Secure Act passes House

[Tom Poje]

They seem to think this Bill has a chance to pass the Senate as well.

A couple of the provisions are:

 

One of the differences between the House and Senate bills is when participants will be required to begin taking distributions from their retirement plans. The House bill increases the required minimum distribution age to 72 from 70 ½, while the Senate bill makes no change.

(I think I liked last year's Bill better which would have ignored min distr if total balance was less than 50,000. the last time they disagreed we ended up with top paid group election because one group wanted HCEs based on anyone with comp > XXX while the other group simply wanted top 10% highly paid or something like that as I recall so they compromised)

 

Businesses with long-term, part-time workers must also allow them to become eligible for retirement benefits.

(It would be interesting to see how it is determined who is 'long term part time and who is short term part time.)

[CuseFan]

Thanks Tom.

I thought "long-term part-time" was defined as >500 hours in three (consecutive?) years.

For DBers - permanent relief for frozen plans, including 401(a)(26) now as well, and for those in the small DB/CB space, the ability to adopt a new plan after year end before tax return due date. Yay, Christmas and New Year's Eve with the family again (hopefully)!

[Tom Poje]

here are some highlights from the Bill. section 102 is the one that would eliminate SHNEC notice requirement and a 4% SNHEC if adopted after plan year end. guess we will see what the Senate does.....

Section 101. Expand Retirement Savings by Increasing the Auto Enrollment Safe Harbor Cap

The legislation increases the cap from 10 to 15 percent of employee pay that required automatic

escalation of employee deferrals go no higher than under an automatic enrollment safe harbor plan.

Section 102. Simplification of Safe Harbor 401(k) Rules

The legislation changes the nonelective contribution 401(k) safe harbor to provide greater flexibility, improve employee protection and facilitate plan adoption. The legislation eliminates the safe harbor notice requirement, but maintains the requirement to allow employees to make or change an election at least once per year. The bill also permits amendments to nonelective status at any time before the 30th day before the close of the plan year. Amendments after that time would be allowed if the amendment provides (1) a nonelective contribution of at least four percent of compensation (rather than at least three percent) for all eligible employees for that plan year, and (2) the plan is amended no later than the last day for distributing excess contributions for the plan year, that is, by the close of following plan year.

Section 111. Allowing Long-term Part-time Workers to Participate in 401(k) Plans

Under current law, employers generally may exclude part-time employees (employees who work less than 1,000 hours per year) when providing a defined contribution plan to their employees. As women are more likely than men to work part-time, these rules can be quite harmful for women in preparing for retirement. Except in the case of collectively bargained plans, the bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service. In the case of employees who are eligible solely by reason of the latter new rule, the employer may elect to exclude such employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules

Section 113. Increase in Age for Required Beginning Date for Mandatory Distributions

Under current law, participants are generally required to begin taking distributions from their retirement plan at age 70 ½. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. However, the age 70 ½ was first applied in the retirement plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy. The bill increases the required minimum distribution age from 70 ½ to 72.

Section 201. Plans Adopted by Filing Due Date for Year May Be Treated as in Effect as of Close of Year

The legislation permits businesses to treat qualified retirement plans adopted before the due date

(including extensions) of the tax return for the taxable year to treat the plan as having been adopted as of the last day of the taxable year. The additional time to establish a plan provides flexibility for employers that are considering adopting a plan and the opportunity for employees to receive contributions for that earlier year and begin to accumulate retirement savings.

Section 202. Combined Annual Reports for Group of Plan

The legislation directs the IRS and DOL to effectuate the filing of a consolidated Form 5500 for similar plans. Plans eligible for consolidated filing must be defined contribution plans, with the same trustee, the same named fiduciary (or named fiduciaries) under ERISA, and the same administrator, using the same plan year, and providing the same investments or investment options to participants and beneficiaries. The change will reduce aggregate administrative costs, making it easier for small employers to sponsor a retirement plan and thus improving retirement savings.

Section 203. Disclosure Regarding Lifetime Income

The legislation requires benefit statements provided to defined contribution plan participants to include a lifetime income disclosure at least once during any 12-month period. The disclosure would illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant’s surviving spouse and a single life annuity. The Secretary of Labor is directed to develop a model disclosure. Disclosure in terms of monthly payments will provide useful information to plan participants in correlating the funds in their defined contribution plan to lifetime income. Plan fiduciaries, plan sponsors, or other persons will have no liability under ERISA solely by reason of the provision of lifetime income stream equivalents that are derived in accordance with the assumptions and guidance under the provision and that include the explanations contained in the model disclosure

Section 401. Modifications to Required Minimum Distribution Rules

The legislation modifies the required minimum distribution rules with respect to defined contribution plan and IRA balances upon the death of the account owner. Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death.

[ESOP Guy]

That long term part-time worker rule just sounds like another pain in the rear rule.   I guess software can be programmed to help you spot those people.

But I am just willing to bet if it passes there will be in the  future a bunch of threads asking how do you do the correction because we didn't give some part-timer the right to defer a couple of years ago.......

[Peter Gulia]

What are the odds-makers saying about the probability that a bill of this kind would be enacted in 2019 (or early 2020)?

 

[jpod]

I think it's 99% that something of this nature will be enacted by the end of this year.

[Tom Poje]

the comments I have read seem to indicate it is likely some of this will be passed (despite the in fighting between the parties)

 

the fun part will be the part timers. how many plan sponsors out there never bother with providing if the person never had 1000 hours to enter the plan.

[Peter Gulia]

Last week, a court vacated the Labor department’s rule to interpret whether an association acts “in the interest of an employer”.  But one imagines the Government will appeal that decision.

 

Support for, or opposition to, the association health plans rule has a political divide.  Republicans like a rule that could help businesses and workers avoid the Affordable Care Act’s small-group and individual health insurance markets.  Democrats dislike a rule perceived as weakening the Affordable Care Act’s reforms.

 

Could retirement plans legislation—if it includes provisions for association, professional-employer-organization, or other multiple-employer plans—invite politicking that reflects a proxy battle about association health plans?

[spiritrider]

The elimination of the single life distribution for non-spouse beneficiaries will up-end a lot of estate planning. The exception for your minor children is a lot less than meets the eye. It is only until they are an adult at age 18. Then the ten year rule applies. Either they take distributions evenly across the ten years, getting massively whacked by the compressed trust brackets under the Kiddie tax rules for six years (18 - 23) or limiting distributions for those six years and getting massively whacked by having to distribute the remaining balance evenly over the last four years.

A far fairer approach would be to require non-spouse beneficiaries to start with the decedent's divisor and subtract each year. It was after all their retirement plan and requiring the distribution across their remaining life expectancy would make sense. You could make a case that it never made sense for the decedent's retirement account be paid out during the non-spouse beneficiaries lifetime. To limit a relatively young decedent's distribution period for their children to ten years is a stab in the back by congress. Of course, the SS claim that we tax your SS contributions, because we will never tax your benefits was another massive betrayal. Why should we be surprised at another betrayal and stab in the back by the congressional criminals.

[goldtpa]

Here is a video of Mr. Portman discussing the proposed bill.

https://www.youtube.com/watch?time_continue=7&v=XaJDvlbF06I

The part about part time employees starts at 9:32.  The Senate version of the bill,  S1431 , supposedly will exempt these Long Term Part-Time Employees from non-discrim testing and top heavy.  However does anyone know or heard whether they would be excluded from the Gateway Test?  I can see Congress excluding them from 410(b), ADP/ACP and Top Heavy, but not from the Cross Testing and Gateway Test.  Thus part-time employees may have to get a contribution just to pass Cross Testing or Gateway.  The other question is why does this only apply to DC plans?  Why not DB Plans?  I guess  employers with PT employees will have to switch to a DBP avoid giving money to PT ees. 

[Peter Gulia]

spiritrider, thank you for your helpful description about one of the proposed changes in minimum-distribution provisions.

But is the relevant age of "majority" 18, or might it be 21?