The SECURE Act: A conversation starter, full of opportunities to increase savings and implementation challenges
- Created: Tuesday, 14 April 2020 15:04
The Setting Every Community Up for Retirement Enhancement ("SECURE") Act, which was signed into law on December 20, 2019, is being hailed as the most significant retirement savings reform since the Pension Protection Act in 2006.
So what does the legislation mean for plan advisors, service providers and investment managers? Plan amendments, changes in systems and procedures, new education and training, and, last, but certainly not least, many, many opportunities to increase plan coverage and savings.
This article highlights eight key actions to be taken to implement and comply with the SECURE Act provisions for qualified defined contribution ("DC") plans, as well as opportunities to discuss with plan sponsors changes in investment line up and other features of their DC plans. Please note that the CARES Act, the coronavirus economic stimulus package, has extended a few of the SECURE Act effective dates, and other effective dates are subject to further delay.
The SECURE Act also provides opportunity to approach employers that have not yet established a plan for their workforce. Here are a few action items and suggestions pertaining to the SECURE Act:
- Review with plan sponsors procedures to comply with SECURE Act requirements that are immediately effective (amendments to plan documents required by 12.31.2020):
- Eliminate plan credit card loans;
- Remove restrictions on distribution of lifetime income investment that is no longer authorized to be held in the plan;
- Permit penalty-free, in-service distribution for "qualified disasters", with the ability to recontribute the distribution within three years;
- Permit penalty-free, in-service distribution for "qualified birth or adoption";
- Increase required minimum distribution age to 72 years old (the CURES Act permits waiver of all RMDs to be made in 2020);
- Limit "stretch RMD".
- Review with plan sponsors opportunities for increasing savings and retirement security that are immediately available:
- Increase safe harbor cap on automatic enrollment and auto-escalation to 15% for years after the first plan year in which the employee is automatically enrolled;
- Discuss with small employers (up to 100 employees) their eligibility for a $500 credit for up to three years, if they add auto-enrollment
- Take advantage of the fiduciary safe harbor for selection of an annuity provider to provide an in-plan annuity investment option, or a lifetime income distribution option.
- Begin discussing with plan sponsors process steps to comply with new requirements to take effect in future years:
- Coverage of long-term, part-time employees (mandatory) for plan years beginning December 31, 2020, except that for purposes of the new eligibility requirements, the 12-month period before December 31, 2020 need not be taken into account;
- Lifetime income disclosure: must be added to annual statements furnished more than 12 months after the latest issuance of DOL's issuance of interim final rules providing guidance on a model disclosure or permissible assumptions. Start talking about assumptions, models and how to most effectively build on the disclosure to help participants understand the value of their savings.
- Take advantage of the buzz and seize the opportunities that may arise from the SECURE Act. Advisors and Service Providers should meet with plan sponsors to discuss the various opportunities, new tax credits, changes in plan notices and education delivered to plan participants, as well as implementation challenges of the new law. Set up a time frame for making decisions about possible changes. Significant provisions for DC Plans include:
- Increased auto-enrollment caps;
- Addition of lifetime income options as a plan investment and a distribution option;
- Prospective electronic delivery of plan communications once the Treasury proposed rule on e-delivery becomes finalized.
- Start working on system changes, plan amendments and participant notice changes.
- The SECURE Act includes many required changes to plans to increase coverage, to help increase financial literacy of plan participants, and otherwise:
- Required coverage of long-term, part-time employees. Vesting schedules need to be changed to accommodate these workers; however, the SECURE Act does not preclude plan sponsors from vesting these employees on the same schedule as other employees;
- Provision of lifetime income disclosure - need to determine model and assumptions per DOL guidance;
- Increase in the Required Minimum Distribution age to 72 (see IRS Notice Notice 2020-6, providing relief for financial institutions who provided erroneous information to IRA account holders who reach the age of 70 ½ in 2020);
- Penalty free withdrawal of up to $5000 upon the birth or adoption of a child;
- Penalty free distributions or loan up to $100,000 for disaster relief from January 18 through February 18, 2020;
- Changes to stretch IRA to require distributions within 10 years unless exceptions;
- Repeal of age limitations for contributions to IRAs.
- Train Contact Center Staff
- Educate Call/Contact Center staff regarding the plan amendments and procedure changes so they can accurately respond to employees.
- Opportunities to increase coverage - increase the buzz and meet with prospects - employers that have not yet established their own plans
- Discuss with service providers their plan to offer:
- Open pooled employer plans/ open MEPs
- Plan aggregation with consolidated Form 5500
- Inform employers of the tax credits available for both setting up a new plan, as well as adding automatic enrollment.
- Discuss with service providers their plan to offer:
Don't forget to meet with plan sponsors to discuss required changes to comply with the SECURE Act, as well as opportunities to increase savings and enhance retirement security preparedness of plan participants. Finally, join the Retirement Advisor Council's Government Affairs Committee to participate in discussions regarding regulatory guidance that will define important provisions of the plan such as lifetime income disclosure models.