A guide to the new SECURE law for retirement savings

Allowing people to save more time, along with the ability to expand the need to tap into retirement funds, are two key aspects of the new SECURE Act that became law in December 2019. Most of the Act’s provisions They went into effect on January 1, with the balance going into effect in 2021. There are 15 different sections within Title I of the Act that will be discussed below.

Title I: Expansion and maintenance of retirement savings

Section 101: Expand Retirement Savings by Increasing the Safe Harbor Limit for Automatic Enrollment

Under this provision, the previous 10% qualified automatic contribution agreement for a retirement plan can now be increased to 15%, except for an employee’s first year of participation.

Section 102: Simplification of Safe Harbor 401 (k) Rules

This provision eliminates the safe harbor notification requirement, but still allows employees to hold or change an election at least once a year. The provision also allows amendments to non-elective status any time before the 30th day before the end of the plan year.

Section 103: Increased Credit Limit for Startup Costs for Small Employer Pension Plans

This arrangement makes it more affordable for small businesses to set up retirement plans. The Act provides smaller employers with an initial retirement plan credit of $ 250 for each non-highly paid employee who is eligible to participate in a workplace retirement plan. The minimum available credit is $ 500 and the maximum credit is $ 5,000.

Additionally, a new era of multiple employer plans (MEP) is likely to be underway, and not just for small employers. These MEPs allow unrelated employers to come together to create a single retirement plan for their entire workforce. Such MEPs allow for greater economies of scale, thereby reducing the costs of the scheme and possibly reducing the fiduciary liability of the employer, depending on the MEP.

It should be noted that these multi-employer plans should not be confused with multi-employer plans, which are pension plans sponsored by two or more unrelated employers under collective bargaining agreements with one or more unions. Many multi-employer plans are in financial straits.

Section 104: Automatic Enrollment Credit for Small Employers

If an employer’s retirement plan includes automatic enrollment, a credit of up to $ 500 is available to them (the credit is available for 3 years). Additionally, employers who switch their existing plans to an automatic enrollment system will be eligible for the credit.

Section 105: Treat Certain Taxable Non-Tuition Stipends and Scholarship Payments as Offset for IRA Purposes

This provision does not allow stipends and non-tuition scholarship payments for graduate and postdoctoral students to be treated as compensation or used as the basis for contributions to the IRA. This provision will allow such students to begin saving for retirement and accumulate retirement savings with tax benefits.

Section 106: Waiver of Maximum Age for Contributions to Traditional IRA Accounts

This provision amended the previous age restriction of 70½ on IRA contributions and now allows contributions to be made while an employee is still working.

Section 107: Qualified Employer Plans Are Prohibited From Borrowing Through Credit Cards And Other Similar Arrangements

This provision helps preserve retirement savings by prohibiting the distribution of plan loans through credit cards or similar arrangements. This arrangement ensures that the plan’s loans are not used for small or routine purchases.

Section 108: Portability of Lifetime Income Options

Simply put, if an employee leaves their current employer, they can roll over their lifetime income investment to another 401 (k) or IRA. This provision also makes it easier than before for plan sponsors to offer annuities and other lifetime income options to plan participants. Additionally, the provision states that 401 (k) plan administrators must provide an annual “lifetime disclosure statement” to plan participants. This disclosure statement will show the participant how much money they could get each month if their full 401 (k) account balance were used to purchase an annuity.

Section 109: Treatment of Custodial Accounts Following Termination of Section 403 (b) Plans

With guidance from the Treasury, if an employer cancels a 403 (b) custodial account, the distribution necessary to effect plan termination may be the distribution from an individual custodial account. The individual custodial account will remain tax-deferred as a 403 (b) custodial account until paid.

Section 110: Clarification of Retirement Income Account Rules Related to Church Controlled Organizations

This provision clarifies which employees may be covered by retirement plans maintained by organizations controlled by the church.

Section 111: Allowing Long-Term Part-Time Workers to Participate in 401 (k) Plans

Starting in 2021, this provision will require employers who maintain a 401 (k) plan to offer the plan to any employee who has worked more than 1,000 hours in a year, or 500 hours for 3 consecutive years, except in the case of employees collectively bargained.

Section 112: Retirement Plan Withdrawals Without Penalty for Individuals in the Event of Birth or Adoption

Under this provision, parents can withdraw up to $ 5,000, without penalty, from their retirement accounts within one year of birth or adoption for qualified expenses; however, if the parents wait more than a year, they will have to pay a 10% penalty. Additionally, both parents have the right to withdraw $ 5,000 from their own retirement accounts; a retreat is not limited to a single parent. Lastly, parents will owe income tax on the withdrawal unless they return the funds they withdrew.

Section 113: Increasing the Age for Required Start Date for Mandatory Distributions

Instead of forcing withdrawals (or required minimum distributions – RMDs) to retirees with an IRA or an employer-sponsored retirement plan at age 70 ½, the new provision allows such people to be 72 years old until they have to start. to do RMD.

Also, “stretched” IRAs are eliminated under the law. Non-spousal IRA beneficiaries can no longer “stretch” RMDs from an inherited account during their lifetime. Instead, such beneficiaries must receive the IRA funds within 10 years of the IRA owner’s death. There are exceptions to the new 10-year rule for private beneficiaries who are not spouses; including minor, disabled, chronically ill, or beneficiaries no more than 10 years younger than the deceased owner of the IRA.

Section 114: Community Newspaper Pension Fund Relief

This provision provides pension fund relief to community newspaper plan sponsors by increasing the interest rate to calculate those funding obligations to 8%. The provision also foresees a 30-year amortization period; above the 7 years previously foreseen.

Section 115: Treatment of Excluded Hardship Payments as Compensation for Determining Retirement Contribution Limits

This provision will allow home health care workers to contribute to a retirement plan or IRA by amending sections 415 (c) and 408 (o) of the Code to provide that tax-exempt hardship payments are treated as compensation to calculate contribution limits to defined contribution. plans and IRA.

There is a provision in the Act that increases the compliance burden for plan sponsors. The SECURE Act provides for an increase in the daily penalty for late, incomplete, or inaccurate filing of an annual Form 5500. The daily fine has increased from $ 25 to $ 250, and the maximum fine has increased from $ 15,000 to $ 150,000 per annual report.

The summaries above are intended to provide a general understanding of Title I of the SECURE Act and do not include all the details of each provision. Individuals and businesses should consult with a qualified pension attorney or financial planner to understand how the SECURE Act will affect their retirement plans.

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