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SECURE Act Becomes Law SECURE Act Becomes Law

SECURE Act Becomes Law

On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act ("SECURE Act") became law when President Trump signed Congress' year-end spending package. Some have called the SECURE Act the most comprehensive piece of retirement legislation in over ten years. Certainly, this may be true for private sector retirement plans and for small, unrelated employers, which now are allowed to participate in a new type of multiple employer plan, referred to as a "Pooled Employer Plan." However, as we discussed in our e-alert dated May 24, 2019, there also are some significant provisions about which governmental plan sponsors and administrators must be aware. The key provisions, which may affect governmental plans, are as follows:
  • Modification to Required Minimum Distribution Rules
    For certain defined contribution plans, when (1) the employee dies before distribution of his/her entire interest and (2) distributions following the employee's death are to be made to designated beneficiaries who are not "eligible death beneficiaries," the SECURE Act requires the distributions to be made within ten (10) years of the employee's death. Importantly, the term "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 ten 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.
  • Required Beginning Date
    The bill 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 such date, the age for the required beginning date for mandatory distributions is increased to age 72.
  • Repeal of Maximum Age for Traditional IRA Contributions
    The maximum age for traditional IRA contributions under Code § 219(d) is repealed for contributions made for taxable years beginning after December 31, 2019. This provision affects governmental plans that contain a Deemed IRA feature.
  • 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 the enactment of the Act.
  • Portability of Lifetime Income Options
    The Act allows qualified defined contribution plans, 401(k) 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. The Act requires the guidance to be retroactively effective for taxable years beginning after December 31, 2008.
  • Withdrawals for Individuals in the Case of Birth or Adoption
    The Act creates a new exception under Code Section 72(t) and permits penalty-free withdrawals of up to $5,000 from "eligible retirement plans" if the withdrawal is made during a one-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). The Act also allows for the repayment of such "qualified birth or adoption distributions." Importantly, for purposes of these provisions, "eligible retirement plans" do not include defined benefit plans.
  • Treatment of Difficulty of Care Payments as Compensation
    The Act creates a special rule under Code Section 415(c) for difficulty of care payments, which are otherwise excluded from gross income under Code Section 131. As a result, such difficulty of care payments are considered compensation for purposes of making contributions to a defined contribution plan. Importantly, under this new rule, the contributions are treated as after-tax. This provision applies to plan years beginning after December 31, 2015. The effective date of these provisions for purposes of IRA contributions is the date of enactment of the Act
  • Benefits for Volunteer Firefighters and Emergency Medical Responders
    The Act reinstates for tax year 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 Act increases the exclusion for qualified reimbursement payments (available for each month of volunteer service) from $30 to $50.
  • 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, which might consider such option.
  • Penalties
    The Act increases failure to file penalties, including the following increased penalties under Code Section 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 $2.00 per participant per day, not to exceed $10,000; the failure to file a notification of change penalty is $2.00 per day, not to exceed $5,000; and the failure to provide a required withholding notice penalty if $100 for each failure, not to exceed $50,000 for all failures during any calendar year.
We anticipate the Treasury and IRS will issue guidance during 2020 regarding these new provisions (and the other provisions of the SECURE Act) and will continue to monitor for such developments.

For more information about how the SECURE Act might affect your employee benefit plans, please contact Audra Ferguson-Allen, Robert L. Gauss, Tara S. Sciscoe, Christopher Sears, Lisa E. Harrison, Lindsey Knowles 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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