Congress recently passed important legislation that expands employee retirement saving benefits and incentives for companies. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, makes several changes to plan benefits and new opportunities for participants. This includes the repeal of the maximum age for IRA contributions and expanded penalty-free withdrawal rules. At the same time, companies can also benefit from other changes such as expanded tax credits and streamlined administration rules. To help clients, prospects and others understand how they will be impacted, Selden Fox has provided a summary of changes below.
Key Benefit Plan Changes
Multiple Employer Plans
Multiple Employer Plans are meant to make it easier for small employers to come together and offer a plan with additional features and benefits. However, many have been apprehensive to participate because of the “bad apple” rule. This rule states that if one employer fails to maintain compliance, then the entire plan fails and opens the door to the assessment of penalties. Under the SECURE Act, this rule is eliminated to encourage broader participation. This change is effective for tax years beginning after January 31, 2020.
Tax Credit for Plan Start-Up Costs
The Act provides an increase of 50% in the limit allowed for the credit small businesses can use of qualifying costs for starting a qualified retirement plan. The new dollar limit can be as much as $5,000 up from $500 and is effective for tax years beginning after December 31, 2019.
New Tax Credit for Automatic Enrollment
There is a new incentive designed to reward companies that offer an automatic enrollment feature in the plan. Studies have found that more employees participate in a plan when they are automatically enrolled. The credit is limited to $500 per year and includes both 401(k) and SIMPLE IRAs. The credit is also available to companies that convert an existing plan to have an automatic enrollment feature. The credits can be claimed for tax years beginning after December 31, 2019.
There is a change to rules governing plan participation by part-time employees. Under existing regulations, any employer can elect to require part-time employees to complete 1,000 hours of service in a single year to become eligible for participation. The SECURE Act now requires employers to allow part-time employees who work at least 500 hours in a three consecutive year period to participate. It is important to note that employers will not be required to make any matching or nonelective contribution for these employees. This change is effective for plan years beginning on or after December 31, 2020.
Lifetime Income Disclosures
Another change is the requirement for employers to provide participants with information about the monthly payments they would receive if their account balance was used to provide lifetimes income. The effective date for this change has not yet been established as final regulations and sample disclosures have yet to become available.
Plan Loan Changes
Plans are no longer allowed to distribute participant loans through credit cards or other similar methods. The change is effective immediately and applies to any loans after the date of enactment.
Failure to File Return Penalties
There are now significant increases to penalties levied on plans that fail to make a timely filing of the Form 5500, registration statement for deferred vested benefits (IRS Form 9855-SSA) and notification of changes in the plan’s registration filings. The Form 5500 penalty is now assessed daily at $250, not to exceed $150,000 per plan year. The penalty for 8955-SSA is a daily penalty of $10 per day per participant, not to exceed $5,000. Finally, the penalty for not filing withholding notices is $100 for each incident, not to exceed $50,000 per year.
The SECURE Act means significant changes to plan benefits and administration requirements designed to encourage companies to offer retirement plans and drive employee participation. At the same time, they require existing plan sponsors to review plan operations to ensure compliance with the new rules. If you have questions about the information outlined above or need assistance with a plan administration or audit need, Selden Fox can help. For additional information please call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.