Significant retirement plan changes enacted in FY 2020 spending legislation
In brief
Fiscal Year 2020 appropriations legislation enacted December 20 th includes The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, as well as other provisions that impact retirement plans. The following covers key provisions of interest to law firms. For additional information regarding the SECURE Act, please see our December 23, 2019
In detail
Defined benefit plan in-service withdrawals at age 59-½
Previously, in-service distributions from defined benefit plans, including cash balance and variable annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after December 31, 2019.
In detail
Defined benefit plan in-service withdrawals at age 59-½
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
In detail
Defined benefit plan in-service withdrawals at age 59-½
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
In detail
Defined benefit plan in-service withdrawals at age 59-½
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
In detail
Defined benefit plan in-service withdrawals at age 59-½
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
In detail
Defined benefit plan in-service withdrawals at age 59-½
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
In detail
Defined benefit plan in-service withdrawals at age 59-½
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
In detail
Defined benefit plan in-service withdrawals at age 59-½
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
Previously, in-service distributions from defined benefit plans, including cash balance and variable
annuity plans, were not permitted until age 62. The Bipartisan American Miners Act of 2019, also
included in the 2020 appropriations legislation, amends Internal Revenue Code Section 401(a)(36) to
allow in-service distributions from defined benefit plans beginning at age 59-½, effective after December 31, 2019.
Changes to required minimum distribution rules
The age at which required minimum distributions (RMDs) must begin has been extended from age 70-½ to age 72, effective for individuals who attain age 70-½ after December 31, 2019.
The SECURE Act also changes the rules with respect to post-death required distributions from individual
retirement accounts (IRAs) and defined contribution plans. Previously, benefits could be paid out over
the beneficiary’s lifetime – referred to as a ‘stretch-IRA.’ The SECURE Act requires post-death distributions to be completed by the tenth calendar year after death, unless the distributions are made to a surviving spouse, a disabled individual, or a minor child. These rules are effective for deaths after
December 31, 2019.
Plan adoption deadline
Previously, an employer was required to adopt a tax-qualified plan by the end of the tax year in order for the plan to be considered effective for that year. The SECURE Act allows employers to treat tax-qualified plans adopted by the due date (including extensions) of the employer’s tax return to treat the plan as having been adopted as of the last day of the tax year, effective for tax years after December 31, 2019.
Nondiscrimination testing for soft-frozen defined benefit plans
In the last decade, many defined benefit plans have been closed to new hires, referred to as a ‘soft freeze,’ where a grandfathered group of participants continues to accrue benefits under the plan. As the closed group that continues to participate in the plan dwindles or becomes disproportionately highly paid, there was a risk that the plan would have to be completely frozen because the plan would not be able to meet IRS nondiscrimination rules. To prevent complete freezes in the future, the SECURE Act allows plans to continue accruals for the grandfathered group as long as certain requirements are met: (1) for the plan year of the soft freeze and for the two succeeding plan years, the benefits, rights, and features satisfy Section 401(a)(4) nondiscrimination requirements; (2) after the date the plan was closed to new entrants, any plan amendment does not discriminate in favor of highly compensated employees (HCEs); and (3) the class was closed before April 5, 2017 or meets certain requirements prior to closure.
Part-time employees
A firm that maintains a 401(k) plan with a service requirement must have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service. Employees who are eligible solely by reason of the latter new rule may be excluded from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules. Employer contributions are not required until an employee satisfies the plan’s regular eligibility requirements. This requirement applies for years after December 31, 2020 and service before 2021 need not be considered.
401(k) plans - electing safe harbor status
IRS regulations provide relief from annual nondiscrimination testing of employee deferrals and matching contributions if the employer provides ‘safe harbor’ contributions -- either a 3% non-elective contribution or a specified level of matching contribution. The SECURE Act: (1) eliminates the requirement that a sponsor provide a “safe harbor notice” prior to the beginning of the plan year for 401(k) plans that provide the non-elective contribution; (2) permits a plan sponsor to amend a 401(k) plan to become a non-elective safe harbor plan if the amendment is made before the thirtieth day before the end of the plan year; and (3) permits a plan sponsor to amend a 401(k) plan to become a non-elective safe harbor even after such date, provided that the amendment is made by the end of the next plan year and the nonelective contribution is at least 4%. This change is effective for plan years beginning after December 31, 2019.
Lifetime income
The SECURE Act encourages the adoption of annuity income options in defined contribution plans by creating a new fiduciary safe harbor for plan sponsors that offer an annuity option in their defined contribution plan.
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