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SECURE Act

The SECURE Act: Where are We Now?

Given the multitude of challenges faced in all aspects of 2020, the enactment of the SECURE Act (“Setting Every Community Up for Retirement Enhancement Act of 2019”) in late 2019 seems like a life time ago. The SECURE Act aimed to expand and preserve retirement savings, making it easier for individuals to participate in a plan, and to maintain plan savings longer. It also incentivized employers to offer retirement plans, including several new tax credits.

Various provisions of the Secure Act had effective dates spanning 2019 and beyond. In addition, both the IRS and DOL have slowly issued some additional guidance during 2020 on certain provisions. For these reasons, we are providing the following SECURE Act update on selected provisions.

Major Provisions Effective in 2021

(plan years beginning after December 31, 2020)

  • Plans are required to permit long-term part-time employees to make elective deferrals to a 401(k) plan if they worked at least 500 hours for three consecutive years. Guidance pursuant to IRS Notice 2020-68 clarified:
    • Plans must begin tracking the 500-hour requirement as of January 1, 2021.
    • For elective deferral eligibility purposes, hours worked by these LTPT employees prior to 2021 are excluded. For all vesting purposes, all years of service must be counted (with limited exceptions).
  • Two or more unrelated employers may participate in a single multiple employer plan.

Major Provisions Effective in 2022

  • Defined contribution plan statements are required to include an annual disclosure/illustration of the monthly income a participant could receive if the total benefits were paid in a lifetime income stream. In 2019, the DOL issued an Interim Final Rule regarding these disclosures.
    • The effective date of the interim rule was September 18, 2021. Based on that effective date, the new disclosures will not be required until mid-2022.
    • The DOL has requested comments on the interim rule; as a result, additional guidance is still very likely to be forthcoming.
  • If certain conditions are met, plans may be able to file a consolidated 5500.
    • Effective for 5500 filings for plan year beginning after December 31, 2021.
    • Additional IRS/DOL guidance still needed.

Major Provisions Already Effective

  • The age requirement for required minimum distributions has been increased to age 72.
  • In Safe Harbor plans:
    • The maximum auto-escalation limit has been increased from 10% to 15%. IRS Notice 2020-86 provided clarification on amending plans to accommodate this increase.
    • The safe harbor notice requirement for 3% non-elective contributions has been eliminated. IRS Notice 2020-86 reinforces that notices for safe harbor matching contributions must still be provided. This Notice also included guidance with regard to timing of plan amendments to add, or change, a safe harbor contribution in the form of a 3% non-elective contribution.
  • Tax credits for small employers (100 employees or less) were created or enhanced.
    • For tax year beginning after December 31, 2019, a new tax credit was created for adding auto-enrollment to a new or existing plan (up to $500 per year for 3 years). In IRS Notice 2020-68, guidance was provided that clarified:
      • Plans that added an auto-enrollment feature in 2018 could claim a $500 credit in 2020 (the last year of their 3-year period).
      • Plans that added an auto-enrollment feature in 2019 could claim a $500 credit in 2020 and also in 2021 (the last two years of their 3-year period).
    • The existing tax credit for starting a new plan was increased (up to $5,000 per year for 3 years).
  • Employers now have more time to adopt a new plan after year-end (facilitates tax planning).
  • Portability of lifetime income when the investment can no longer be held by the plan has been enhanced.
  • A fiduciary safe harbor has been provided to fiduciaries when selecting lifetime income providers.
  • Penalty-free withdrawals from a plan or IRA for a qualifying birth or adoption expenses (up to $5,000) may now be offered. IRS Notice 2020-68 provided some limited guidance for these distributions and the ability for participants to repay the distribution to the plan at a later date.

Provisions that are more restrictive or increase penalties were also included:

  • Facilitating plan loans through credit cards is now prohibited.
  • Non-spouse beneficiaries (some exceptions apply) who inherit an IRA, or a qualified defined contribution, 403(b), or 457(b) plan account must withdraw the money within 10 years (rather than over life expectancy).
  • Penalty for late filing of 5500s have been increased to $250 per day up to a maximum of $150,000.
  • The penalty for failing to provide withholding notices was increased to $100 per day up to a $50,000 per year maximum.

Major Provisions Impacting Individuals

  • Contributions can be made to an IRA beyond age 70 1/2 as long as account owner has earned income. IRS Notice 2020-68 included guidance for financial institutions and individuals. Of particular note:
    • Individuals may not offset the amount of a required minimum distribution by the amount of any post-age 70 ½ contributions. These transaction are separate transactions.
  • Required minimum distribution (RMD) payments are delayed until age 72 (those turning 70 1/2 in 2019 will follow the prior rules).
  • Non-spouse beneficiaries (some exceptions apply) who inherit an IRA or a qualified plan account must withdraw the money within 10 years (rather than over life expectancy).
  • Tax-free distributions from section 529 plans for student loan repayments up to a lifetime cap of $10,000 are allowed.
  • Penalty-free withdrawals from a plan or IRA for a qualifying birth or adoption expenses (up to $5,000) may now be offered.
  • Certain taxable non-tuition fellowship and stipend payments may be treated as compensation for IRA purposes.
  • Access to retirement plans for long-term part-time employees is improved.

How BOK Financial Will Assist You

The SECURE Act is one of the most comprehensive retirement reform acts in several years. BOKF will provide additional detailed summaries of the Secure Act and a client webinar to be scheduled soon. We look forward to reviewing these new provisions with you and helping you evaluate the impact to your plans. In the interim, if you have any questions, please contact your relationship manager.

Need help navigating the impact of these changes? Contact your relationship manager today.

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BOK Financial does not provide accounting or tax advice to its clients. All clients should be aware that tax treatment is subject to change by law, in the future or retroactively, and clients should consult with their tax advisors regarding any potential strategy, investment or transaction. BOK Financial does not provide legal advice to its clients and all clients should consult with their own legal advisor regarding any potential strategy, investment or financial plan, estate plan or with respect to their interest in any employee benefit or retirement plan. Certain information contained herein is based upon materials provided by third parties. We do not represent that such information is accurate and complete and it should not be relied upon as such. Illustrations or projections are based on certain assumptions that we believe are reasonable. If any of these assumptions do not prove to be true, results are likely to vary substantially from the examples or content show herein. These examples are shown for illustrative purposes only, do not purport to show actual results, and no representation is being made that any client will or is likely to achieve the results shown.