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The SECURE Act
& Changes to Your Retirement Plans
February 03, 2020
We spent several newsletters journeying through the various pension plans that are available both in the private and the public sectors. The journey is not over and it is now the time for an introduction to the SECURE Act of 2019.


The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, passed the House in July, was approved by the Senate on Dec.19, 2019, and was signed into law by the president on December 20, 2019 as part of the Further Consolidated Appropriations Act, 2020 (the 2020 United States federal budget).

Intended to strengthen retirement security across the country, the SECURE Act brings changes to the most popular retirement plans used in the United States and is the first major retirement-related legislation enacted since the 2006 Pension Protection Act. Here are the main adjustments brought by the SECURE Act to tax- advantaged retirement accounts.

The new law makes it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.

The SECURE Act incentivizes employers to create 401k plans and to expand access to their existing plans to more workers.

One of the provision allows unrelated small employers to join together to establish a shared 401(k) plan known as a Multiple Employer Plan (MEP). This allows small businesses to pool resources and mitigate the administrative expenses of establishing a plan.

MEPs existed prior to the SECURE Act, but under the previous law they were required to be related in some way (e.g. through geography or through membership in a common industry or trade association). The SECURE Act waived this requirement for MEPs.

The law also shields employers who join a Multiple Employer Plan from liability for potential misconduct perpetrated by other employers who are in the same plan.


In addition, the federal tax credit for defraying plan startup costs is increased from $500 to up to $5,000, and provides an additional $500 tax credit for plans that automatically enroll new hires.

The Act enables businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.

Employers are required to cover long-term, part-time workers starting in 2021. Long-term, part-time workers are defined as workers at least 21 years of age who have completed at least 500 hours of service each year for 3 consecutive years.

The SECURE Act encourages plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.

Employers who offer annuities as part of their defined-contribution retirement plans are shielded from liability under a new safe-harbor provision even if the insurance company selling the annuity commits fraud or collapses, as long as they meet specific regulatory requirements.

Employees who purchase an annuity in their 401(k) can move their annuity to another 401(k) plan at a different employer or to an IRA without paying surrender charges or other penalty fees.

The SECURE Act pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 701⁄2 to 72, for those who are not 701⁄2 by the end of 2019.
Participants in 401(k) and other defined-contribution plans (including traditional IRAs) can delay taking required minimum distributions until they reach the age of 72, an increase from the current age of 70.5. (The 70.5 age was based on life expectancies in the early 1960s, the House said, and had not been updated since.)

Participants are also permitted to continue contributing to traditional IRAs even after turning 70.5, which was previously prohibited.

One provision of the SECURE Act allows the use of tax-advantaged 529 accounts for qualified student loan repayments (up to $10,000 annually).

529 plans can now also be used to pay for the costs of apprenticeship programs.

It permits penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child.

Under the SECURE Act, parents can withdraw up to $5,000 from their individual 401(k) or similar workplace retirement savings plans for each new child without incurring the 10%
additional penalty tax for taking an early distribution.

The SECURE Act partly revises the 2017 Tax Cuts and Jobs Act (TCJA), repealing provisions that increased taxes on the benefits received by family members of deceased United States military veterans.


The SECURE Act is estimated to cost $15.7 billion and it may be primarily funded through a change to "stretch" IRAs.

The stretch IRA was an estate planning strategy that let you extend IRA distributions over future generations (non-spouse beneficiaries) while that IRA continued to grow tax-free.

Under the SECURE Act, disbursements must be collected and taxed within 10 years of the original account holder's death.

This provision shortens the time period in which tax-advantaged accounts can grow and will increase the taxable income of beneficiaries during that ten-year period, generating tax revenue to fund the cost of the law.

We should also mention that recently, the IRS has provided relief to financial institutions that were expected to provide required minimum distribution statements to IRA owners by January 31, 2020.

Notice 2020-6 (PDF) clarifies that if an RMD statement is provided for 2020 to an IRA owner who will turn age 701⁄2 in 2020, the IRS will not consider the statement to be incorrect, but only if the financial institution notifies the IRA owner no later than April 15, 2020, that no RMD is due for 2020.

Under prior law, financial institutions would have needed to notify IRA owners who attained age 701⁄2 in 2020 about their 2020 RMDs by January 31, 2020.

The IRS encourages all financial institutions, in communicating these RMD changes, to remind IRA owners who reached age 701⁄2 in 2019, and have not yet taken their 2019 RMDs, that they are still required to take those distributions by April 1, 2020.


We could not end this newsletter without encouraging you to get advice from a tax or financial professional in all your dealings impacting taxes and investments, and to check our newsletters each week to keep up with the most relevant news and information on these matters.
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