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Spectrum Update on the SECURE Act of 2019

Happy New Year Friends,

In late December 2019, the President signed into law the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act") as part of an appropriations bill. The SECURE Act introduces the most significant changes to workplace retirement plans in over a decade. Spectrum's retirement plan consultants have reviewed the new legislation in detail. We focus our Q4'2019 business update on summarizing the major changes for employers and their employees.

Creates Employer Automatic Enrollment Tax Credit
The SECURE Act creates a new tax credit of up to $500 per year for three years to employers to defray startup costs new plans that include automatic enrollment. The credit is also available to employers that convert an existing plan to an automatic enrollment design. This credit is in addition to the startup retirement plan tax credit (below).

  • Who wins: Small businesses, small business owners, and participants of new automatic enrollment plans.
  • Who loses: No one.
  • Our take: Thumbs up. Studies have demonstrated that automatic enrollment can improve plan participation, savings rates, and retirement income adequacy. Implementing automatic enrollment can create challenges for small employers with less sophisticated HRIS or payroll systems. This credit helps to alleviate these issues.

Increases Employer Startup Retirement Plan Tax Credit
The U.S. Government offers a tax credit to offset small business retirement plan startup costs. The SECURE Act increases the credit from $500 per year up to $5,000 per year for three years. The maximum credit is now $15,000 over three years.

  • Who wins: Small businesses and small business owners.
  • Who loses: No one.
  • Our take: Thumbs up. Workplace retirement plan coverage in America remains inadequate, particularly among employees of small employers. Administration and compliance costs are often impediments to new plan origination for employers. Increasing the tax credit eliminates most of these impediments.

Increases Late Filing Penalties
Under the SECURE Act, the late filing penalties for Form 5500 are increased to $250 per day, not to exceed $150,000. Also, late filing of Form 8955-SSA is increased to $10 per participant per day, not to exceed $50,000.

  • Who wins: The U.S. Treasury.
  • Who loses: Plan Sponsors and Plan Administrators who do not file required government forms timely.
  • Our take: Thumbs down. Expansion of penalties limit new plan origination by frightening off prospective retirement plan sponsors. Plan sponsors would be wise to engage the services of advisors, consultants, recordkeepers, and/or third party administrators to mitigate the risk of filing delays.

Increases Required Minimum Distribution (RMD) Age
An RMD is required from retirement plans after participants reach a certain age. The SECURE Act increases the RMD age from 70½ to 72. This is applicable to distributions made after December 31, 2019 for individuals who reach 70½ from January 1, 2020 on. Equally significant, the SECURE Act enables workers age 70½ and older with earned income to contribute to individual retirement accounts (IRAs). Previously, this was not allowed.

  • Who wins: Older workers.
  • Who loses: No one.
  • Our take: Thumbs up. Americans are living and working longer. An RMD is a forced distribution from a workplace retirement plan, which creates adverse tax consequences for participants. Delaying this requirement is a welcome benefit for older workers.

Introduces Pooled Employer Plans
The SECURE Act allows unrelated employers to band together in pooled employer plans ("PEPs"). By banding together in PEPs, a retirement plan can scale much larger than it could with only one participating employer. Scale offers PEPs the potential for reduced administrative costs and duties for participating employers.

  • Who wins: Micro plans, startup plans, and the participants thereof.
  • Who loses: No one.
  • Our take: Thumbs up. Small plans should have the ability to band together for collective buying power. Previously this capability only existed for employers under common control or through associations.

Requires Coverage of Long-term Part Time Employees
The SECURE Act requires employers to include long-time part-time workers in defined-contribution plans. Eligible employees must have at least 500 annual hours of service for three consecutive years, and be age 21 or older. However, these participants can be excluded from safe harbor contributions, nondiscrimination and top-heavy requirements. Also, exceptions to this new requirement are made for collectively bargained plans. Previously, part-time workers could be excluded if they have not worked 1,000 hours in a 12-month eligibility period.

  • Who wins: Long-term part time employees.
  • Who loses: Employer human resource departments.
  • Our take: Thumbs up. While this change will create new administrative issues for some employers, the gig economy appears here to stay. This provision was also enacted correctly by expanding coverage while excluding long-term part time employees from safe harbor contributions and certain compliance tests. Had the rule been enacted to include long-term part time employees in safe harbor contributions and certain compliance test, our perspective would be different.

Naturally, these are only some of the SECURE Act highlights, and the provisions we believe are most relevant to our clients, their plan participants, professional advisory partners, and prospective clients. Please feel free to contact your Spectrum Account Manager to schedule a consultative review of your workplace retirement plan. If you know an organization that could benefit from our products or services, Spectrum's online proposal system also makes it easy to request information.

We will send our next quarterly update in April 2020. If you would like to hear from us more regularly, please connect through Spectrum's social media channels. Also, we always welcome feedback, so feel free to contact us on any matter. Again, we thank every client and professional advisor for placing their confidence and trust in our firm.



Petros P. Koumantaros
Managing Director & CEO

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ERISA Workplace Retirement Plan Limits

The federal government annually publishes updated qualified retirement plan limits, which impact the contributions, benefit accruals, and compliance of ERISA covered qualified retirement plans. The below tables summarize the most significant changes in recent history.


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