The changes to 401(k) plans brought on by the SECURE Act, signed into law in December 2019, may have been lost in the chaos of 2020. Following is a quick synopsis for Plan Sponsors of the potential impact on 401(k) Plans:
Auto-enrollment: The auto-enrollment escalation cap was increased from 10% to 15% effective for plan years beginning after December 31, 2019. Plan Sponsors considering making this change should amend their plan accordingly.
Safe harbor notices: Safe harbor notices for nonelective contributions are no longer required. Plan Sponsors may elect the 3% nonelective safe harbor contribution until the 30th day prior to the close of the plan year. An even longer window is provided for 4% nonelective safe harbor contributions.
Hours of service: Long term employees working 500 or more hours per year for 3 years are no longer allowed to be excluded from participation. However, these employees may not be required to be included in the plan’s annual non-discrimination testing if they would otherwise be excludible.
New Penalty-free distribution: Effective January 1, 2020, up to $5,000 may be withdrawn free from penalty for expenses related to the birth or adoption of a child.
Required Minimum Distributions (RMD): The age for beginning required distributions was increased from 70 ½ to 72 for people turning 70 ½ after December 31, 2019 (born after June 30, 1949).
The above is a summary of the impact on most medium to large 401(k) plans. The full SECURE Act (Setting Every Community Up for Retirement Enhancement Act or H.R.) contains more detailed information, as well as the impact on other retirement benefits and types of plans.