The first and largest retirement-focused legislation since 2006 and an important move for small businesses across the United States, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was incorporated to the 2020 Spending Bill. Does it affect your business? What do you need to know?
Bipartisan SECURE Act Included in Spending Bill
This bipartisan act passed a full House on May 23, 2019 by a vote of 417–3. However, it took a few months for the bill to become law, as it died in committee in the Senate. However, elements of this bill were incorporated to the fiscal year 2020 spending bill, a bill passed by the House on December 17, 2019 by a vote of 297–120 and by the Senate on December 19, 2019 by a vote of 71–23.
The funding bill, with the SECURE Act attached was signed into law by President Donald Trump on December 20, 2019. The SECURE Act is Division O of the HR 1865 and can be viewed here.
Multiple Focuses of the SECURE Act
The thirty elements of the SECURE Act are more than we can discuss here, but are focused on the following six areas:
- Title I—Expanding and preserving retirement savings
- Title II—Administrative Improvements
- Title III—Other Benefits
- Title IV—Revenue Provisions
- Title V—Tax Relief for Certain Children
- Title VI—Administrative Provisions
Effective Dates
The SECURE Act is split a few groups. Plan years beginning after Dec. 31, 2019 and Plan years beginning after Dec. 31, 2020. Many of the provisions are already in effect, according to the National Association of Plan Advisors, with Multiple Employer Plans taking effect in 2021.
Designed to Assist in Saving and Investing for Retirement: What is the SECURE Act?
Written with a number of provisions to incentivize retirement planning, diversify the options available to savers, and increase access to tax-advantaged savings programs, controllers at businesses may need to evaluate their benefits plans.
Multiple Employer Plans/Pooled Employer Plans
Small businesses have long had issues competing with larger employers for top talent. Too often, it’s not practical or pragmatic to offer a retirement plan due to the amount of overhead and administration costs that exist in managing such plans.
One of the big provisions of the SECURE Act addresses this, allowing financial services firms the opportunity to offer new multiple employer 401(k) plans to unrelated small companies with unrelated businesses.
Taking effect for plan years beginning after December 31, 2020, this is one of the most important elements of the bill.
Unrelated Businesses
The unrelated term helps to address many of the challenges companies had offering plans and will help these businesses retain talent. Prior to the passage of the SECURE Act, the Department of Labor guidance generally prevented unrelated employers from participating in a singular plan. Now, under the new legislation, unrelated employers will be able to participate in a new type of multiple employer plan (MEP) called a “Pooled Employer Plan.”
This new plan type will provide more employers with access to affordable retirement plan options. Of note, there a few key points related to MEPs for all businesses to be aware of:
- The new MEP will be treated as a single plan under ERISA
- MEP must be sponsored by a Pooled Plan Provider (PPP)
- The PPP must serve as the plan’s administrator and fiduciary
Ending the One Bad Apple Rule
The amendment of “one-bad-apple” rule prevents the disqualification of a MEP based on one employer’s qualification issue or mistake. In effect, the law shields employers who join a Multiple Employer Plan from liability for potential misconduct perpetrated by other employers who are in the same plan
Tax Credit for Employers Starting a Plan
The new law provides a start-up retirement plan credit for smaller employers of $250 per non-highly compensated employees eligible to participate in a workplace retirement plan at work (minimum credit of $500 and maximum credit of $5,000).
This credit would apply to small employers with up to 100 employees over a 3-year period beginning after December 31, 2019, and applies to Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees (SIMPLE), 401(k), and profit-sharing types of plans.
Automatic Enrollment Credit for Small Employers
Automatic enrollment is shown to increase employee participation and higher retirement savings. Previously, one of the biggest challenges faced by small businesses was a lack of incentive to drive automatic enrollment in retirement plans. In fact, only 26.2 percent of plans with less than $5 million in assets opt for automatic enrollment according to PLANSPONSOR’s 2019 Defined Contribution Survey.
To help encourage good retirement outcomes for workers, the SECURE Act contains a provision that allows small employers who adopt auto enroll in their new plan (and meet certain special notice and uniformity requirements) to receive a $500 tax credit per year for three years.
The credit is in addition to the plan start-up credit allowed under present law and would be available for three years. The credit would also be available to employers that convert an existing plan to an automatic enrollment design.
Changes to Part-Time Worker Rules
Another thing business leaders may need to know is the provision regarding part-time employees. Long-term, part-time employees will be able to join their company’s 401(k) plan. Previously those who worked less than 1,000 hours a year, were generally deemed ineligible to participate in their company’s 401(k) plan. With the new bill, they too can be eligible.
Employees Now Have More Transferability in Retirement Plans
SECURE can distribute your lifetime income investment from your workplace retirement plan. Under this bill, the retirement income options would be transferable. If you leave your job, you can still roll over your lifetime income investment to another 401(k) or other plans.
More Annuity Options
The SECURE Act also allows more employers to offer annuities as investment options within 401(k) plans. Currently, employers hold the responsibility to ensure these offerings are appropriate for employees’ portfolios. However, under the new rules, the responsibility falls on insurance companies, which sell annuities, to offer proper investment choices.
Running Your Finance, Managing Your Benefits: Keep Up with Trends
As a controller, you may not be directly responsible for the ongoing benefits at your company, but this bill may affect you one way or another in your personal life or regarding the finances at your business. Though we didn’t choose to go into the wide ranging personal effects this may have, we invite you to read up on how this will affect you here.
- Things Every Business Owner Needs to Know about the SECURE Act
- Fidelity: The SECURE Act and You
- Forbes: The SECURE Act—Good or Bad?
- Detroit Free Press: New retirement rules could help boost your savings: 5 things to know
- MarketWatch: The Secure Act changes the way people will inherit money — are you hit by the new rules?
- Kiplinger: 10 Ways the SECURE Act Will Impact Your Retirement Savings
At the Controllers Council, we’re focused in helping finance leaders adapt to the challenges that exist in the ongoing operation of the accounting and finance world. Stay tuned for all the latest by following us and subscribing to our email list.
