At the end of last year, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which made changes to retirement saving opportunities and benefits for employees and other individuals. There has been significant concern for some time that American’s are not saving nearly enough to fund their retirement. This is attributed to limited access, plans that lack automatic enrollment, poor participation education, and other saving restrictions. While the Act implements several changes to enhance individual retirement saving opportunities, there were also changes made impacting plan operations. While diverse in scope they include enhanced access for part-time employees, new disclosure requirements, new tax incentives and increases in failure to file penalties. To help clients, prospects and others understand the impact, Wilson Lewis has provided a summary of changes below.
SECURE Act Changes – Plan Sponsors
- New Income Disclosure – The Act now requires plan sponsors to make an annual disclosure to participants on monthly payments they would receive if the total account balance was used to purchase an annuity. The disclosure must appear on the participants’ 401(k) or another plan statement. The Department of Labor (DOL) has been tasked with providing additional guidance on details including assumptions to make when determining income amount. Concurrently, a model disclosure will also be issued by the Secretary of Labor for plans to follow.
- Annuities – Many plan sponsors have wanted to add an annuity to plan investment options but have had a significant concern about liability issues. There are also questions about the type and level of oversight needed to ensure issues are avoided. To resolve this concern, the Act has created a safe harbor provision that allows plans to offer qualifying group annuities while limiting liability. Plans qualify for the safe harbor if they select a provider that meets certain requirements including proper state licensure and maintenance of reserves that satisfy state statutory requirements.
- Expanded Part-Time Employee Participation – The Act now requires employers to include long-term part-time employees into their 401(k) plan. This means employees that have completed 500 hours of service each year for the last three years, and are older than 21, are now allowed to participate. This stands in sharp contrast from the prior rules which only allowed part-time employees with 1,000 hours of service in a year to participate.
- Multiple Employer Plan (MEP) Changes – The Act now permits small employers to come together to participate in open MEPs without having common relationships (i.e. being in the same industry or members of the same association, etc.) Under prior regulations, MEPs could only be formed by companies that shared common relationships. In addition, the Act also provides protection to companies in an MEP from penalties should other employers in the plan violate fiduciary rules. This was a significant concern for many and an obstacle to MEP participation.
- Tax Incentives – There were two important changes worth noting including an increase in the tax credit for plan start-up costs and a new credit for employers offering plans with an automatic enrollment feature. To make setting up plans more affordable, the credit for start-up costs cap will increase from $500 to $5,000. There is also a new tax credit for those employers adding an automatic enrollment feature for new hires to their plan of $500 per year for three years.
- Safe Harbor Feature to 401(k) Plans – The Act now allows plan sponsors to add a safe harbor feature to their 401(k) plan once the year has started if they make a non-elective contribution of at least 4% of employees pay (rather than the regular 3%). This change is designed to help plans correct failed ACP, ADP or top-heavy tests.
- Increased Penalties – The IRS has increased various plan filing penalties including failing to file Form 5500 and Form 8955-SSA. Under the new rules, plans that fail to file the Form 5500 can now be assessed up to $250 per day, not to exceed $150,000 per plan year. For failure to file Form 8955-SSA, plans can now be assessed up to a daily penalty of $10 per participant, not to exceed $50,000.
Plan Amendments
Many of these changes will require the adoption of plan amendments to ensure the plan is following regulations. However, the Act provides for a “remedial amendment period” which means that while plans must comply with changes by the effective date, plan documents can be updated at a later date. For most plans, they will be required to update documents no later than the last day of the first plan year beginning on, or after, January 1, 2022.
Contact Us
The changes outlined above will require Atlanta employers to review plan operations and identify where changes need to be made. It’s important to conduct a thorough review of all changes with a qualified advisor who can assess your situation and determine the best way to proceed. If you have questions about the information provided above or need assistance with a 401(k) or another plan audit Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.