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The SECURE Act Becomes Law and Impacts Businesses

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Sweeping Changes to Retirement Accounts

 

On December 20, 2019 the SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement” was signed into federal law. This Act includes the most sweeping changes to retirement accounts in more than a decade. Designed to boost retirement savings, most of the changes are taxpayer-friendly measures for business and individuals.
 
Below is a very brief summary of changes for businesses. This is not intended to be a full representation of the over 1,700 page law, but rather a few notes on provisions that may be of interest to you.

 

Deadline to Adopt a New Retirement Plan

Effective for Retirement Plan years beginning after December 31, 2019

OLD LAW
SECURE Act
Employers had until December 31 to adopt a Retirement Plan for that year. Employers can now adopt a Retirement Plan at any time before the filing of their company’s tax return.

Retirement Plan Tax Credit for Small Employers

Effective for tax years beginning after December 31, 2019

OLD LAW
SECURE Act
Small employers (up to 100 employees) were eligible for a tax credit up to $500 for up to three years to compensate for the start-up costs of a Retirement Plan.
 Now the maximum credit is the greater of $500 OR the lessor of: $250 times the number of non-highly compensated employees eligible to participate, or $5,000. This credit is available over a three year period.

Small Employer Automatic Enrollment Tax Credit

Effective for tax years beginning after December 31, 2019

OLD LAW
SECURE Act
There was no additional credit for automatic enrollment of employees into the Retirement Plan. For those that adopt automatic enrollment, they will be allowed an additional tax credit up to $500 for three years.

Safe Harbor Election

Effective for Plan years beginning after December 31, 2019

OLD LAW
SECURE Act
Safe Harbor Elections could not be done for the current year. Safe Harbor Elections can be made for the current year up to 30 days before the Plan year end, provided the employer commits to a 4% Safe Harbor Non-Elective Contribution for the current year.

Part-Time Employee Eligibility

Effective January 1, 2021

OLD LAW
SECURE Act
Many plans state that 1,000 hours was the minimum amount of time worked to be eligible to participate in the Retirement Plan. Eligibility requirements for deferrals only have largely decreased from the prior minimum hours worked of 1,000 to 500 so long as the employee has been employed for three consecutive years.

Penalty for Failure to File Retirement Plan Return

Effective for Plans with returns filed after December 31, 2019

OLD LAW
SECURE Act
Penalty for late filing of Form 5500 was $25 per day with a maximum penalty of $15,000. Penalty for late filing increased to $250 per day with a maximum penalty of $150,000.

Multiple Employer Plans (MEPs)

Effective for Plan years beginning after December 31, 2020

OLD LAW
SECURE Act
An association was required for an employer to join a MEP. In addition, the failure of one employer had failure consequences to all employers in that MEP. Employers now have easier access to join MEPs regardless of association. In addition, the failure of one employer will no longer cause others to fail.

Annuities in 401(k) Retirement Plan

No effective date was detailed

OLD LAW
SECURE Act
Fiduciaries were at risk in a Retirement Plan if there was an annuity investment option and the annuity wasn’t able to meet its obligations, among other things. Removes much of the risk so long as the Fiduciary provided objective, thorough and analytical searches for carriers. Now most of the onus is put on the insurance company that issues the annuity contract. There is much more to this rule but one thing that stands out is that instead of a forced sale or surrender of the annuity contract, the annuity must have the ability to become portable if the employee should leave the Retirement Plan.

Consult your tax professional for advice. Information provided as an incidental service to our business as financial advisers.

Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Financial Planning and Investment Advisory Services offered through B&E Investment Advisers, Inc., a State Registered Investment Adviser.  Business & Estate Advisers, Inc., B&E Investment Advisers, Inc. and B&E Pension Advisers, Inc. are separate entities from Valmark Securities, Inc.