Way back at the end of last year, Trump signed into law a bill that included one of the biggest overhauls to the way we manage retirement planning in the US. In particular, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which was enacted as part of the broader Further Consolidated Appropriations Act (no nifty acronym for that one!), has a number of important repercussions for any business that administers a 401(K) (or has thought of doing one, but always felt that it wasn’t financially feasible).
Below, we outline several key changes and how it may impact the way that you do business in the years ahead.
- In an effort to make 401(K) plans more attainable for small business owners, the new legislation offers businesses with up to 100 employees a tax credit equating to $250 for each non-highly compensated employee eligible for plan participation or $5,000, whichever is less. This tops the up to $500 limit small business owners were previously allowed to claim and is available for up to three years. Further, these businesses can snag an additional $500 tax credit if they add an auto-enrollment feature to any existing 401(K) plan that they offer, and that offer also stands for the next three years.
- When it comes to safe harbor 401(K) plans, the legislation eliminates the annual safe harbor notice requirement. In addition, it allows plans to add a 3% safe harbor non-elective contribution up to 30-days before the close of the plan year OR after the 30th day before the close of the year when the contribution is at least 4% and before the deadline for distributing corrective refunds.
- For Qualified Automatic Contribution Arrangement (QACA) safe harbor 401(K) plans, the default contribution limit is increased to 15% from 10% following the first year that an employee enrolls in a plan (but the first year they participate is still capped at 10%).
- In terms of distributions, the age at which plan participants must take required minimum distributions has increased from 70.5 years to 72 years but can still be postponed until the year the person leaves the company (as it previously was). Further, folks can now take penalty-free distributions up to $5,000 for expenses related to the birth or adoption of a child and can be repaid, but they’ve cut out allowing participant loans from a 401(K) to be distributed through credit cards or other similar channels.
- The law may also boost the number of employees eligible to make 401(K) contributions, with workers that log at least 500 hours of service annually for three consecutive years, versus the previous limit of 1,000 hours of service a year.
- Don’t have a 401(K) plan but think it’s time to set one up? This bill has you covered! The legislation extends the deadline for employers to establish a plan from the last day of the tax year until the due date of this year’s tax return (and that includes if you have an approved extension).
- Finally, from an administrative perspective, the legislation boosts the IRS penalty for filing a Form 5500 late from $25 to $250 per day, for a total maximum penalty of a whopping $150,000 from a previous limit of $15,000! The good news is that you can usually get these hefty penalties forgiven if you proactively seek to correct the problem using the US Department of Labor’s Delinquent Filer Voluntary Compliance Program.
Need extra help navigating all these changes – or worried you’re worried you’re going to make big changes in light of the act? Not a problem! Our pros here at Abel have done a deep dive on the legislation and are here to answer all your questions and make sure that you’re doing the right thing for your employees now and in the years ahead. Call us at 800-400-1968.
