes apply for plan years beginning after December 31, 2019.

Withdrawals for Individuals in the Event of Birth or Adoption

The Act creates a new exception under Code Section 72(t) to permit a penalty-free withdrawal of up to $5,000 from an “eligible retirement plan” if the withdrawal is made during a one-year period beginning on the date of the birth of the participant’s child or the date the participant finalizes an adoption (excluding adoption of the child of the participant’s spouse). The Act also allows for the repayment of such “qualified birth or adoption distributions” and provides that such repayment would be treated like a rollover. For purposes of these provisions, an “eligible retirement plan” does not include a defined benefit plan. This provision is effective for distributions after 2019.

Modification to Required Minimum Distribution Rules

For certain defined contribution plans, when (1) a participant dies before distribution of his/her entire benefit, and (2) distributions following the participant’s death are to be made to designated beneficiaries who are not “eligible designated beneficiaries,” the SECURE Act requires the distributions to be made within 10 years after the participant’s death. This timing requirement does not apply to an individual who is an “eligible designated beneficiary,” which includes a surviving spouse, a child of the participant 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 participant. In the case of a child who has not attained the age of majority, the 10-year rule applies as of the date the child attains the age of majority. This new rule is effective for distributions with respect to participants who die after December 31, 2019.

401(k) Plan Eligibility Requirements

The SECURE Act requires 401(k) plans to contain a dual eligibility requirement under which an employee must complete either a year of service (based on a 1,000 hours requirement) or three consecutive years of service in which the employee completes more than 500 hours of service to participate in a plan. To ease the implementation of this requirement, the Act permits plans to exclude from nondiscrimination and coverage testing any employees who become plan participants because of this SECURE Act provision. These changes apply for plan years beginning after December 31, 2020. For purposes of the new eligibility criteria, 12-month periods beginning before January 1, 2021 need not be taken into account.

Lifetime Income Disclosure

The Act requires defined contribution plan benefit statements to include a lifetime income disclosure at least once during any 12-month period. For plans that are required to provide quarterly benefit statements, the lifetime income disclosure must be included in at least one benefit statement during each 12-month period. The Secretary of Labor is to provide a model disclosure statement within one year after the date of enactment of the Act. The lifetime income disclosure requirement will apply to benefit statements issued more than 12 months after the latest of the DOL’s issuance of interim final rules, a model disclosure statement or permissible assumptions.

Portability of Lifetime Income Options

The Act permits qualified defined contribution plans, 403(b) plans, and governmental 457(b) plans to allow participants to elect a distribution of a “lifetime income investment” in the form of a qualified plan distribution annuity if (1) the lifetime income investment is no longer authorized to be held as an investment option under the plan, and (2) the distribution is made by direct rollover to a retirement plan or IRA or in the form of a qualified plan distribution annuity. This change applies to plan years beginning after December 31, 2019.

Plan Loans

Plans are prohibited from making loans through the use of a credit card or similar arrangement. This prohibition applies to loans made after the date of enactment of the Act.

Required Beginning Date

The SECURE Act increases an individual’s required minimum distribution age from age 70½ to age 72. As a result, for distributions required to be made after December 31, 2019 with respect to individuals who attain age 70½ after that date, the age for the required beginning date for minimum distributions is increased to age 72. An individual who attained age 70½ during 2019 is subject to the pre-SECURE Act requirement and must take a required minimum distribution for 2019 and 2020.

Plan Adoption

The SECURE Act extends the deadline by which a plan sponsor must adopt a plan. For taxable years beginning after 2019, an employer may adopt a plan for a taxable year as long as it is adopted by the due date for the employer’s tax return for that year. The law previously required a plan to be adopted by the end of the employer’s taxable year to be effective for that year.

Treatment of Foster Parent Difficulty-of-Care Payments as Compensation

The Act creates a special rule under Code Section 415(c) for difficulty-of-care payments to foster parents that are otherwise excluded from gross income under Code Section 131. As a result, such difficulty-of-care payments are considered compensation for purposes of the recipient’s contributions to a defined contribution plan. The new rule provides that the contributions are treated as after-tax. The effective date of these provisions for plan contribution purposes is plan years beginning after December 31, 2015, and for IRA contribution purposes is the date of enactment of the Act.

Defined Benefit Plan Nondiscrimination Requirements

The SECURE Act relaxes the nondiscrimination requirements for partially frozen defined benefit plans to enable grandfathered groups to continue to accrue benefits even as the size of a group dwindles and/or its members’ compensation increases. The plan must satisfy certain requirements enumerated in the Act, such as not modifying the grandfathered group in a discriminatory manner after the plan is closed to new entrants. This provision is effective on the date of enactment of the Act, and employers may elect to apply the rules to plan years beginning after 2013.

Fiduciary Safe Harbor for Selection of Lifetime Income Provider

The SECURE Act establishes an optional fiduciary safe harbor for the ERISA prudence requirement related to the selection of providers for guaranteed retirement income products. This statutory safe harbor resembles the existing regulatory safe harbor for the selection of annuity providers, but includes additional specifications and clarifications. Plan fiduciaries that are selecting and/or monitoring guaranteed retirement income products or providers should consider the requirements and protections of the new safe harbor and assess whether it may be available to and beneficial for them. This provision is effective on the date of enactment of the Act.


The Act increases various penalties related to plan reporting and filing requirements. For example, a failure to file Form 5500 generally triggers a $250 per day penalty, subject to a maximum penalty of $150,000 per return. A failure to file a registration statement reporting deferred vested participants generally triggers a penalty of $10 per participant per day that the statement is not filed after the deadline, subject to a maximum penalty of $50,000 per plan year. A failure to file a required notice of certain changes in registration information generally triggers a penalty of $10 per day that the notice is not filed after the deadline, subject to a maximum penalty of $10,000 per required notice. A failure to provide a required withholding notice generally triggers a penalty of $100 for each failure, subject to a maximum penalty of $50,000 for all failures during a calendar year. These changes apply to returns, statements and notices that are required to be filed or provided after December 31, 2019.

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The SECURE Act contains several other components that retirement plan sponsors may find useful, such as provisions related to plan loans and withdrawals for disaster relief and delayed filing deadlines in disaster areas, increased and new tax credits for certain costs of plan implementation by small employers (those with up to 100 employees), opportunities for consolidated Form 5500 filings under certain circumstances, and others.

We anticipate the Treasury and IRS will issue guidance during 2020 regarding the new provisions summarized above and the other provisions of the SECURE Act, and we will continue to monitor for such developments.

For more information about how the SECURE Act might affect your employee benefit plans, please contact Gary Blachman, Sarah Funke, Melissa Proffitt, Kathleen Sheil Scheidt or the Ice Miller 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.

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