The “Secure Act” (Act), which is part of the Further Consolidated Appropriations Act of 2020 that was passed on December 20, 2019, includes provisions that expands the availability of retirement plans. The effective date for the provisions will be for plan years beginning after December 31, 2019 except for the provisions related to multiple employer plans, the effective date for those provisions are plan years beginning after December 31, 2010.
The most significant changes include:
- The establishment of “pooled employer plans”, which are multiple employer plans that provide retirement benefits to employees of small businesses. The benefit to small employers is to provide benefits that are more cost efficient by using a “pooled plan provider”.
- Provisions in the Act increased tax credits available for start-up costs for small employer pension plans (100 or fewer employees who received at least $5,000 in compensation, at least one plan participant who was non-highly compensated employee; and in the 3 tax years before existing employees did not receive contributions or accrued benefits in another plan sponsored by the same employer or member of a controlled group or predecessor of either. The Act also provides a credit for small employers that establish automatic enrollment plans.
- There is a new requirement for 401(k) plans to allow long-term, part-time employees who have at least 500 hours of service in each of the immediately preceding three consecutive (12-month period) years to participate in the 401(k) plan only for the purpose of making elective deferrals. Hours of service prior to January 2021 are not included to meet this rule.
If you would like to learn more about how the Secure Act expands retirement plan benefits to employees, please contact us at 401-831-0200.