The SECURE Act is Changing the Retirement Landscape
Find out what this new law means for you and your employees.
On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) into law. An extensive piece of bipartisan legislation, the SECURE Act improves access to tax-advantaged retirement accounts, allows people to save more, and encourages employers to provide retirement plans.
What does the SECURE Act mean to you and your employees?
As an employer, you’re tasked with working with your retirement plan provider to implement the provisions of the SECURE Act that impact your employees. One of the most exciting benefits of the SECURE Act is valuable tax credits for small employers, but we’ve also included below other important considerations you should be aware of:
1. Tax credit for new plans
If you don’t have a retirement plan today, and have been on the fence about starting one because of cost concerns, you may now be able to claim tax credits of 50% of the cost to establish and administer a plan, up to the greater of:
- $500; or
- the lesser of:
- $250 per eligible non-highly compensated employee eligible for the plan; and
Plus, you can claim this credit for the first three years of the plan. That means up to $15,000 in tax credits!
2. A tax credit for adding eligible automatic enrollment
Small businesses can now earn an additional $500 tax credit for adding an eligible automatic enrollment feature to their plan. The credit is available for each of the first three years the feature is active, for a total of $1,500 in tax credits.
Wondering if your company qualified? You may be eligible if you can answer “yes” to the following questions:
- Do you have 100 or fewer employees?
- Did you pay each of them at least $5,000 last year?
- Was there at least one “non-highly compensated employee” who earned less than $120,000 last year?
3. More flexible safe harbor rules
Worried each year whether you’ll pass testing for your 401(k) plan, and if you missed your chance to make a contribution that will get you out of testing? Now you can wait to add a safe harbor non-elective feature until later in the year if you see that it’s necessary for your plan—helping avoid unnecessary expense.
4. Higher deferral escalation limits
If your plan uses automatic escalation to gradually bump up employees’ deferral rates over time, you can increase the maximum contribution level from 10% to 15%. This change could mean a brighter future for your employees.
5. Eligibility for long-term, part-time employees
Currently, 401(k) plans can limit access for employees who work under 1,000 hours per year, which averages out to about 20 hours per week. However, beginning in 2021, plans must provide access for employees who haven’t met 1,000 hours in one year, but have worked for over 500 hours for an employer for at least three years.
6. Increased penalties for late filing
To improve deadline compliance, penalties for late retirement plan document filings have increased. Specifically, penalties for failure to file a Form 5500 (annual informational return) have increased to $105 per day late (capped at $50k). In addition, penalties for failing to file a Form 5330 (excise tax filing for certain failures) will increase to the lesser of 100% of the excise tax or $400.
7. Required minimum distribution (RMD) age increases
Previously, employees would need to take RMDs from their IRAs and qualified employer-sponsored retirement plans like 401(k)s at age 70 ½. Now, they can take them beginning at age 72—allowing extra time for earnings to potentially accumulate.
8. Penalty-free withdrawals for birth and adoption expenses
Offering a financial respite for parents, this new provision allows people to withdraw up to $5,000 from their qualified retirement accounts—without paying the usual 10% early withdrawal penalty—to cover expenses related to a birth or adoption.
9. Retirement projections for employees
Rather than just reporting a lump sum of what employees have saved, retirement plans will now be required to project expected income at retirement. By doing so, employees will have a better idea of what their future will look like. While this is a new regulation, Betterment for Business already offers this type of projection for 401(k) plan participants.
10. New regulations for pooled employer plans
Starting in 2021, unrelated companies can join a single “pooled” plan in an effort to access greater economies of scale and cost efficiencies. Fees on Betterment plans, however, are some of the lowest available, so there’s likely no need to compromise on a pooled plan that doesn’t meet all of your needs.
Want to learn more? We can help.
The SECURE Act contains 30 sections in all, which you can read about in more detail here. However, if you don’t want to sift through these dense regulations on your own, Betterment can help.
As a full-service provider, we make life easy for you by assisting with everything from compliance testing to plan design consulting. Not only do we provide a highly optimized 401(k) plan, we also offer your employees high-tech retirement planning, a big picture view of their finances, and personalized advice—all at a fraction of the cost of most providers. Ready for a better 401(k) plan? Let’s talk.
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