Alert: How the SECURE Act of 2019 Will Impact Individuals and Businesses

By Avery E. Neumark  |  February 10, 2020

President Trump signed into law The Setting Every Community Up for Retirement Enhancement Act (SECURE Act), H.R. 1994, on December 20, 2019. The SECURE Act is the most significant retirement reform legislation signed into law in the past decade, with the last instance of reform being in 2006. As such, the SECURE Act impacts retirement planning for individuals and plan administration for employers and plan administrators. In addition to enacting the SECURE Act, Congress passed bills affecting the Affordable Care Act and the Tax Cuts and Jobs Act.

The SECURE Act includes provisions intended to incentivize employers to offer retirement plans and ease the administration rules associated with such retirement plans both from a taxpayer perspective and from a plan administrator perspective. Clients should revisit their retirement and estate plans in light of the new law.

Highlights of the SECURE Act include, but are not limited to:


     A. IRAs

Minimum Distribution Requirements: Individuals who reach age 70 ½ after December 31, 2019 are now required to start Required Minimum Distributions from IRAs at age 72 rather than 70 ½.

This minimum distribution requirement provision is effective for participants who turn 70 ½ after December 31, 2019.

Elimination of the Stretch IRAs: Beneficiaries who receive an inherited IRA used to be able to “stretch” distributions over his/her life expectancy. Now, non-spouse beneficiaries can take the money out of the account on any schedule they choose, so long as the IRA is fully depleted by the end of the 10th year following the death of the initial IRA owner. Applicable exceptions to the general rule include (i) the surviving spouse of the employee; (ii) a child of the employee who has not reached the age of majority; (iii) a disabled individual; (iv) a chronically ill individual; and (v) an individual who is not more than 10 years younger than the employee.

New rules generally apply to participants who die after December 31, 2019. For deaths prior to January 1, 2020, the old rules apply.

Elimination of Age Cap Restriction on Contributions to IRAs: Individuals who are still working can continue to contribute to a traditional IRA regardless of their age, whereas prior to the SECURE Act, individuals could only contribute until the age of 70 ½.

This is effective after December 31, 2019.

     B. 401(k)s

Part-time Employees Eligible for Employer 401(k) Plans: Employer plans are now required to offer participation to long-term, part-time employees for elective deferrals. However, the part-time employee must meet plan’s minimum age requirement and complete at least 500 hours of service during each of the immediately preceding three years.

This is effective for plan years beginning after December 31, 2020, but hours of service beginning before 2021 are not taken into account.

     C. Other Provisions

529 Plans Able to Pay-off Student Loans: The SECURE Act expands the definition of qualified higher education expenses in 529 plans to include student loan payments and costs of apprenticeship programs. A $10,000 limit applies to each 529 beneficiary.

The provision is effective retroactively for distributions made after December 31, 2018.

Birth or Adoption Distributions: Permits individuals to distribute from qualified retirement plans up to $5,000 penalty-free for birth or adoption of children; however, then-current income taxes may still apply. Effective for distributions after 2019. Note that this provision is not mandatory and is up to the discretion of plan sponsors to adopt such provision.


     A. Extended Deadline for Adopting Qualified Plans

The SECURE Act extends the deadline to adopt a qualified plan. After December 31, 2019, if a plan is adopted by the due date, including extensions, of an employer's income tax return for a particular tax year, it may be treated as having been adopted on the last day of that year.

Effective to plans adopted for tax years beginning after December 31, 2019.

     B. Pooled Employer Plans (PEPs)

Employers can participate in a group qualified plan even if the employers are not related, allowing employers to share administrative costs—also known as Pooled Employer Plans (PEPs). Additionally, the SECURE Act eliminates the “one bad apple rule” that used to be imposed on all participating employers for any violation of plan requirements by one or more participating employers, provided certain conditions are met.

Effective for plan years beginning on or after December 31, 2020.

     C. Disclosure of Lifetime Income Under Defined Contribution Plans

Employers are now required to disclose at least once every 12 months to defined contribution plan participants the monthly amount that the lump sum balance credited to the participant’s account would generate over the participant’s lifetime if the benefit were paid as an annuity. Employers are provided relief from fiduciary liability if certain safe harbor actuarial assumptions are used and if the disclosure includes model language to be developed by the U.S. Department of Labor (DOL).

Such requirement becomes effective for benefit statements provided more than 12 months after the latest DOL guidance on actuarial assumptions and model language.

     D. Portability of Lifetime Income Investments
Qualified defined contribution plans, 403(b) plans and governmental 457(b) plans are now able to make direct trustee-to-trustee transfers to other employer-sponsored retirement plans or IRAs of lifetime income investments, or distributions of a lifetime income investment in the form of a qualified plan distribution annuity.

Such provision is effective for plan years beginning after December 31, 2019.

     E. Employer Relief from Annuity Investments

Effective December 20, 2019, the SECURE Act provides fiduciary liability relief to the employer for selection of an annuity provider if certain safe harbor requirements are met.

     F. Increase in Start-Up Credit for Small Employers

Small employers are able to take advantage of an increase in the Small Employer Start-up tax credit for three years for the costs associated with establishing retirement plans for their employees. An additional credit is available to employers who adopt automatic enrollment up to $500 a year for three years.

Such provision is effective for plan years beginning after 2019.

     G. Safe Harbor 401(k) Rules

Eliminates the annual notice requirement for safe harbor non-elective contributions (i.e., contributions of at least 3% of employee compensation instead of matching contributions) and allowing non-elective contribution plan amendments after the beginning of a plan year provided certain conditions are met (including having employer non-elective contributions of at least 4% of employee compensation).

Such provision is effective for plan years after 2019.

For safe harbor 401(k) plans that utilize a qualified automatic contribution arrangement, the maximum limit on the default employee deferral percentage is raised from 10% to 15% of compensation (other than first year participation).

Such provision is effective for plan years beginning after December 31, 2019.

Plan Administrators

     A. Consolidated IRS Form 5500 Filings

An employer will be permitted to consolidate annual reporting filings for similar defined contribution plans (e.g., same trustee, named fiduciary, plan administrator, plan year and investment options). Such consolidated filings are to be implemented no later than January 1, 2022 for returns/reports for plan years beginning on or after December 31, 2021.

     B. Increase in Penalties for Violation of Filing Requirements

The SECURE Act increases penalties for failure to file annual Forms 5500 and certain other required filings effective for filings due, including extensions for returns after December 31, 2019. IRS penalties have increased for forms and notices due after 2019 as follows: (i) failing to timely file Form 5500 can be assessed up to $250 per day, not to exceed $150,000 per plan year. Before the SECURE Act, the penalty was $25 a day, not to exceed $15,000.; (ii) failing to file Form 8955-SSA can be assessed up to a daily penalty of $10 per participant, not to exceed $50,000, up from a daily penalty of $1 per participant, not to exceed $5,000; (iii) failing to provide income tax withholding notices can be assessed up to $100 for each failure, not to exceed $50,000 for the calendar year, up from $10 for each failure, not to exceed $5,000. A separate, annually adjusted DOL penalty of up to $2,194 per day for late filing of Form 5500 (for plan year 2019) was not affected by the SECURE Act.

     C. Prohibition on Use of Credit Cards for Plan Loans

The use of credit cards or similar arrangements to draw down on plan loans is prohibited, so that plan loans are not used for routine small purchases, effective December 20, 2019.

     D. 403(b) Termination by Employer

If an employer terminates a 403(b) custodial account, the distribution needed to effectuate the plan termination may be the distribution of an individual custodial account in kind to a participant or beneficiary. The individual custodial account will be maintained on a tax-deferred basis as a 403(b) custodial account until paid out, subject to the 403(b) rules in effect at the time that the individual custodial account is distributed.

The expected guidance will be effective retroactively to tax years beginning after December 31, 2008 and is expected not more than six months after December 20, 2019.

Changes to the Affordable Care Act

     A. Repeal of Excise Tax on High Cost Employer-Sponsored Health Coverage

Also known as the Cadillac Tax, such tax was intended to curb the preferred treatment of employer-sponsored plans, reduce excess health spending and raise revenue for administering the ACA.

Such repeal is effective after 2019.

     B. Repeal of the Health Insurance Tax

The Health Insurance Tax was an annual fee on health insurance providers. The repeal is effective beginning in 2021.

     C. Repeal of Medical Device Tax

The Act repeals the 2.3% excise tax on medical devices sold within the United States that was imposed on the manufacturer, producer or importer of the device.

Such repeal is effective after 2019.

Changes to the Tax Cuts and Jobs Act

     A. Extension of Employer Credit for Paid Family and Medical Leave

The SECURE Act extends the paid family and medical leave credit for wages paid in 2020 in addition to wages paid in 2018 and 2019.

     B. Repeal of Increase in Unrelated Business Taxable Income for Certain Fringe Benefit Expenses

The SECURE Act repeals the provisions which subjected tax-exempt organizations to unrelated business income tax on the value of qualified parking and transportation fringe benefits provided to employees.


Although some of the provisions in the SECURE Act are optional amendments, other provisions will require appropriate changes to applicable plan documents. Such changes, if applicable, must be amended by the last day of the plan year that commences on or after January 1, 2022 or such later date as the IRS may prescribe.


In considering the above-mentioned impacts of the SECURE Act, individuals, employers and plan administrators should consult with their tax advisors to determine which changes are applicable and to determine strategies, if applicable, to reach desired outcomes. The U.S. DOL and IRS will be providing guidance related to the SECURE Act on a moving forward basis. We will keep you apprised of such forthcoming guidance.

In the meantime if you have any questions, please feel free to contact your tax advisor at Marks Paneth LLP or Tax Partner Avery Neumark .

About Avery E. Neumark

Avery E. Neumark Linkedin Icon

Avery E. Neumark, CPA, JD, LL.M, is a Partner in the Tax Group at Marks Paneth LLP. Mr. Neumark is an attorney with more than 35 years’ experience specializing in employee benefits and executive compensation, as well as ERISA, retirement and health and welfare planning, and compensation consulting. He has particular expertise in both for-profit and nonprofit sectors, and in serving high-net-worth individuals. His prior experience in professional services firms includes various leadership and management... READ MORE +

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