We Interrupt this Program – What in the SECURE Act Do Retirement Plan Sponsors Need to Pay Attention to in 2020?

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by Brenda Berg

After being on the verge of enactment last spring but failing to pass, the SECURE Act is now law. The Setting Every Community Up for Retirement Enhancement Act of 2019 – the SECURE Act – was enacted on December 20, 2019 as part of the Further Consolidated Appropriations Act, 2020.

Although this legislation is considered major retirement plan legislation, it doesn’t have many immediate impacts on most employer retirement plans. Plan sponsors need to pay attention to the following items – for the most part, the other changes (such as pooled employer plan opportunities and annuity payouts) do not require immediate action.

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We Interrupt This Program – Is a Multiple Employer Plan In Your Future?

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by Kevin Selzer

We interrupt our usual Benefits Dial programming – to take a closer look at developments affecting multiple employer plans (MEPs) as part of our series of posts on the recently enacted benefit plan legislation, including the SECURE Act (background here).  The reform to MEPs is seen by many as the biggest disruptor to the retirement plan industry.  Why?  It facilitates the banding together of retirement plan assets from unrelated employers, helping employers punch above their weight.  By combining together to form a larger plan, smaller employers can leverage assets with regard to plan services, and maybe most importantly, investment fees paid by participants. 

MEPs have long been permitted but many employers have been unwilling to participate in those plans.  The biggest deterrent has been the “one bad apple rule.”   That rule provides that a defect in any participating employer’s portion of the MEP can impact the tax qualification of the entire MEP for other participating employers.  In other words, if one participating employer in the MEP is unwilling (or maybe unable) to correct an error, the whole plan can be disqualified by the IRS.  The SECURE Act helps solve this issue with a special kind of MEP called a pooled employer plan (PEP).  PEPs have a specific procedure for dealing with tax qualification defects.  In short, a participating employer in a PEP who refuses to correct the error, can be discharged (spun off) from the PEP to isolate the disqualification impact. The SECURE Act grants relief under ERISA to boot.  Historically, MEPs were treated as a collection of separate plans unless the underlying employers met a commonality standard.  A PEP (called a “Group of Plans” under ERISA) is also treated as a single plan for ERISA purposes under the SECURE Act.  This means, for example, that such plans would be allowed to file a single Form 5500. 

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A Little Less Conversation, a Little More Action: Major retirement plan legislation is finally signed into law

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by Brenda Berg

After being on the verge of enactment last spring but failing to pass, the SECURE Act will become law after all. Congress included the Setting Every Community Up for Retirement Enhancement Act of 2019 (H.R. 1994) (the SECURE Act) in the year-end spending legislation needed to keep the government running. The House passed the Further Consolidated Appropriations Act, 2020 (H.R. 1865) – which included the SECURE Act provisions – on December 17, 2019. The Senate followed on December 19, 2019, and President Trump signed it on the last day possible for the spending bill – December 20, 2019.

For a summary of the major SECURE Act provisions that impact retirement plans, see our previous article. In addition to including the SECURE Act provisions, the year-end legislation adds a few other provisions impacting retirement plans and other benefits. Defined benefit plans such as cash balance plans can now allow in-service withdrawals once a participant reaches age 59-1/2, instead of age 62. The minimum age for in-service withdrawals from 457(b) plans is also lowered to 59-1/2.

For welfare benefits, the year-end legislation repeals the “Cadillac Tax” which would have otherwise taken effect in 2022. The Cadillac Tax was part of the Affordable Care Act (ACA) and would have imposed a 40% excise tax on the insurer or employer for any “high cost” employer-provided health plan coverage.

Many of the benefits provisions are effective in 2020, although some are optional. The legislation generally provides time to amend retirement plans until the last day of the plan year that begins in 2022, and some governmental plans and collectively bargained plans have later deadlines until as late as 2024.

We will be covering many of the specific changes in more detail in upcoming blog posts. Sign up to regularly receive our blog posts (which come more often and on more varied topics than our Alerts).