THE SECURE ACT BECOMES LAW - DEFINED CONTRIBUTION PLANPERSPECTIVES: Virtual Venues
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WEBINAR
DEFINED CONTRIBUTION PLANPERSPECTIVES:
THE SECURE ACT BECOMES LAW
Presented by Morgan Lewis and PNC Institutional Asset Management ® Speaker
Matthew H. Hawes, Partner
THURSDAY, JANUARY 30, 2020 Morgan Lewis
2:00 P.M. – 3:00 P.M. ET
The SECURE Act, signed into law on December 20,
2019, includes provisions that affect tax-qualified
retirement plans and individual retirement
accounts. PNC Institutional Asset Management Speaker
invites you to attend an exclusive webinar to Claire E.Bouffard, Associate
review key provisions of this significant benefits Morgan Lewis
legislation, its impact on retirement plan rules,
and a timeline of effective dates.
The PNC Financial Services Group, Inc. (“PNC”) uses the marketing name PNC Institutional Asset Management® for the various discretionary and non-discretionary institutional investment, trustee, custody, consulting, and related services
provided by PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and investment management activities conducted by PNC Capital Advisors, LLC, an SEC-registered investment adviser and wholly-owned subsidiary of PNC
Bank. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
“PNC Institutional Asset Management” is a registered mark of The PNC Financial Services Group, Inc.
Moderator
Investments: Not FDIC Insured. No Bank Guarantee. May Lose Value. Michael Patch, AIF®
©2020 The PNC Financial Services Group, Inc. All rights reserved. Retirement Plan Advisor
INV PNCII PDF 0120-0108-1501003
PNC Institutional Asset Management
DEFINED CONTRIBUTION
PLAN PERSPECTIVES – THE
SECURE ACT BECOMES LAW
Presenters:
Matthew Hawes
Claire Bouffard
© 2020 Morgan, Lewis & Bockius LLP
January 30, 2020
2Introduction
• Setting Every Community Up for Retirement Enhancement Act of 2019
– Changes applicable to all qualified plans
– Changes applicable to defined contribution plans
– Changes applicable to defined benefit plans (quick tangent from defined contribution plans)
– Other changes
– Timeline of effective dates
– Amendment timing
1CHANGES APPLICABLE TO ALL QUALIFIED PLANS © 2020 Morgan, Lewis & Bockius LLP 2
Participant Required Beginning Date
• Participant Required Beginning Date (RBD) increased to age 72
– Previously, the RBD for a participant was April 1 following the later of the year in which the
participant attains age 70½ or terminates employment
– SECURE Act increases the age trigger for the RBD from age 70½ to age 72
– Plans can require distributions to be made prior to the RBD and as early as age 65 (e.g., at normal
retirement age), if desired
– Effective for any participant who reaches age 70½ after December 31, 2019
– Important implications for eligible rollover distributions, particularly in early 2020 when
recordkeeping and benefit payment systems may still be programmed to use age 70½
3Beneficiary Distribution Deadlines
• Distribution deadlines accelerated for designated beneficiaries who are not “eligible
designated beneficiaries”
– Previously, a plan could allow a designated beneficiary (e.g., natural person) to “stretch” certain
distributions from a plan over the beneficiary’s remaining life expectancy
– SECURE Act limits the time permitted to take a full distribution of inherited plan or IRA assets to 10
years (for designated beneficiaries)
– This new limit does not apply to certain “eligible designated beneficiaries,” including a surviving
spouse, a minor child, a disabled person, a chronically ill person, or any person not more than 10
years younger than the participant
– SECURE Act does not change the five year limit for non-designated beneficiaries (e.g., estates)
– Effective with respect to participants who die after December 31, 2019
4CHANGES APPLICABLE TO DEFINED CONTRIBUTION PLANS © 2020 Morgan, Lewis & Bockius LLP 5
Long-Service Part-Time Employee Eligibility
• Requires elective deferral eligibility for long-service, part-time employees
– Previously plans could exclude employees unless/until they completed 1,000 hours of service in a
plan year
– SECURE Act requires plans to allow any part-time employee who has worked at least 500 hours in
each of the immediately preceding three consecutive 12-month periods the opportunity to make
elective deferrals
– Plans are not required to provide other employer contributions to employees who were excluded
under the 1,000 hours of service threshold but become eligible under the new rule
– Special rules are provided to ensure that extending participation to these part-time employees does
not adversely affect nondiscrimination testing
– Effective January 1, 2021; service prior to January 1, 2021 need not be taken into account, so
participant eligibility will not begin until 2024
6Distribution Rights
• Child Birth or Adoption Distributions
– Provides special rule where plans can permit penalty-free distributions of up to $5,000 for expenses
related to the birth or adoption of a child
– Distribution is not subject to a 10% early distribution penalty or mandatory 20% withholding
– Distribution must be taken within 12 months of eligible birth or adoption
– Can later be repaid to a qualified retirement plan as a rollover
– No guidance yet on how this is accomplished or whether there are any time limits
– Optional provision that can be added for distributions after December 31, 2019
• Prohibition on use of credit card or similar arrangement for plan loans
– Closes perceived loophole in the law that previously did not prohibit multiple small plan loans
through use of a credit card
– Applies to loans made after December 20, 2019
7Changes Affecting Safe Harbor Plans Only
• Increased qualified automatic contribution arrangement (QACA) automatic contribution
percentage cap
– The maximum default automatic contribution percentage is capped at 10% for the first year of the
employee’s participation and can be increased to up to 15% in later years (previously the overall cap
was 10%)
– Effective for plan years beginning after December 31, 2019 (subject to mid-year amendment
considerations)
• Safe harbor plan adoption
– A plan can now elect into the 3% nonelective safe harbor at any time up until 30 days before the
close of the plan year
– A plan can now elect into the nonelective safe harbor (with a 4% nonelective contribution) after the
end of the plan year if the amendment to adopt the nonelective safe harbor is made by the end of
the following plan year
– Effective for plan years beginning after December 31, 2019
• Annual Safe Harbor Notice requirement eliminated for nonelective safe harbor plans
8Safe Harbor for Lifetime Income Option Provider
Selection
• New safe harbor for prudence for selecting lifetime income investment providers
– Fiduciaries must engage in “an objective, thorough and analytical search” to identify insurers
– With respect to each insurer, fiduciaries must consider:
– Financial capability of insurer to satisfy its obligations under the contract; and
– Costs (including fees and commissions) of the contract in relation to the benefits, product features
and administrative services
– In conducting their review, fiduciaries must conclude (i) “at the time of selection,” the insurer is
financially capable of meeting its obligations, and (ii) the relative cost of the contract is reasonable
– Safe harbor allows fiduciaries to rely on insurers’ representations and warranties regarding
financial stability
– Fiduciaries need not select the lowest cost contract (may consider other features and benefits
under the contract)
– Fiduciaries that qualify for the safe harbor would be protected from liability for participant losses if
the insurer fails to meet its contract obligations
– SECURE Act offers no effective date, but most assume that this safe harbor is effective immediately
9Lifetime Income Option Portability
• Portability of lifetime income investment options
– Currently, if a plan offers a lifetime income option as an available investment and decides to
eliminate it, the participant would have to take a distribution or be mapped to a different investment
option
– However, if the participant is actively employed, distributions may not be available, meaning that
fiduciaries considering elimination of the lifetime income option would need to consider redemption
fees and other charges when mapping to a different investment
– SECURE Act allows participants the opportunity to keep these investments by allowing a plan to
permit in-service and in-kind distributions of lifetime income investments if the investment is no
longer authorized to be held under the plan
– New portability right allows rollovers while in service
– Effective for distributions made after December 31, 2019
10Disclosure and Reporting
• Lifetime Income Disclosure
– Defined contribution plans, whether or not any lifetime income investment options are available
under the plan, must include a lifetime income disclosure at least once in every 12-month period on
benefit statements
– The lifetime income disclosure must show the monthly payments that the participant would receive if
his or her entire account balance were used to provide lifetime income in the form of a joint and
survivor or single life annuity
– This change applies to benefit statements furnished more than 12 months after the DOL issues final
rules, model disclosures, and assumptions
• Consolidated Form 5500 Reporting
– SECURE Act directs the IRS and the DOL to modify annual retirement plan reporting rules to permit
plans with the same trustee, fiduciary, and investment menu to file a consolidated Form 5500
– The consolidated form will apply to returns and reports for plan years beginning after December 31,
2021
11CHANGES AFFECTING DEFINED BENEFIT PLANS ONLY © 2020 Morgan, Lewis & Bockius LLP 12
Changes Affecting Defined Benefit Plans Only
• Nondiscrimination relief for soft-frozen defined benefit plans
– Nondiscrimination testing relief for soft-frozen defined benefit plans is provided to permit existing
participants to continue accruing benefits without violating testing and coverage requirements
– Applied to plans that closed before April 5, 2017, or that have been in effect for at least five years
without a substantial increase in coverage or benefits in the last five years
– The relief is effective immediately, but the plan sponsor can elect to apply for plan years beginning
after December 31, 2013
• In-Service Retirement
– Effective for plan years beginning after December 31, 2019, plan sponsors may provide in-service
retirement benefits beginning as early as age 59½ (previously age 62)
13OTHER CHANGES © 2020 Morgan, Lewis & Bockius LLP 18
Other Changes
• Increased penalties for failure to file returns and reports
– The late filing penalties for failing to file a Form 5500 is increased from $25 per day, capped at
$1,500, to $250 per day, capped at $150,000
– Penalties for late filing of Form 8955-SSA have also increased by a factor of 10
– Effective for returns and filings required to be filed after December 31, 2019
• 403(b) plan terminations
– If an employer terminates a 403(b) custodial account, the distribution needed to complete the plan
termination may be the distribution of an individual custodial account in kind to a participant or
beneficiary
– The individual custodial account will be maintained as a 403(b) custodial account until paid out,
subject to the 403(b) rules
– Treasury is directed to issue guidance no later than six months after the SECURE Act’s enactment
15Changes for Small Businesses
• Small Business (Up to 100 Employees) Startup Credit
– The SECURE Act increases the current $500 tax credit cap (for the plan’s first three years) to the
greater of (1) $500, or (2) the lesser of (a) $5,000 or (b) $250 multiplied by the number of
nonhighly compensated employees eligible to participate in the plan. The increase is effective for
plan years beginning after 2019.
• Small Business (Up to 100 Employees) Automatic Enrollment Credit
– Small employers that adopt automatic enrollment provisions are eligible for an additional $500 credit
for three years, regardless of when the automatic enrollment provisions are adopted. The new credit
is effective for plan years beginning after 2019.
16IRA Changes
• Traditional IRA Contribution Rules
– SECURE Act allows contributions after the current traditional IRA contribution age limit (70½)
– However, contributions made after age 70½ reduce IRA qualified charitable distribution reductions
– SECURE Act expands the nondeductible contribution limit for foster parents by a certain amount of
foster care “difficulty of care” payments that are excluded from income, if the individual’s taxable
compensation is less than the deductible limit (effective for contributions after December 20, 2019)
– SECURE Act expands the definition of “compensation” beginning with 2020 contributions so that
compensation will include taxable non-tuition fellowship and stipend payments for graduate and
post-doctoral study
– Changes generally effective for 2020 tax years/contributions
17Other Changes
• Qualified Disaster Distributions
– SECURE Act provides rules for qualified disaster distributions and special loans from employer
retirement plans and IRAs
– Applies to individuals who suffered losses in a qualified disaster area beginning after 2017 and
ending 30 days after the date of enactment (provided that a distribution may still be a qualified
disaster distribution if it is taken within the 180-day period after enactment)
18Timeline of Effective Dates (Voluntary and Mandatory)
• Immediate
– Lifetime Income Provider Selection Safe Harbor (?)
– Nondiscrimination relief for “soft-frozen” defined benefit plans (can be retroactive)
– Disaster relief (retroactive)
– Elimination of credit card loans
• 2020 tax year/contributions: most IRA changes
• Generally for plan years beginning after December 31, 2019
– Safe harbor changes (no safe harbor notice for nonelective safe harbors, retroactive election of nonelective
safe harbor, QACA escalator)
– 59½ in-service retirement for pension plans
– $5,000 qualified birth and adoption withdrawal
– Age 72 Required Beginning Date (for participants reaching age 70½ after December 31, 2019)
– Elimination of “stretch” distribution right (for deaths after December 31, 2019)
– Increased filing penalties (for filings required after December 31, 2019)
– Portability of lifetime income investment options
19Timeline of Effective Dates (cont’d)
• Generally for plan years beginning after December 31, 2020
– PEP/“Open MEP” rule changes
– Begin counting service for long-service, part-time employees (participant required after 500 hours in
three consecutive 12-month periods)
• Generally for plan years after December 31, 2021: Consolidated Form 5500 reporting for
certain related defined contribution plans
• Special effective dates
– 403(b) plan termination distribution guidance to be issued by the IRS within six months (applies
retroactively to terminations in tax years beginning after December 31, 2008)
– Lifetime income disclosure (effective 12 months after the DOL releases final guidance)
20Amendment Deadlines
• Legally-required amendments must be adopted by the end of the second calendar year
following the year they are included on the IRS Required List (which has not occurred yet
– earliest would be the 2020 Required Amendments List for items effective in 2020)
• For discretionary amendments, the SECURE Act includes an extended deadline for their
adoption, which will be the last day of the first plan year beginning on or after January 1,
2022 – so that will be December 31, 2022 for calendar year plans
• Collectively bargained plans have until the last day of the first plan year beginning on or
after January 1, 2024, so that will be December 31, 2024 for calendar year plans
• Disaster relief amendments must be adopted by the last day of the first plan year
beginning on or after January 1, 2020
21QUESTIONS? © 2020 Morgan, Lewis & Bockius LLP 25
Biography
Matthew Hawes helps clients navigate every aspect of employee benefits,
executive compensation, and equity compensation; including the drafting
and design of qualified pension and profit-sharing plans, health and welfare
arrangements, deferred compensation plans, and employee agreements. He
also performs employee benefits due diligence reviews in the mergers and
acquisitions context, and he advises companies on regulatory compliance
with the US Internal Revenue Code, ERISA, COBRA, and HIPAA.
Matthew Hawes
Pittsburgh, PA
+1.412.560.7740
matthew.hawes@morganlewis.com
23Biography
Claire Bouffard counsels clients on employee benefits and executive
compensation. She drafts and assists with design of tax-qualified pension
and profit-sharing plans, cash or deferred arrangements, health and welfare
arrangements, deferred compensation plans, and employment agreements.
In addition, Claire reviews and edits plan documents and amendments to
ensure compliance with applicable law; drafts communications materials
and notices to plan participants; and files voluntary correction program
submissions. Claire assists with benefit plans in every stage of their lives—
from inception or acquisition to termination or divestiture.
Claire Bouffard
Pittsburgh, PA
+1.412.560.7421
claire.bouffard@morganlewis.com
24Our Global Reach
Africa Latin America
Asia Pacific Middle East
Europe North America
Our Locations
Abu Dhabi Moscow
Almaty New York
Beijing* Nur-Sultan
Boston Orange County
Brussels Paris
Century City Philadelphia
Chicago Pittsburgh
Dallas Princeton
Dubai San Francisco
Frankfurt Shanghai*
Hartford Silicon Valley
Hong Kong* Singapore*
Houston Tokyo
London Washington, DC
Los Angeles Wilmington
Miami
*Our Beijing and Shanghai offices operate as representative offices of Morgan, Lewis & Bockius LLP. In Hong Kong, Morgan Lewis operates through
Morgan, Lewis & Bockius, which is a separate Hong Kong general partnership registered with The Law Society of Hong Kong as a registered foreign law
firm operating in Association with Luk & Partners. Morgan Lewis Stamford LLC is a Singapore law corporation affiliated with Morgan, Lewis & Bockius LLP.THANK
YOU
© 2020 Morgan, Lewis & Bockius LLP
© 2020 Morgan Lewis Stamford LLC
© 2020 Morgan, Lewis & Bockius UK LLP
Morgan, Lewis & Bockius UK LLP is a limited liability partnership registered in England and Wales under number OC378797 and is
a law firm authorised and regulated by the Solicitors Regulation Authority. The SRA authorisation number is 615176.
Our Beijing and Shanghai offices operate as representative offices of Morgan, Lewis & Bockius LLP. In Hong Kong, Morgan Lewis operates through Morgan, Lewis & Bockius, which is a separate
Hong Kong general partnership registered with The Law Society of Hong Kong as a registered foreign law firm operating in Association with Luk & Partners. Morgan Lewis Stamford LLC is a
Singapore law corporation affiliated with Morgan, Lewis & Bockius LLP.
This material is provided for your convenience and does not constitute legal advice or create an attorney-client relationship. Prior results do not guarantee similar outcomes. Attorney Advertising.
26WEBINAR
DEFINED CONTRIBUTION PLANPERSPECTIVES:
THE SECURE ACT BECOMES LAW
Presented by Morgan Lewis and PNC Institutional Asset Management ® Speaker
Matthew H. Hawes, Partner
THURSDAY, JANUARY 30, 2020 Morgan Lewis
2:00 P.M. – 3:00 P.M. ET
The SECURE Act, signed into law on December 20,
2019, includes provisions that affect tax-qualified
retirement plans and individual retirement
accounts. PNC Institutional Asset Management Speaker
invites you to attend an exclusive webinar to Claire E.Bouffard, Associate
review key provisions of this significant benefits Morgan Lewis
legislation, its impact on retirement plan rules,
and a timeline of effective dates.
The PNC Financial Services Group, Inc. (“PNC”) uses the marketing name PNC Institutional Asset Management® for the various discretionary and non-discretionary institutional investment, trustee, custody, consulting, and related services
provided by PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and investment management activities conducted by PNC Capital Advisors, LLC, an SEC-registered investment adviser and wholly-owned subsidiary of PNC
Bank. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
“PNC Institutional Asset Management” is a registered mark of The PNC Financial Services Group, Inc.
Moderator
Investments: Not FDIC Insured. No Bank Guarantee. May Lose Value. Michael Patch, AIF®
©2020 The PNC Financial Services Group, Inc. All rights reserved. Retirement Plan Advisor
INV PNCII PDF 0120-0108-1501003
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