Congress Looks To Secure Your Retirement Under The SECURE Act

In late December, Congress passed and President Donald Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act, the most sweeping retirement legislation since the Pension Protection Act of 2006. The Act, whose enabling legislation was included as part of a large government funding bill, contains many significant changes affecting employers and participants. Several provisions are effective immediately or retroactively, and others go into effect beginning in 2021.

Open Multiple Employer Plans (MEPs)

The Act will allow employers to participate in "pooled" or open multiple employer plans (MEPs) for plan years beginning after December 31, 2020. The employers do not need to share a common interest. These plans are required to be administered by a pooled plan provider (PPP) as the named fiduciary. PPPs will be subject to audit and examination by the Internal Revenue Service and Department of Labor (DOL). Notably, MEPs will be able to file a single annual Form 5500 listing all participating employers.

The Act removes a significant practical barrier that has discouraged employers from forming MEPs up to this point: the "one bad apple" rule. This rule meant that a compliance issue such as an operational error with a participating employer would disqualify the entire MEP. The Act provides relief from this rule for new pooled plans, and requires that assets of any disqualifying participating employers be quarantined from the MEP by being transferred to a separate plan. The Act also makes disqualifying employers responsible for the liabilities of their employees in the plan.

Automatic Enrollment Increased Cap

Prior to the SECURE Act, plan sponsors with qualified automatic contribution arrangements (QACAs) could automatically enroll or escalate employee contributions to a maximum of 10 percent of compensation. The Act retains the 10 percent maximum for employees' first year of participation, and raises the maximum to 15 percent for subsequent years. This provision takes effect for plan years beginning after December 31, 2019.

Safe Harbor Non-Elective 401(k) Plan Changes

401(k) plans currently have two safe harbors, one for matching contributions and one for non-elective contributions, to obtain relief from having to perform nondiscrimination testing. Employers are required to give employees notice of their rights and obligations prior to the start of the plan year. The Act makes two significant changes to the rules...