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SECURE Act becomes law with significant impact on retirement savings

Dec 23, 2019

On Dec. 20, President Donald J. Trump signed into law the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE), the most sweeping legislation affecting retirement savings since the Pension Protection Act passed in 2006. This Act was added as Division O to the Further Consolidated Appropriations Act, 2020 (H.R. 1865).

The SECURE ACT contains 125 pages of legislation containing 30 provisions, many of which are taxpayer-friendly measures designed to bolster retirement savings.  This law will require all affected plans to adopt a mandatory interim amendment by the 2022 plan year (2024 for certain governmental plans), or a later date if the Treasury Department provides one.  This allows plans to operate in accordance with the new law without having to immediately amend their plan documents.

Many of the SECURE Act provisions become effective as of Jan. 1, 2020, while others have different effective dates.  Following is a summary of the provisions in order of the sections in the bill.



Effective Date

Title I: Expanding and Preserving Retirement Savings



Section 101 - Multiple Employer Plans / Pooled Employer Plans

Allows two or more unrelated employers to join a pooled employer plan (PEP). This is a brand-new multiple employer plan (MEP) that has been promoted as a way smaller employers can pool together to participate in a single plan to save administrative costs. The Act also eliminates the notorious “one bad apple rule,” a rule under which a failure by one employer (or the plan itself) to satisfy an applicable plan requirement will result in the disqualification of the MEP for all employers maintaining the plan. A PEP must be sponsored by a pooled plan provider (PPP), which is likely to be a financial services company, third-party administrator, insurance company, recordkeeper, or similar entity. The PPP must be a named fiduciary, serve as an Employee Retirement Income Security Act (ERISA) 3(16) plan administrator, register with both the Department of Labor (DOL) and Internal Revenue Service (IRS), and maintain ERISA bonding limits to $1 million. Employers that adopt the PEP would only have fiduciary responsibility for prudently selecting and monitoring the PPP and any other named fiduciary. It is expected that most PEPs will retain an ERISA 3(38) investment advisor who would be responsible for selecting and monitoring the plan’s investment menu. Both the DOL and IRS have authority to audit the pooled plan provider for Internal Revenue Code (IRC) and ERISA compliance. The IRS and DOL are expected to provide guidance in the coming year.

Plan years beginning after Dec. 31, 2020

Section 102 – Increase in 10% cap for automatic enrollment safe harbor after first plan year

This provision increases the automatic enrollment safe harbor elective deferral limit cap from 10% of pay to 15%. This provision, if adopted by employers, will require their documents to outline the higher cap in the plan document.

Plan years beginning after Dec. 31, 2019.

Section 103 – Rules related to election of safe harbor 401(k) status

The requirement to distribute the safe harbor notice annually to eligible employees for the 3% nonelective contribution is removed. The Act also permits plan sponsors to adopt safe harbor status mid-year for the 3% nonelective option at any time prior to the 30th day before the close of the plan year. (This option is not available for safe harbor matching contribution plans). Amendments after that date would be allowed if a nonelective contribution of at least 4% of compensation is contributed for eligible employees for the plan year and the plan is amended no later than the last day of the following plan year. This flexibility would give employers the option to correct a failed actual deferral percentage (ADP) and/or actual contribution percentage (ACP) test, as well as the top-heavy test by making a 4% safe harbor nonelective contribution after the fact.

Plan years beginning after Dec. 31, 2019.

Section 104 & 105 - Increase in credit limitation for small employer pension plan startup costs and small employer automatic enrollment credit

The credit for start-up expenses paid or incurred in connection with establishing or administering a new eligible employer plan including a 401(k), 403(b), SIMPLE IRA, and SEP-IRA as defined in IRC 4972(d) would increase to the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of rank-and-file employees for plan participation or (b) $5,000. Solo plans are not eligible for the credit. An additional $500 credit would apply to eligible employer plans with an automatic enrollment feature. Both credits apply for up to three years. A “small” employer for purposes of the credit is defined as one who, in the preceding tax year, had no more than 100 employees receiving at least $5,000 in compensation.

Taxable years beginning after Dec. 31, 2019.

Section 106 - Certain taxable non-tuition fellowship and stipend payments treated as compensation for IRA purposes


Under current law, stipend and non-tuition fellowship payments received by graduate and postdoctoral students do not count as eligible compensation to contribute to an Individual Retirement Account (IRA). This provision eliminates this hurdle by allowing these amounts to be treated as eligible compensation to make an IRA contribution.

Tax years beginning after Dec. 31, 2019

Section 107 - Repeal of maximum age for traditional IRA contributions

Eliminates the restriction on contributions to a traditional IRA by an individual who has attained age 70½. This provision puts traditional IRAs on par with Roth IRAs, which do not have an age limitation.

Contributions and distributions made for tax years after Dec. 31, 2019

Section 108 - Qualified plans prohibited from making loans through credit cards and similar arrangements

Restricts the distribution of plan loans through credit cards or similar arrangements.

Applies immediately to loans made after Dec. 20, 2019

Section 109 – Portability of lifetime income options

Provides for portability of annuity or lifetime income options via a direct trustee-to-trustee transfer to another employer-sponsored retirement plan or IRA if a lifetime income investment is no longer authorized to be held as an investment option under the plan

Plan years beginning after Dec. 31, 2019

Section 110 - Treatment of custodial accounts on termination of section 403(b) plans (Section 110)

Under the current law, it was very difficult for employers who sponsored 403(b) plans with custodial accounts to terminate the plan, if participants were nonresponsive. This was not the case for 403(b) plans that contained solely individual annuity contracts, as they could effectively be distributed in-kind through a board action without participant consent. This Act places custodial accounts on par with the annuity contracts which should help to simplify 403(b) plan terminations. The Secretary of the Treasurer has committed to issuing guidance not later than six months from Dec. 20, 2019.

Retroactively applied for taxable years beginning after Dec. 31, 2008.

Section 111 - Clarification of retirement income account rules relating to church-controlled organizations

Clarifies individuals that may be covered by plans maintained by church-controlled organizations. Covered individuals include duly-ordained, commissioned, or licensed ministers, regardless of the source of compensation; employees of a tax-exempt organization, controlled by or associated with a church or a convention or association of churches; and certain employees after separation from service with a church, a convention or association of churches, or an organization described above.

Years beginning before, on, or after Dec. 20, 2019

Section 112 - Qualified cash or deferred arrangements must allow long-term, part-time employees to participate

This provision provides a new mandate to cover long-term part-time employees who have not satisfied the plan’s eligibility requirements if the employee has completed 3 consecutive 12-month periods of employment and was credited with at least 500 hours of service in each of those periods. No employer contribution (including top-heavy minimum contributions) would be required until the employee has satisfied the plan’s normal eligibility requirements. Twelve month periods of service before Jan. 1, 2021 need not be counted, which will further delay the date by which a part-time employee would first enter the plan.

Plan years beginning after Dec. 31, 2020

Section 113 - Penalty-free withdrawals for individuals in case of birth or adoption

This provision provides a new exemption from the 10% early withdrawal penalty for retirement plan distributions taken prior to age 59 ½ to cover the cost of childbirth or adoption expenses up to $5,000 if made during the 1 year period beginning on the date on which a child of the individual is born or on which the legal adoption is finalized. The Act also allows the repayment of such expenses to the retirement account.

Distributions made after Dec. 31, 2019

Section 114 - Increase in age for required minimum distributions

Under current law, participants are generally required to begin taking minimum distributions from their retirement plan at age 70½. Due to an increase in life expectancy, the Act adjusts the required minimum distribution age from 70½ to 72. This provision applies only to individuals who attain age 70½ after Dec. 31, 2019. Thus, individuals who have reached age 70½ during 2019 or in a prior year do not benefit from this change.

Distributions made after Dec. 31, 2019

Section 115 - Special rules for minimum funding standards for community newspaper plans

This provision provides pension funding relief for community newspaper plan sponsors by increasing the interest rate to calculate funding obligations to 8%. In addition, this Act provides for a longer amortization period of 30 years from 7 years. These two changes will reduce the annual amount community newspapers would be required to contribute to their pension plan, to mitigate hardship in this industry.

Plan years ending after Dec. 31, 2017

Section 116 - Treat difficulty of care payments as compensation for determining contribution limitations

Many home health care workers do not have a taxable income because their sole compensation comes from “difficulty of care” payments exempt from taxation under IRC Section 131. Since such workers do not have taxable income, they are not allowed to contribute for retirement to a defined contribution plan or IRA. This provision would allow home health care workers to contribute to a plan or IRA by treating payments as compensation for purposes of calculating the contribution limits to defined contribution plans and IRAs.

Applies to contributions after Dec. 20, 2019; 415(c) changes are effective for plan years beginning after Dec. 31, 2015

Title II – Administrative Improvements



Section 201 - Plan adopted by filing due date for year may be treated as in effect as of close of year

Allows plan sponsors to treat qualified retirement plans adopted before the due date (including extensions) of the tax return for the taxable year, as if it had been adopted as of the last day of the taxable year. This provision allows additional tax planning opportunities for plan sponsor that are considering adopting a plan and the opportunity for employees to receive contributions for that earlier year and begin to accumulate retirement savings.

Tax years beginning after Dec. 31, 2019

Section 202 - Combined annual report for group of plans

Directs the IRS and DOL to provide for filing of a consolidated Form 5500 for similar plans. Plans eligible for consolidated filing must be defined contribution plans, with the same trustee, fiduciary, (or named fiduciaries), and plan administrator, using the identical plan year and investments (or investment options) to participants and beneficiaries. The change will reduce aggregate administrative costs, simplifying compliance for small employers to sponsor a retirement plan and bolster retirement savings.

Implemented no later than Jan. 1, 2022 and apply to returns/reports for plan years beginning after Dec. 31, 2021

Section 203 - Disclosure regarding lifetime income

Requires plan sponsors to provide a lifetime income disclosure at least once during any 12-month period to participants in defined contribution plans. The disclosure will illustrate the monthly lifetime annuity stream the participant would receive if the total account balance were used to provide a qualified joint and survivor annuity for the participant and the participant’s surviving spouse and a single life annuity. The DOL is directed to develop a model disclosure. Plan fiduciaries, plan sponsors, or other persons will be exempted from liability under ERISA related to the disclosures if computed in accordance with the assumptions and guidance and that include the explanations contained in the model disclosure.

Applies to participant benefit statements furnished more than 12 months after DOL issues interim final rules, the model disclosure and assumptions

Section 204 - Fiduciary safe harbor for selection of lifetime income provider

Provides certainty for plan sponsors in the selection of lifetime income providers, which is construed a fiduciary act. Fiduciaries are afforded an optional safe harbor to satisfy the prudence requirement with respect to the selection of insurers for a guaranteed retirement income contract and are protected from liability for any losses that may result to the participant or beneficiary due to an insurer’s inability in the future to satisfy its financial obligations under the terms of the contract.

Effective date not determined

Section 205 - Modification of nondiscrimination rules to protect older, longer service participants

Modifies the nondiscrimination rules with respect to closed defined benefit plans to permit existing participants to continue to accrue benefits. The modification will protect the benefits for older, longer service employees as they near retirement.

Effective immediately, without regard to when the plans are modified

Section 206 - Modification of PBGC premiums for Cooperative and Small Employer Charity (CSEC) Pension Plans

The legislation establishes individualized rules for calculating PBGC premiums. For CSEC plans, the legislation specifies flat-rate premiums of $19 per participant, and variable rate premiums of $9 for each $1,000 of unfunded vested benefits.

Effective date not determined

Title III – Other Benefits



Section 301 - Benefits provided to volunteer firefighters and emergency medical responders

Reinstates for one year the exclusions for qualified state or local tax benefits and qualified reimbursement payments provided to members of qualified volunteer emergency response organizations and increases the exclusion for qualified reimbursement payments from $30 to $50, for each month during which a volunteer performs services.

Tax years beginning after Dec. 31, 2019

Section 302 - Expansion of Section 529 plans

Expands IRC Section 529 qualified tuition program accounts to cover costs associated with registered apprenticeship programs including expenses for fees, books, supplies, and equipment required for participation. The Act also provides that principal and interest payments of up to $10,000 over a lifetime, reduced by the amount of distributions so treated for all prior taxable years, will be eligible as qualified higher education expenses.

Distributions made after Dec. 31, 2018

Title IV – Revenue Provisions



Section 401 - Modification of required distribution rules for designated beneficiaries

The Act eliminates the so-called stretch IRA for certain beneficiaries. Under current law, after the death of a plan participant or IRA owner, a non-spousal beneficiary is permitted to stretch the required minimum distributions over the beneficiary’s life expectancy. Under the new law, all amounts held by the plan or IRA must be distributed by the end of the 10th calendar year following the year of the employee or IRA owner’s death. The exceptions to the stretch IRA are for beneficiaries designated as the surviving spouse, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority.

Distributions with respect to account owners who die after Dec. 31, 2019

Section 402 – Increase in penalty for failure to file

Increases the failure to file tax return penalty to the lesser of $435 (from $330) or 100% of the amount of the tax due.

Tax returns due after Dec. 31, 2019

Section 403 - Increased penalties for failure to file retirement plan returns

Significantly increases the failure to file penalties for retirement plan returns. The Form 5500 penalty would be modified from $25 per day to $250 per day, not to exceed from $15,000 to $150,000. Failure to file a registration statement would incur a penalty of $10 per participant per day, not to exceed $50,000. Failure to file a required notification of change would incur a penalty of $10 per day, not to exceed $10,000 for any failure. Failure to provide a required withholding notice incurs a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year.

Returns, statements, notices required to be filed or provided after Dec. 31, 2019

Title V – Tax Relief for Certain Children



Section 501 - Modification of the rules relating to the taxation of unearned income of certain children

Reduces taxes levied on children’s military survivor benefits and certain other unearned income.

Tax years beginning after Dec. 31, 2018 (with elective retroactive application to 2018 if elected)

Title VI – Administrative Provisions



Section 601 – Provisions relating to plan amendments

Provides for a remedial plan amendment period until the 2022 plan year (2024 plan year for certain governmental plans) or a later date if Treasury provides for any plan amendment required under the SECURE Act.

Plan years ending in 2022 or later date if extended

Title II- Disaster Relief: Division Q of Appropriations Act



Section 202- Special disaster-related rules for use of retirement funds

This provision creates a waiver from the 10% early withdrawal penalty for qualified disaster distributions from retirement plans up to $100,000. Individuals can spread income tax payment on the qualified disaster distribution ratably over a three-year period. Individuals are permitted three years to repay the distribution back into the retirement plan. Individuals who took a hardship distribution from a retirement plan for a first-time home purchase in the disaster area may recontribute the amount into the retirement plan without tax penalty. The loan limits on retirement plans subject to this relief can be increased from $50,000 to $100,000 and retirement plan loan repayment periods extended.

Applies to individuals who suffered losses in a qualified disaster area beginning after 2017 and ending 60 days after the date of enactment

If you have questions about the impact of these provisions, please contact Tom Krieg, Marci Boyarski, Bob Buss or your Wipfli relationship executive.

If you have business needs around retirement plan design (401(k), 403(b), 457(b), cash balance plans), third-party administration and/or recordkeeping services, payroll and more, please reach out. With a human capital team of over 25 dedicated professionals, our full-service, national firm is here to serve you. Please contact us at HCM@wipfli.com for more information.


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Wipfli Editorial Team