News

SECURE Act of 2019

by Dean Huber

On May 23 the House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) by a vote of 417 to 3.  Given such broad support it was expected to fly through the Senate.

When the bill passed through committee it included a provision allowing up to $5,000 of tax free reimbursement from a 529 plans for homeschooling expenses.  The American Federation of Teaches successfully lobbied to have that provision removed prior to final passage by the house and as an objection to that change, Senator Ted Cruz has put a hold on the Senate vote.  Since that time the Wall Street Journal has also raised objections in an editorial to the elimination of the stretch IRA provisions and while most pundits appear to think the act will eventually pass, odds are not as good as they first appeared.

The bill passed by the House would, among other things:

  • Increase the required beginning date for required minimum distributions from age 70 ½ to 72
  • Modify the post death required minimum distribution rules such that in most cases, where the beneficiary is not the spouse, an IRA or qualified plan account would have to be distributed by the end of the 10th year following the date of death of the account owner
  • Increase the credit for a small employer establishing a retirement plan from $500 to as much as $5,000
  • Allow the maximum contribution to a 401(k) plan in a plan that has an automatic escalation provision to go from 10% to 15% after the first year of plan operations.
  • Allow Multiple Employer Plans (MEPs) for otherwise unrelated employers
  • Remove the notice requirement that must be given 30 days before a plan year for a safe harbor plan that uses the non-elective (profit sharing) contribution option and allow plans to be amended to operate as a non-elective safe harbor plan after the plan year has already begun but at least 30 days before plan year-end.  It could also be amended to elect safe harbor in the last 30 days of the plan year, but the safe harbor contribution would have to be 4% of eligible compensation rather than the 3% otherwise required.
  • Repeal the prohibition on contributions to a traditional IRA by an individual who has attained age 70 ½
  • Require plans to have a duel eligibility requirement.  In addition to the maximum requirement currently allowed (1 year of service (1000 hours) and age 21), the plan would have to allow participation by any employee who had 500 hours in 3 consecutive 12-month periods.  The bill provides that where long-term part time employees are included solely as a result of this provision, the employer would not be required to make non-elective or matching contributions on behalf of such employees, and could exclude all such part-time employees from the top heavy rules as well as the coverage and nondiscrimination testing.  This basically means they would be allowed to make 401(k) deferrals but should have little other impact on the plan.  It may be that a plan that is close to needing an audit and has such part-time employees may be pushed over the audit threshold by this new rule.
  • Provide for penalty free withdrawals, up to $5,000, for certain births and adoptions
  • Extend the last date a plan can be adopted for any given year from the last day of the initial plan year to the due date, including extensions, for the taxable year of the employer
  • Provide a fiduciary safe harbor for the provider of a lifetime income provider under the plan
  • Provide nondiscrimination, coverage, and minimum participation relief for defined benefit plans closed to new hires
  • Impose new annual lifetime income disclosures for defined contribution plans
  • Treat the costs associated with certain apprenticeship programs or certain student loan repayments as qualified costs eligible for reimbursement from a 529 plan
  • Increase reporting and disclosure penalties

When the bill passed through House it included a provision allowing up to $5,000 of tax free reimbursement from a 529 plans for homeschooling expenses.  The American Federation of Teaches successfully lobbied to have that provision removed prior to final passage by the house and as an objection to that change, Senator Ted Cruz has put a hold on the Senate vote.  Since that time the Wall Street Journal has also raised objections in an editorial to the elimination of the stretch IRA provisions and while most pundits appear to think the act will eventually pass, odds are not as good as they first appeared.