SECURE Act Provisions for 2021 FAQs

SECURE Act Provisions for 2021 FAQs

Q: What do I need to do with my long-term part-time (LTPT) employees in my 401(k) plan?

A: LTPT employees are those who are at least age 21, work at least 500 hours, but not more than 1,000 hours during your plan year.  If your plan currently excludes employees who work less than 1,000 hours per year, you will need to start tracking hours for these employees. The SECURE Act provides that LTPT employees who work at least 500 hours in a continuous 12-month period, for 3 consecutive plan years beginning in or after 2021 to be eligible for your plan as early as 2024, for salary deferral purposes only. You are not required to make them eligible for employer contributions as well, and they need not receive top heavy minimum contributions (if applicable). This provision is only applicable to 401(k) plans; it does not apply to 403(b) or 457(b) plan.

Q: If my LTPT employees are eligible to contribute salary deferrals, will that affect my annual testing?

A: While LTPT employees will be eligible to contribute salary deferrals, they are not included in any annual testing that your plan may be required to pass, so they will not affect results based on the plan’s regular eligibility requirements.

Q: What if some of my LTPT employees eventually work at least 1,000 hours to become eligible for employer contributions?

A: If a LTPT employee eventually works enough hours to become eligible for employer contributions, they enter based on the terms of the plan as if they were not a LTPT employee.

Q: How is vesting calculated for my LTPT employees?

A: Should any LTPT employees be (or later become) eligible for employer contributions and if your plan requires 1,000 hours worked per year for vesting purposes, their vesting must be calculated based on 500 hours worked per plan year, not 1,000 hours. In addition, all years of employment, even prior to 2021, with at least 500 hours per year must be taken into consideration for vesting purposes.

Q: What happened to the required minimum distribution (RMD) age?

A: The age after which RMDs must begin for terminated employees and (more than 5%) owners has been raised from 70 ½ to 72. The change is effective beginning in 2020, therefore anyone who was already at least 70 ½ before 2020 is unaffected and must continue to receive RMDs (notwithstanding the suspension of RMDs for 2020 per the CARES Act).

Q: When will lifetime income estimates be required to be included in participant statements?

A: Unless delayed by a subsequent regulation, participant account statements issued after September 18, 2021 must report, at least annually, their balance reflected as both a single-life income stream and joint-life stream with a spouse.

Q: What tax credits are available to plan sponsors related to their retirement plan?

A: Sponsors of new 401(k) plans, profit sharing plans, SEPs and SIMPLE IRA plans with less than 100 employees may claim a tax credit on the startup and on-going administrative costs of their new plan. The credit is 50% of the costs paid by the employer for each of the first three plan years the plan is in place, to a maximum of the lesser of $5,000 or the number of non-highly compensated employees times $250, per year. Furthermore, if the new plan contains, or an ongoing plan adds, an eligible automatic contribution arrangement (EACA) or qualified automatic contribution arrangement (QACA), an additional $500 tax credit is available for each of the first three plan years the provision is in place.

Q: What is a Pooled Employer Plan (PEP)?

A: A PEP is a multiple employer plan that allows employers with no specific connection to each other to pool their assets together. A Pooled Plan Provider (PPP), which must be approved by IRS and DOL, is responsible for the administration of the PEP. The PEP files one Form 5500, which then entails only one audit of the PEP. Fiduciary responsibility of the employer will be reduced under a PEP to monitoring the PEP’s service providers. With the issuance of the SECURE Act, 401(k) plans could utilize a PEP, 457(b) plans could not and the jury was still out for ERISA 403(b) plans. While the rules related to PEPs are effective January 1, 2021, IRS and DOL have not issued final regulations. Stay tuned.

Q: Can I add a safe harbor contribution mid-year, or after the end of the plan year?

A: The SECURE Act provided plan sponsors with the ability to add a safe harbor contribution to the plan mid-year if the contribution is a nonelective contribution of at least 3% of compensation, and the plan document is amended no later than  the end of the eleventh month of the plan year the safe harbor provision is added.

If the plan sponsor chooses to add the safe harbor nonelective contribution and the plan document is amended after the end of the eleventh month of the plan year and before the end of the following plan year, the minimum nonelective contribution provided to participants must be at least 4%.

Q: Am I still required to provide an annual pre-year safe harbor notice to my participants?

A: It depends. If you are contributing a safe harbor match, or a safe harbor nonelective and you want to automatically pass the matching nondiscrimination test (ACP test), then yes – you are still required to provide an annual pre-year notice. Further, the notice is necessary in order to reserve the right to suspend or reduce the safe harbor contribution during the year.

Q: What are Qualified Birth or Adoption Distributions?

A: A qualified birth or adoption distribution is one that permits a new parent to take a distribution from their retirement plan due to the birth or adoption of a child or children. The maximum distribution permitted is $5,000 per child per parent and may be taken up to one year after the birth or adoption. In the case of an adoption, the child must be less than 18 years old or unable to support themselves due to physical or mental incapacity at the time of the adoption, and the child cannot be a spouse’s child. If a plan offers qualified birth or adoption distributions, it must allow the participant to repay it back to the plan at any time, even years later.

Q: What is the deadline to amend the plan document for the SECURE Act provisions?

A: Retirement plan documents must be amended by the last day of the plan year that begins on or after January, 1, 2022 (December 31, 2022 for calendar year plans). Governmental and certain union plans have an additional two years to amend the plan document. In the interim, the plan must be operated based on the provisions that must, or will be, adopted.

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SECURE Act Provisions for 2021 FAQs Images/iStock-155384037.jpg?ver=2020-09-16-085629-067 Images/iStock-155384037.jpg?ver=2020-09-16-085629-067What are the key provisions for The SECURE Act in 2021? Our team answers some of the most commonly asked questions.2021-03-11T17:00:00-05:00

What are the key provisions for The SECURE Act in 2021? Our team answers some of the most commonly asked questions.

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