The SECURE Act: What Do Plan Sponsors & Advisors Need to Know?

Signed into law on December 20, 2019, the SECURE Act ushered in the most significant changes to retirement plans since the Pension Protection Act of 2006.

Technically, the SECURE Act is part of the Further Consolidated Appropriations Act, 2020. In addition to the SECURE Act, the FCAA also includes bills that address new health and welfare provisions, as well as provide disaster relief.

Some SECURE Act Basics

  • What Does the SECURE Act Stand For?

    The acronym stands for Setting Every Community Up for Retirement Enhancement Act.

    The Act contains an array of changes to all types of qualified and individual retirement plans. We already know the impact – both positive and negative, but on balance, positive – of many of these changes. And there are some provisions that the IRS or DOL still have to provide guidance on.

  • When Does the SECURE Act Take Effect?

    Most of the law’s provisions became effective January 1, 2020. Two notable exceptions are the provision for covering long-term part-time employees in retirement plans and the provisions for the new Pooled Employer Plans (PEPs), as detailed below.

  • Is the SECURE Act a Good Thing?

    Overall, the SECURE Act is a positive for employers who sponsor or want to sponsor a retirement plan.

    Employers and the retirement plans they sponsor will want to become familiar with the Act’s main provisions that we’ve outlined below – and advisors will want to understand them, as well. We’ve also included some changes that will impact individuals, too – and we’ve highlighted with ⚠️️ ️Caution the potential pitfalls that everyone will want to avoid.

    TRA is your expert partner in understanding the SECURE Act changes – and in helping you leverage them to improve retirement plan outcomes.

The Key Details

  • How the SECURE Act Provides Incentives & Benefits for Plan Sponsors

    For any employer who thought offering a retirement plan was beyond their reach, there’s no longer an excuse. The SECURE Act not only creates new incentives to start a plan – it also modifies existing incentives to make establishing a plan more attractive. In addition, some of the SECURE Act’s provisions also offer benefits to existing plans.

    • Increased Tax Credit for Starting a Plan
      • A newly created 401(k) plan with 20 or more Non-Highly Compensated Employees (NHCEs), can claim a tax credit of $5,000 per year for three years to cover 50% of implementation and administrative costs:
        • For the first credit year (year when the plan is established) and for each of the two taxable years immediately following the first credit year, the tax credit available is the greater of $500, or the lesser of $250 for each NHCE who is eligible to participate in the Plan and $5,000.
        • This provision is effective for tax years beginning after December 31, 2019.
    • Automatic Enrollment: Higher Cap & New Tax Credit
      • The cap in automatic enrollment in employer-sponsored plans is now 15% of pay, up from 10%.
      • Starting in 2020, smaller plans who add automatic enrollment may be eligible to claim a $500 tax credit per year for up to three years (the year the plan implements auto enroll, plus two years thereafter).
      • New plans can claim both the tax credit for starting a plan as well as the tax credit for automatic enrollment.
    • More Time to Adopt a New Plan
      • Effective for plan years beginning after December 31, 2019, an employer can adopt a new plan by the due date of the employer’s tax return, including extensions.
      • This means an employer is now able to adopt a plan by the due date of the tax return on which the employer wishes to claim a tax-deductible discretionary contribution.
      • A salary deferral provision must be in place before the plan accepts elective deferrals. If an employer adopts a 401(k) plan after the end of their tax year, they cannot take any 401(k) salary deferrals for that year.
      • Best practice is always to adopt a plan before the end of the tax year. That gives you the biggest window of opportunity to maximize all types of tax-deductible contributions.
      • ⚠️️ Caution: Normal Form 5500 filing deadlines and minimum funding deadlines still apply, regardless of when the plan is adopted.
    • Fewer Safe Harbor Employee Notice Requirements
      • Effective for plan years beginning after December 31, 2019, the participant Safe Harbor notice is only required for plans using Safe Harbor 401(k) Matching to meet the Average Deferral Percentage test.
      • ⚠️️ Cautions:
        • Before you eliminate this participant communication, check to see if your plan uses the Qualified Automatic Contribution Arrangement match or contains any other match provisions intended to meet the Average Contribution percentage test. If so, you’ve still got to provide the participant Safe Harbor notice.
        • We’re awaiting further guidance to clarify all the provisions to which the Safe Harbor notice elimination applies. We’ll update you when we receive this guidance.
        • For changes made mid-year, the SECURE Act did not change the requirements for providing a revised Safe Harbor Notice.
        • If your plan uses the “might/maybe” Safe Harbor, you may still be required to provide the notice in order to be compliant with these rules. You may want to consider eliminating this provision and instead use the new flexibility offered under the SECURE Act’s new provision for Safe Harbor Nonelective Contributions.
    • Safe Harbor Employer Non-Match Contributions: More Flexibility
      • Effective for plan years beginning December 31, 2019, a plan can amend its Safe Harbor nonelective provision (both the regular and Qualified Automatic Contribution Arrangement), at any time up to 30 days prior to the end of the plan year for which it is effective.
      • A plan may be amended to add the Safe Harbor nonelective contribution after the 30 days prior to the end of the plan year but before the deadline for refunding Average Deferral Percentage test refunds (generally before the end of the plan year following the year of the test failure).
      • ⚠️️ Cautions:
        • If the plan already includes a Safe Harbor contribution or Qualified Automatic Contribution Arrangement to meet the Average Deferral Percentage test for the plan year, you cannot amend the plan to include a Safe Harbor nonelective contribution that year.
        • An earlier amendment deadline may apply given the employer tax year for which the nonelective contribution will be deducted. However, the cost of the Safe Harbor nonelective contribution that must be contributed is increased to 4% of compensation from the traditional 3%.
        • This change does not apply to 403(b) or 457(b) Plans.
    • Introducing the Pooled Employer Plan (PEP)
      • PEPs are a type of open Multiple Employer Plan (MEP).
      • PEPs will operate under the established guidelines for MEPs, with the following exceptions:
      • No business nexus (commonality) required.
      • Must be sponsored by a Pooled Plan Provider (PPP).
      • No audit required if a PEP meets two conditions:
        1. No single adopter has more than 100 eligible participants.
        2. The total number of eligible participants across all adopting employers is not more than 1,000.
      • Each adopting employer will retain fiduciary liability for the selection and monitoring of the PPP.
      • PEPs are effective for plans beginning January 1, 2021.
      • PEPs will allow unrelated employers to “pool” together to create a single plan under ERISA, provided the plan is:
      1. Administered centrally with a single PPP, as well as any other service-provider fiduciaries across all adopting employers of the PEP. (All PEP plans will be required to have a designated PPP as the named fiduciary of the plan.)
      2. Provide for the same investment options for all participants across all adopting employers
      3. Share the same plan year among all adopting plans.
      • The PPP may choose to file all adopting employer plans as a single ERISA plan on one Form 5500 or file individual 5500 forms for each adopting employer.
      • The PPP also must designate one or more trustees for safekeeping of plan assets as well as setting procedures and guidelines to ensure timeliness remittance of deferrals, loan repayments, distributions, etc.
      • ⚠️ ️Caution: PEPs must be defined contribution (DC) plans – in other words, there are no 403(b) PEPs or Defined Benefit PEPs allowed.
    • Changes to Multiple Employer Plans (MEPs)
      • Under the SECURE Act, a MEP cannot lose its tax-advantaged status as a result of non-compliance or a disqualifying event of one of the adopting employers, as had previously been the case. This is commonly known as the elimination of the “one bad apple” rule.
      • Tax credits for plans effective after December 31, 2019 will also apply to MEPs and to Pooled Employer Plans (PEPs) established after this date.
      • ⚠️ Caution: If you currently have an Open MEP and want to appoint a Pooled Plan Provider (PPP) as Trustee so that you can convert it to a PEP, wait until the IRS issues further guidance. We’ll keep you informed when we know the way to do this to ensure your plan stays in compliance.
  • How the SECURE Act Expands Plan Coverage and Savings Flexibility

    Also among the SECURE Act’s most important provisions are those that make retirement plans available to more employees – and make saving for retirement more flexible for many Americans.

    • Mandatory Coverage for Long-Term Part-Time Employees
      • Beginning in 2021, employers will need to track the hours worked for their long-term part-time employees who previously were excluded from participation in their plans.
      • The SECURE Act requires plans to make salary reduction contributions for employees who are at least 21 years of age and who have completed at least 500 hours of service in three consecutive 12-month periods of employment.
      • ⚠️ Caution: These new rules do not apply to collectively bargained plans or 403(b)s.
      • Employers may ignore all periods of service for long-term part-time types of employees prior to January 1, 2021.
      • Based on age and service requirement, employees currently excluded from a plan will not be covered until 2024.
      • Long-term part-time employees who become plan participants can be excluded from safe-harbor contributions, nondiscrimination testing, and top-heavy requirements.
      • If long-term part-time employees are eligible for employer contributions — such as a match — vesting years of service must be based on 500 hours of service for any vesting computation period.
      • If a long-term part-time employee meets the normal age and service requirements and is not part of an excluded class of employees, they must be treated like any other eligible employee and be permitted to participate in their employer’s plan.
        • ⚠️ Caution: We await further guidance regarding how to handle vesting for such employees. We’ll keep you posted as we learn more.
    • Required Minimum Distributions Start Later
      • For those who reach age 70 ½ after December 31, 2019, the required beginning date for receiving Required Minimum Distributions (RMDs) from a qualified retirement plan or Individual Retirement Plan (IRA) is extended to not later than the April 1 following the attainment of age 72.
      • This new RMD rule is applicable to individuals born after June 30, 1949.
      • ⚠️ Caution: Individuals who began receiving RMDs prior to December 31, 2019 are not covered by this change.
    • Traditional IRAs: No More Age Restrictions on Contributions
      • Over age 70 ½? Starting in 2020, you (and everyone) can make non-Roth deductible IRA contributions.
      • ⚠️ Caution: IRA deductions made after age 70 ½ reduce IRA charitable distribution exclusions.
    • New Rules for Safe Harbor Qualified Automatic Contribution Arrangement (QACA) Plans
      • The SECURE Act increased the 10% cap on the QAC Maximum Automatic Deferral to 15%.
      • This increase doesn’t apply to the initial period (first year of automatic enrollment) and doesn’t change employer contributions under the QAC Provision.
      • ⚠️ Caution: The plan document must be amended to increase this limit.
    • Lifetime Income Investment Flexibility
      • New IRS Code Section 401(a)(38) clarifies that if a lifetime income investment is no longer authorized to be held as an investment potion under a Defined Contribution plan, a 403(b) plan, or 457(b) plan, the plan may allow a qualified distribution of the lifetime income investment.
      • Participants must:
        • Make these elections within 90 days after the investments are dropped from the plan.
        • Roll over the distributions to IRAs or other rollover vehicles by a trustee-to-trustee transfer.
    • Guaranteed Income Provider Selection: Fiduciary Safe Harbor
      • When selecting a guaranteed investment income contract (fixed-term, life, or joint lives annuity contract), a fiduciary will be deemed to have met their fiduciary duty if they:
        • Engage in an objective search for insurers;
        • Conclude the insurer can fulfill the contract; and,
        • Conclude that the annuity cost is reasonable.
      • This activity can be done periodically – annually may be sufficient — and does not need to be done with each contract placed with the reviewed insurer.
  • Other Important SECURE Act & FCAA Changes

    Don’t overlook these SECURE Act/FCAA provisions that could also impact you or your sponsored plan. Advisors may want to pay special attention to those provisions that may impact their individual as well as retirement plan clients.

    • 402(f) Special Tax Notice: Requirements & Changes
      • To help participants understand their rollover options, plans must provide the 402(f) Notice — referred to as the Special Tax Notice or Rollover Notice — to them within a reasonable amount of time before making an eligible rollover distribution.
      • The SECURE Act made multiple changes to distributions rules from qualified plans, including 403(b) and governmental 457(b) plans.
      • Some of the changes are immediately effective for participants requiring updates to the 402(f) Notice used.
      • ⚠️ Caution: Plan sponsors also need to update their plans’ Distribution Election Forms. Contact your TRA Regional Sales Consultant to learn what actions plan sponsors need to take.
    • Early Withdrawal Rules Expanded for Birth or Adoption
      • A premature retirement distribution will not be subject to the 10% penalty if the distribution is for the birth of adoption of a child (or individual who is incapable of self-support).
      • Such distributions cannot exceed $5,000.
      • ⚠️ Caution: These distributions are subject to income tax.
    • New Qualified Disaster Distributions and Loans
      • Beyond the SECURE Act, the FCAA permits premature retirement distributions to cover 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.
      • Premature retirement distributions for up to $100,000 (cumulative limit) for Qualified Disaster Distributions are exempt from mandatory withholding and the 10% penalty.
      • Qualified Disaster Distributions are subject to income tax but are treated as distributed evenly over a three-year period (unless the taxpayer elects to report full amount in year of distribution).
      • Qualified Disaster Distributions can be repaid within three years of receipt.
      • Pre-retirement distributions intended for the purchase of a primary residence that were cancelled because of an eligible disaster can now be paid back.
      • Plan participants can take up to a $100,00 loan for disaster recovery (up from $50,000) and can delay repayments to their plan for up to one year.
    • 403(b) Custodial Account: New In-Kind Distribution Rules
      • A 403(b) plan can now distribute annuity contracts to a participant or beneficiary in-kind and the custodian holding the annuity contract will continue to treat it on a tax-deferred basis as a 403(b)(7) custodial account.
      • This is similar to the treatment of fully paid annuity contracts under Revenue Ruling 2011-7 until such amounts are actually paid to the participant or beneficiary.
      • ⚠️ Caution: This provision does not apply to custodial accounts with mutual funds. We’re awaiting further guidance from the IRS on this topic and will update you when we know more.
    • No More “Stretch IRAs”
      • If an original IRA owner passed away after December 31, 2019, more beneficiaries will likely have to take money out of the plan than was permitted under the prior “stretch IRA.”
      • Generally, IRA beneficiaries will now be required to take payments of the entire plan within ten years. (There are no Required Minimum Distributions, but beneficiaries must have completed all withdrawals from the plan by the end of ten years.)
        • Exceptions to this new rule include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than ten years younger than the decedent.
      • The SECURE Act also extends the five-year post death distribution rule to ten years.
      • ⚠️ Cautions:
        • Inherited an IRA from an original IRA owner who passed away prior to January 1, 2020? Then you need not make any changes to your current distribution schedule.
        • If a “stretch IRA” is part of your estate plan, you should contact your personal tax professional to determine your best course of action under this new provision.
    • No More “Credit Card” Loans from Plans
      • As of December 20, 2019, plans that permitted loans through use of a credit card under IRS Code Section 72(p) are no longer permitted to offer this style of taking a loan.
      • ⚠️ Caution: Any future purchase made with a credit card linked to a retirement plan will be treated as a taxable distribution and could trigger plan qualification issues.
    • 529 Plan Qualified Expenses Expanded to Include Student Loans and Apprenticeships
      • Effective January 1, 2019, up to $10,000 (cumulative limit) annually of 529 plan funds can be used to pay expenses of student loans or apprenticeships.
    • Big Increase in Penalties for Failing to File Form 5500 and Form 8955SSA
      • ⚠️ Caution: Effective for filings due after December 31, 2019, the SECURE Act substantially increases penalties for failing to file Form 5500 and Form 8955-SSA (among others) on a timely basis. In addition, any DOL late filing penalties still apply.
        • For example, a late filing of Form 5500 is now $250 per day, with a maximum of $150,000 per plan (per plan year missed).
        • Previously, a plan that filed late paid only $25 per day in penalties, up to a maximum penalty of $15,000.
        • And the DOL can still impose a penalty of $2330 per day for a late Form 5500 filing.
      • Here’s an article that details the penalties for late filing of these and other forms – and how to avoid them or at least mitigate their impact.
        • TRA’s 3(16) Plan Administration Relief Services (PARS) minimize the chance that you will miss plan filing deadlines. These 3(16) Delegated Fiduciary Services specifically include preparing, signing and timely filing of the Form 5500 and Form 8955-SSA on behalf of plan sponsors, among other features that simplify plan sponsor administration.
    • Easing of Defined Benefit Nondiscrimination Rules
      • The SECURE Act provides nondiscrimination testing relief for Defined Benefit (DB) plans that are “soft frozen” prior to April 5, 2017 that allow matching contributions to be used in the nondiscrimination testing.
      • Previously, DB plans which no longer allow new employees to become participants (i.e., “soft frozen” plans) could eventually fail IRS nondiscrimination rules.
        • The failure could require that the employer had to make a “gateway” contribution, which can be as much as 7 ½ % of payroll.
      • Generally, employers who “soft froze” their plans replaced the benefit with an employer contribution to a Defined Contribution (401(k)) plan.
        • The employer contribution (match or otherwise) can now be used in the testing, which will prevent the “gateway” contribution and decrease the possibility that plans will end benefit accrual to all participants through a “total freeze” or termination.
      • The change is designed to protect older, long-service participants in DB plans.
      • The change is effective retroactively, so past years will also be covered.
    • Lower In-Service Distribution Age for Pension & Government Plans
      • The SECURE Act lowers the age for in-service distributions under a pension plan or governmental 457(b) plan to age 59 ½.
        • Previously, the minimum age for in-service distributions from pension plans was 62 and was 70 ½  for 457(b) plans).
        • ⚠️ Caution: This is not applicable to 401(k) or 403(b) plans.
      • Effective for plan years beginning after December 31, 2019.
    • Kiddie Tax
      • Beginning in 2020, children with significant income are no longer subject to trust tax rates, but subject to the incremental tax rate of their parents.
      • Taxpayers can elect to apply this new rule for the 2019 tax year — and may choose to apply the rule for the 2018 tax year through an amended return.
    • Benefit Statement Disclosures Must Estimate Lifetime Income Streams
      • Under this provision, a defined contribution plan participant benefit statement must contain an estimate of the lifetime monthly income stream that could be obtained based on the participant’s benefit under the plan.
      • This disclosure will be required on an annual basis.
      • The DOL originally proposed this requirement in 2013 but is was not finalized until the SECURE Act.
      • ⚠️ Caution: This provision will be effective once the DOL provides more guidance. We’ll update you when we have more details.
  • Actions for Plan Sponsors

    Plan Sponsors must operate their plans in accordance with the law, of course — and if they adopt amendments as a result of the SECURE Act, they are responsible for making the corresponding changes to their plan documents.

    • Plan Amendments Are Your Responsibility
      • ⚠️ Caution: You must amend your written plan document with all applicable changes related to the SECURE Act by no later than the last day of the first plan year following the changes, beginning on or after December 31, 2022.
      • For terminating plans, this deadline is presumed to be the plan’s termination date.
      • This applies to 401(k), 403(b) and 457(b) plans.
      • The amendment deadline is extended by two years for governmental plans and certain union plans.
    • How TRA Can Help
      • Contact TRA for more direction on what action is needed to amend plan documents — and when you’ll need to do so.
      • Now, more than ever, hiring TRA as a Delegated 3(16) Plan Administrator makes sense. Our Plan Administration Relief Services (PARS) include amending plan documents as needed. In other words, we do the work – and you don’t have to!


SECURE Act Webinar Series

  • Our webinar series spotlights the key provisions of the SECURE Act for advisors and plan sponsors. In just an hour TRA experts provide the information you need for SECURE Act success!

    Plan on joining us for the next webinar. And if you’re not able to attend – or would like a refresher – tune into a recorded session.

    • Bringing the SECURE Act into Focus for 2020 - January 23, 2020

      On January 23, 2020, John Markley and Lisa Showalter brought the SECURE Act into focus. You can listen/view the recorded presentation below.

      A visionary in the retirement plan industry, John founded Markley Actuarial over 30 years ago. Since 2018, Markley Actuarial has been a division of TRA. John serves as a consultant to large plans, municipal plans, and plans with employee contributions.

      A past President of ASPPA’s College of Pension Actuaries, John is currently a member of the Government Affairs Committee of ASPPA.

      Lisa also joined TRA from Markley Actuarial in 2018. As a technical and consulting resource for TRA’s Sales Team, she works with plan sponsors and industry partners to provide customized plans tailored to clients’ needs. She is Certified Pension Consultant and a member of Women in Pensions Network.

      Click here to download the presentation

    • From MEPs to PEPs & More: What Advisors Need to Know - March 25, 2020

      On Wednesday March 25, 2020, Trey Galuppi, TRA’s MEP Specialist and John Markley, TRA’s Industry Relations Director, addressed the SECURE Act’s impact on existing retirement plan platforms, defined new opportunities the legislation creates – and demonstrated how TRA can help you craft the plans that best meet your clients’ needs.

      They focused on some of the most significant changes in the SECURE Act relating to Multiple Employer Plans (MEPs) and the new Pooled Employer Plans (PEPs). If you want to help your plan sponsor clients optimize the SECURE Act’s provisions, this is a webinar you won’t want to miss.

      Our focus is on helping advisors determine which plan platform is right for which clients.

      Click here to download the presentation

TRA Has the Help You Need

Whether you are a plan sponsor or advisor, your TRA Regional Sales Consultant (RSC) stands ready to help you successfully navigate the provisions of the SECURE Act and the FCAA.

Your RSC will tap into TRA’s expertise so that you can get the answers you need from someone “in the know.” Please contact your RSC today or complete the form below!


Consider TRA's 3(16) Plan Administration Relief Services (PARS)

To alleviate the day-to-day administrative burdens of yours or your clients retirement plans.