SECURE Act Passed as part of Year-End Spending Bill and has major changes to Retirement Savings

On December 19, 2019, Congress passed the Further Consolidated Appropriations Act of 2020, which includes the Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”) and other provisions affecting retirement savings, medical plans, and medical insurance providers. The legislation was signed into law on December 20, 2019, and includes significant changes to retirement plan rules, and to the required minimum distribution rules that apply to an Individual Retirement Account (“IRA”) following the death of the IRA’s owner.

Major provisions of the SECURE Act are:

  • Expanded opportunities for employers to join Multiple Employer Plans.
  • Requires employers to permit certain long-term part-time workers to participate in non-collectively bargained 401(k) plans and permit such employees to be excluded for certain testing purposes.
  • Requires employers to annually provide defined contribution plan participants with annual estimates of the monthly lifetime income value of their retirement accounts.
  • Increase of the business tax credit for plan startup costs to make setting up retirement plans more affordable for small businesses. The tax credit will increase from the current cap of $500 to up to $5,000 in certain circumstances.
  •  Encourages small-business owners to adopt automatic enrollment by providing a further $500 tax credit for three years for plans that add auto-enrollment of new hires.
  • Simplify rules and notice requirements related to qualified nonelective contributions in safe harbor 401(k) plans.
  • Afford additional time to establish retirement plans (up until the due date, including extensions, for the employer’s tax return) to be treated as adopted as of the last day of the taxable year to which the return relates.
  • Increase failure to file penalties for Form 5500 Annual Reports to $250 per day, not to exceed $150,000. Failure to file a registration statement would incur a penalty of $10 per participant per day, not to exceed $50,000. Failure to file a required notice of change would result in a penalty of $10 per day, not to exceed $10,000 for any failure. Failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year. Increasing the penalties will encourage the filing of timely and accurate information returns and statements and the provision of required notices, which, in turn, will improve overall tax administration.

The SECURE Act will have a major impact on retirement savings that are generally effective for plan years beginning after December 31, 2019:


  • An increase in the cap on an automatic escalation of employee deferrals under automatic enrollment safe harbor plans. The cap was previously 10% of compensation and is increased to 15% of compensation.
  • An increase in the age at which an individual must start to take minimum distributions from a qualified retirement plan or IRA. Currently, participants who are not actively employed by the sponsor of the qualified retirement plan and individuals who has IRAs are required to commence minimum distributions from the plan or IRA with respect to the year in which they attain age 70 ½. The legislation increases the commencement age to 72.
  • The repeal of the 70 ½ maximum age for contributions to traditional IRAs. Employees of any age with earned income will be able to contribute to traditional IRAs. This does not affect Roth IRAs, which currently do not have a maximum age for contributions.
  • An expansion of the definition of “income” for IRA contribution purposes to include certain taxable non-tuition fellowship and stipend payments received by graduate and post-doctoral students. This change will enable students to begin saving for retirement.
  •  A provision allowing home health care workers to contribute to a plan or IRA by providing that “difficulty of care payments,” which are excludible from the gross income of such workers, are treated as compensation for IRA contribution purposes.
  • A significant modification of the IRA required minimum distribution rules for most non-spouse beneficiaries following the death of the account owner. If the spouse is not the designated beneficiary of an IRA, the IRA is an “Inherited IRA” after the account owner’s death. Designated beneficiaries of Inherited IRAs have generally been permitted to take distributions over their own life expectancy as first determined in the year of the account owner’s death. The SECURE Act limits the distribution period for most Inherited IRAs of non-spouse beneficiaries to a maximum of 10 years. Non-spouse beneficiaries of an Inherited IRA who are not disabled or chronically ill and who are more than 10 years younger than the deceased employee (or IRA owner) will be required to receive the distribution of the entire account by the tenth calendar year following the year of the employee’s or IRA owner’s death unless the beneficiary is a child of the account owner who has not reached the age of majority. If the beneficiary is a minor child of the account owner, then the beneficiary will be required to receive the distribution of the entire account within ten years after attaining the age of majority.  These changes are effective with respect to accounts of individuals who die after December 31, 2019. Beneficiary designation forms should accordingly be reviewed to ensure that they meet the account owner’s objectives considering these significant changes. (These new rules also apply to many employer-sponsored defined contribution plans.)