Articles

An Analysis of the SECURE Act

Jan 8, 2020

On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was enacted as part of the Further Consolidated Appropriations Act, 2020. SECURE is the most sweeping retirement legislation since the Pension Protection Act of 2006, and many of its provisions are designed to make retirement plans more accessible to employees and less cumbersome for employers. 

The majority of the SECURE Act provisions take effect in 2020, although some took effect on the date the SECURE Act was signed, and several have retroactive effect. Provisions regarding open multiple employer plans (MEPs) and pooled employer plans (PEPs), as well as provisions regarding the inclusion of part-time workers in 401(k) plans, do not take effect until 2021. Because operational compliance is required when the change takes effect, quick action may be needed for those changes already in effect or taking effect in 2020. 

An employer generally has until the last day of the first plan year beginning on or after January 1, 2022 to amend its plan document to reflect the changes made by the SECURE Act (later amendment deadlines apply for applicable collectively-bargained and governmental plans). As long as the plan is operated in accordance with the law changes as they take effect, and required amendments are adopted retroactively in a timely manner, the plan will be treated as operating in accordance with its terms and will not be treated as violating otherwise applicable anti-cutback rules when it is eventually amended. 

The Further Consolidated Appropriations Act, 2020 also includes disaster relief covering major disasters declared during periods beginning on January 1, 2018 and ending on February 18, 2020 (i.e., 60 days after the date of enactment). The disaster relief provisions are part of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 that is contained in Division Q of the appropriations act, and are summarized at the end of the table that follows.

As with any major legislation, clarification of the scope and breadth of these changes will come in the months ahead. In the meantime, Newport has set forth below summaries of each of the changes based on our interpretation of the language included in the statute. 

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Disaster Relief under the Taxpayer Certainty and Disaster Tax Relief Act of 2019

In addition to the above provisions enacted under the SECURE Act, the Further Consolidated Appropriations Act, 2020 contains disaster relief provisions similar to disaster relief enacted in prior years. The relief covers disasters that occurred prior to December 20, 2019 and are declared major disasters during the period beginning January 1, 2018 and ending February 18, 2020. The following benefits are included as part of the disaster relief:
  • Up to $100,000 in "qualified disaster distributions" that are not subject to the 10% early payment penalty tax, that can be included in income ratably over a 3-year period, and that can be rolled back into a qualified plan or IRA for up to 3 years following the distribution. The distributions are not eligible rollover distributions and can be made without regard to rules that otherwise restrict distributions from plans. The $100,000 qualified disaster distribution limit is reduced by qualified disaster distributions received by the participant in all prior tax years.
  • Re-contribution of hardship distributions taken to purchase or build a principal residence that were not used for that purpose due to a qualified disaster, if the distribution was received during the period beginning 180 days prior to the first day of the incident period and ending 30 days after the last day of the incident period of the disaster.
  • An increase in the participant loan limit to $100,000 (or the participant's vested account balance, if less) that is available for the 180-day period beginning on December 20, 2019.
  • The ability to defer loan payments due during the period beginning with the first day of a disaster incident period and ending 180 days after the last day of the disaster incident period.
The relief is available to participants who suffer an economic loss and whose principal residence is located in a qualified disaster zone during the period of the disaster and is available for distributions or loans taken during the period beginning on or after the first day of the incident period for the disaster and ending 180 days after December 20, 2019. Amendments to reflect adoption of the disaster relief provisions must generally be adopted by the last day of the first plan year beginning on or after January 1, 2020. Extensions of time to file specified reports and to make specified contributions are also provided.

Further Developments

Newport will continue to monitor the SECURE Act and update you as further substantive developments occur. If you have any questions, please contact your Newport representative.

For advisors, we will be hosting a webinar on January 15 about the SECURE Act and its impact on the industry. Click here to register. 

Click here to download a printable copy of this analysis.
 

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Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Fiduciary consulting services are provided through Newport Group Securities, Inc., an SEC-registered investment adviser and FINRA-registered broker-dealer, and InterServ, LLC, an SEC-registered investment adviser. Newport Group Securities, Inc. and InterServ, LLC are affiliates of Newport Group, Inc. All securities transactions are provided through Newport Group Securities, Inc., in its role as broker-dealer. All fiduciary consulting services are provided through the registered investment adviser. when offering variable insurance products, Newport Group Securities, Inc. acts solely in its capacity as a broker-dealer.
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