SECURE Act Impact on 401(k) Plans

The opportunity to save for retirement in an employer-sponsored retirement plan, such as a 401(k) or 403(b), is a benefit offered by many Atlanta employers. These plans are useful tools which encourage employees to think beyond their immediate financial needs and save for retirement. Features such as automatic enrollment help to ensure participants are added to the plan as soon as they are eligible. While helpful, there are still many who lack the proper savings for their post-working days. According to CNBC, most Americans close to retirement have only saved 12% of what they need, reflecting an alarming trend. To make retirement saving more accessible, the Securing Every Community Up for Retirement Enhancement (SECURE) Act was passed by the House. Although it’s still under consideration in the Senate, if passed, there will be many changes that plan sponsors need to consider. To help clients, prospects and others understand the potential impact, Wilson Lewis has provided a summary of key changes below.

SECURE Act Highlights

• Small Employer Automatic Enrollment Credit – Automatic enrollment has been shown to increase plan participation. In fact, the American Benefits Council found that plans with automatic enrollment had a participation rate of 92%. To encourage employers, the Act creates a new tax credit of up to $500 per year for new 401(k) and SIMPLE IRA plans that include an automatic enrollment feature. Note this credit would be available in addition to the current start-up credit and would be available for three years. It would also be available to employers that convert an existing plan to an automatic enrollment feature.
• Part-Time Employee Participation – Currently plan sponsors are allowed to omit part-time employees from their retirement plan program. The Act changes this rule to require Atlanta employers with a 4019K) plan to permit an employee with one year of service (1,000-hour rule) or three consecutive years of service (where the employee worked 500 more hours). It’s important for plan sponsors to note that the latter would be excluded from nondiscrimination and top-heavy testing requirements.
• Penalty-Free Withdrawals – The Act will allow participants to make withdrawals from the plan without penalty for qualifying birth or adoption events. Under the current law, such withdrawals could be made but would result in penalties.
• Required Minimum Distributions (RMD) – To allow participants to leverage their retirement savings for a longer period of time, the Act will change the RMD age. Currently, when a participant reaches the age of 70 and 1/2, they must take distributions from their retirement savings. The change will allow participants to wait until the age of 72 before they are required to take RMDs.
• Lifetime Income Disclosure – In alignment with the intent of the changes, this disclosure is designed to illustrate to participants the monthly payment they would receive if the account balance were used to provide lifetime income. The disclosure would need to be provided to participants at least one time in a 12-month period. The Secretary of Labor will be required to develop the model disclosure and calculation method. It’s important to note that plan sponsors and fiduciaries will have no ERISA liability related to the lifetime income stream equivalents identified using the assumptions and guidance contained in the disclosure.
• Failure to File Penalty – The Act also proposes an increase in the penalty associated with failure to file in a timely manner. The penalty would increase to $400 or 100 percent of the tax due, whichever is the greater amount. There are also increases in the fines and penalties associated with failing to file Form 5500.

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While the changes highlighted above have not yet been passed into law, it’s a strong indicator of what Atlanta plan sponsors can expect to see in the future. If you have questions about 401(k) or other benefit plan administration issues or need assistance with your 401(k) audit, Wilson Lewis can help! For additional information please call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.