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The House Passes “SECURE” Act to Ease 401(k) Compliance and Promote Savings.  The Changes Could Become Law for the 2020 Plan Year

7/21/2019

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 With overwhelming bipartisan support, the U.S. House of Representatives approved a bill to promote greater savings through employer-sponsored retirement plans while easing plan administration.  The Senate isn’t far behind with a similar measure, generating optimism that these changes could become law for the 2020 plan year.  This legislation will help hard working Americans prepare for a financially secure future by incentivizing small businesses to set up employer-sponsored retirement plans.  Among the provisions to encourage employers to become plan sponsors, the SECURE Act would:
  • Increase the business tax credit for plan startup costs to make setting up retirement plans more affordable for small businesses.  The tax credit would increase from the current cap of $500 to up to $5,000 in certain circumstances.
  • Encourage small-business owners to adopt automatic enrollment by providing a further $500 tax credit for three years for plans that add auto enrollment for new hires.
  • Simplify rules and notice requirements related to qualified nonelective contributions in safe harbor 401(k) plans.
  • Offer a consolidated Form 5500 for certain defined contribution plans to reduce administrative costs, but also increase penalties for failure to file retirement plan returns such as Forms 5500, required notification of changes and required withholding notices.
  • Allow 529 education savings plan participants to withdraw up to $10,000 from these plans to repay student loans, a provision not in the Senate’s RESA bill.
  • Require plan sponsors to annually disclose on 401(k) statements an estimate of the monthly payments participants would receive if their total account balance were used to purchase an annuity for the participant and the participant’s surviving spouse.  The Secretary of Labor is directed to develop a model disclosure.
  • Require employers to include long-term, part-time workers as participants in defined contribution plans except in the case of collectively bargained plans.  Eligible employees would include those who completed at least 500 hours of service each year for three consecutive years.
  • Provide penalty-free withdrawals from retirement plans of up to $5,000 within a year of the birth or adoption of a child to cover associated expenses.  
These are just some of the changes that would come with the new SECURE act.  Stay tuned!
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