What You Need to Know About the SECURE Act

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In late 2019, the first significant legislation related to retirement savings since 2006 became law. Whether you offer your employees a 403(b), a 401(k), a 457(b) or no retirement plan, the Setting Every Community Up for Retirement Enhancement (SECURE) Act includes provisions that could affect you and your employees.

Expanded Opportunities in Multiple Employer Plans

If you don’t currently offer a retirement a plan, now is a good time to reconsider. A plan can improve your recruitment and retention efforts, and the SECURE Act makes it easier for small employers to offer 401(k) plans. For plan years starting in 2021 or after, it establishes a new type of multiple employer plan (MEP) known as a pooled employer plan (PEP).

Employers that join forces in MEPs can see lower plan costs as a result of economies of scale. For example, investment managers may charge lower fund fees for plans with greater asset accumulations. By pooling plan participants and assets in one large plan, MEPs let small employers give their workers access to the same low-cost funds offered by large employers.

Currently, MEPs generally are limited to employers that share a “common interest,” such as the same location or industry. But, for PEPs, employers need no other relationship beyond their joint participation in the plan. (Note: The SECURE Act’s definition of PEPs doesn’t include 403(b) and 457(b) plans.)

A pooled plan provider (PPP) will serve as the plan’s named fiduciary and administer the plan, although each employer is responsible for choosing and monitoring the PPP. So, you’ll also significantly reduce the administrative burden and potential fiduciary liability typically associated with retirement plans.

Participation by part-time employees

If you offer a 401(k), you’ve generally been allowed to exclude employees who work fewer than 1,000 hours per year from participating. The SECURE Act expands participation for non-full-time employees.

Starting next year, you must allow participation in the plan for employees who 1) have worked three consecutive years of at least 500 hours and 2) are at least age 21 at the end of the three-year period. No employer contributions for such participants are required.

Mandatory lifetime income disclosures

The SECURE Act requires employers with 401(k) and 403(b) plans to include a lifetime income disclosure on plan participants’ benefit statements at least once a year. You must disclose the estimated monthly payments the employee would receive if his or her total account balance were used to purchase an annuity for the participant and his or her surviving spouse. The Act instructs the U.S. Secretary of Labor to develop a model disclosure for plans to use, along with guidance on how to calculate the estimated lifetime income stream.

Penalty-free birth and adoption withdrawals

The SECURE Act has some welcome news for employees expecting or planning to adopt a child. Under the law, they can make early withdrawals of up to $5,000 from 401(k), 403(b) and 457(b) plans to cover qualified birth or adoption expenses, without the 10% normal tax penalty. If the employee is married, each spouse with a separate retirement account can make a withdrawal. They’re also allowed to repay the withdrawal to their accounts, without the usual restrictions, if they’re eligible to make contributions to the accounts.

They must make the withdrawal within one year of the birth or adoption of a minor or an individual physically or mentally incapable of self-support. Eligible adoptees don’t include a spouse’s child.

But wait — there’s more!

The changes above represent a sample of the provisions in the sweeping SECURE Act. Among other things, the law includes guidance on the termination of 403(b) plans, permits transfers of annuities between plans in certain circumstances and boosts the penalties for failing to file retirement plan tax returns. Your Belfint advisor can help you navigate the applicable provisions.

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