USA – SECURE Act
Isabel Coles | 27 January 2020
Key provisions from the “Setting Every Community Up for Retirement Enhancement (SECURE) Act” become law with significant implications for defined contribution (DC) and defined benefit (DB) plans.
On 20 December 2019 the “Further Consolidated Appropriations Act, 2020” was signed into law (P.L. 116-94), funding government agencies for the remainder of the 2020 federal fiscal year (ending 30 September 2020). The law includes significant provisions – some mandatory, some optional – affecting employer-sponsored retirement and health benefit plans. These are the most sweeping changes in US retirement law since the Pension Protection Act (PPA) of 2006.
Amongst the provisions affecting retirement plans are:
- The introduction of “Open” Multi-Employer Plans (MEPs), allowing unrelated employers of all sizes to join together to create more affordable DC plans through open MEPs using a pooled plan provider.
- Encouraging DC plans to offer more lifetime income options: annual benefit statements will need to include lifetime income illustrations, and a statutory safe harbour for fiduciaries in selecting annuity providers has been created.
- Helping individuals save more for retirement with provisions such as
- the increase from 10% to 15% of the escalation cap on qualified automatic contribution arrangement (QACA) DC plans after the first plan year in which the employee is automatically enrolled,
- the mandatory increase from age 70½ to age 72 for required minimum distributions for both DB and DC plans, and
- the removal of the age limit for Individual Retirement Account (IRA) contributions.
- For closed DB plans, the non-discrimination testing relief has been expanded and made permanent.
The provisions also include a tenfold increase in the penalties for failing to file certain retirement plan returns and notices due after 31 December 2019.
In connection with health benefit plans, the legislation permanently repealed the “Cadillac” tax, the 40% excise tax on high-cost employer-sponsored health plans whose introduction had previously been delayed until 2022. However, the Patient-Centred Outcomes Research Institute (PCORI) fee has been extended until 2029.
Many of the reforms are effective from 2020 and some apply retrospectively. Employers should review the implications and opportunities of these changes, as well as the plan amendments, changes to participant communications and to administration systems that need to be made.
For further details, see Milliman’s Client Action Bulletin.