PLANADVISER - January/February 2020 - 11

SECURE ACT
PROVISIONS
Wide-Ranging Legislation
What to know, and do, about the SECURE Act
THE Setting Every Community Up for
Retirement Enhancement
(SECURE) Act
became law late last year, after being
incorporated into a broader 2020 fiscal
year appropriations bill.
The legislation is ambitious and includes
popular strategies for expanding access to
tax-advantaged retirement savings plans.
Notably, the majority of the law's provisions
are effective for plan years beginning
after December 31, 2019, so preparations
should already be underway.
According to attorneys at Sidley Austin
LLP, some key provisions of the act that
are effective this year include the establishment
of permanent nondiscrimination
testing relief with respect to closed pension
plans; the creation of a new fiduciary safe
harbor covering the selection of an insurer
to provide a guaranteed retirement income
contract to individual participants; and
the launch of a new framework for operating
open multiple employer plans-or
RMD
Age Jumps
The required minimum distribution
age has increased from
70.5 to 72. Americans who
turned 70.5 in 2019 would need
to withdraw the RMD by April
1, 2020, but those who turn
70.5 in 2020-born between
July 1, 1949, and December 31,
1949-and beyond may wait
an additional 1.5 years.
" open MEPs. " Additionally, the SECURE Act
requires that plan participants receive an
illustration of how much monthly income
their retirement savings will provide.
To Jamie Hopkins, director of retirement
research at wealth management firm
Carson Group, perhaps the most important
SECURE Act provision for advisers
to keep in mind, near term, is the elimination
of so-called " stretch " individual
retirement accounts (IRAs). This change
has important implications for many
wealthy Americans' trust and inheritance
arrangements-especially where conduit/
pass-through trusts have been set up to
be the beneficiaries of IRAs and to pay
out only required minimum distributions
(RMDs) to a spouse or heir.
Such conduit/pass-through trusts were
designed to take advantage of the stretchIRA
provisions that have-up until now-
allowed IRAs to be used as incredibly taxefficient
inheritance vehicles. According
to Hopkins, such trusts should be reconsidered
as soon as possible, because of
certain language in the SECURE Act that
could inadvertently lead to major negative
tax and illiquidity consequences. In
short, Hopkins expects that the new rules
for inherited IRAs will have significant
tax consequences for some of advisers'
wealthy individuals clients.
Other provisions to be aware of include
the elimination of
the
annual notice
requirement for nonelective 401(k) safe
harbor plans; the extension of the deadline
for employers to adopt new plans for the
preceding taxable year; and an increase in
the penalties for failure to file a Form 5500.
Regarding plan documents, amendments
for any required modifications do
not need to be formally incorporated until
the IRS mentions the modification on its
cumulative list. At that time, the agency
will also provide the date by which amendments
must be adopted. -John Manganaro
Auto-Escalation
Increase
Allows qualified
automatic contribution
arrangement (QACA)
safe harbor plans to
raise their automatic
deferral cap from 10%
to 15% of an employee's
payroll contributions,
provided he is given the
opportunity to opt out.
Incentives for
New Workplace
Plans
Increases a tax credit
available to small
employers that adopt
a new 401(k) or other
workplace plan, to a
maximum of $5,000
annually for three years.
It also offers a $500 tax
credit for employers that
automatically enroll
employees into a plan.
Relief for New
Parents
Allows an individual to
take a " qualified birth
or adoption distribution "
of up to $5,000 upon
the birth or adoption of
a child, without being
subject to the 10% early
withdrawal penalty.
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PLANADVISER - January/February 2020

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