Add a bookmark to get started

Abstract view of building
21 January 202017 minute read

SECURE Act brings significant changes to employer retirement and benefit plans

On December 20, 2019, the Further Consolidated Appropriations Act of 2020 (the Act), a year-end spending bill funding the federal government, was signed into law.  Included as part of the Act was the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act).  The Act made many significant changes that impact employer-sponsored retirement plans and health and welfare plans.  Many provisions became effective on January 1, 2020.  


The SECURE Act aims to encourage employer-sponsored retirement plans and promote retirement savings.  It also contains a number of provisions affecting retirement plan administration. 


The SECURE Act will require significant changes to qualified retirement plans, so it is important for plan sponsors to be aware of the effect of the new law on their plans, and the deadlines for action.  Key provisions most relevant to employer-sponsored retirement and benefit plans are described below. 




Retirement plans

401(k) participation required for long-term, part-time employees

The SECURE Act requires employers to allow long-term, part-time employees, those who work at least 500 hours per year for at least three consecutive 12-month periods and are at least 21 years old by the end of the last 12-month period, to participate in a 401(k) plan and make deferrals.  These long-term, part-time employees may be excluded from nondiscrimination and top-heavy testing.   Employers are not required to provide nonelective or matching contributions to these long-term, part-time employees.

Plan sponsors will need to amend their 401(k) plans, documents and summary plan descriptions to incorporate these new eligibility rules.

This provision of the SECURE Act is effective for plan years beginning after December 31, 2020, but for purposes of counting the 500 hours per year, hours of service during 12-month periods beginning before January 1, 2021 will not be taken into account.   As a result, it will not be necessary to permit any employees to make deferrals under this provision before 2024.

Required beginning date increased to age 72

The SECURE Act increases the required minimum distribution (RMD) age to 72. 

Prior to the SECURE Act, participants would have begun receiving minimum distributions by April 1 of the calendar year following the year in which the participant attains age 70-1/2 or terminates employment, whichever comes later.   The SECURE Act increases the RMD age to age 72.  This change applies to both defined contribution and defined benefit plans.  The new rule is only effective for participants who attain age 70-1/2 after December 31, 2019, and with respect to distributions made after December 31, 2019.   Beginning in 2020, the new RMD date is April 1 of the calendar year following the year in which the participant attains age 72.  The way the effective date will work is as follows:  a participant who attains age 70-1/2 in 2019 must begin taking RMDs by April 1, 2020, while a participant who attains age 70-1/2 in 2020 will not be required to take an RMD for the 2020 calendar year. 

Plan sponsors will need to amend plan provisions governing the required minimum distribution rules and will need to review and update policies, procedures and notices regarding RMDs.

Required distribution rules modified for designated beneficiaries

The SECURE Act changes the post-death RMD rules for defined contribution plans that previously allowed non-spouse beneficiaries to stretch RMDs over their lifetime.  The Act states that all amounts held by the plan must be distributed to a designated beneficiary by the end of the 10th calendar year following the year of death.  The 10-year rule does not apply to an “eligible designated beneficiary,” defined as a beneficiary who is a surviving spouse, minor child, disabled person, a chronically ill person, or any person not more than 10 years younger than the employee.  Such eligible designated beneficiaries may generally spread RMDs over the beneficiary’s expected lifetime. 

This change may require plan amendments and communication with participants who may need to make new beneficiary designations.

This provision of the SECURE Act applies to distributions with respect to participants who die after December 31, 2019.

Minimum age for allowable in-service distributions reduced

The Act reduces the age at which a participant can take an in-service withdrawal from a defined benefit plan to age 59 1/2 (rather than age 62).   

This provision is effective for plan years beginning after December 31, 2019.

Penalty-free childbirth or adoption withdrawals from retirement plans allowed

The SECURE Act permits a participant to take a penalty-free withdrawal of up to $5,000 from his or her qualified defined contribution plan for expenses related to the birth or adoption of a child.  Withdrawals may be taken for up to one year following the birth or legal adoption.  

The SECURE Act also allows participants to repay such withdrawals at a later time.  There are several open questions on this new provision, including whether a plan must add the new type of withdrawal, and whether there is any deadline on when the repayment must be made to the plan.   

This provision of the SECURE Act is effective for distributions made after December 31, 2019.

Credit card loans prohibited

The SECURE Act prohibits plan loans through credit cards or similar arrangements.

This provision of the SECURE Act was effective upon enactment.

Nondiscrimination relief provided for frozen defined benefit plans

The SECURE Act provides relief to those defined benefit plans that have been “soft frozen.”  Such plans are closed to new participants, but permit current participants to continue accruing benefits.  As a result of attrition, these plans tend to provide benefits to employees who are largely highly compensated (given their tenure), and thus can become discriminatory. 

The SECURE Act provides relief in the form of expanded cross-testing (aggregating defined benefit plans with defined contribution plans and testing on the basis of equivalent annuities), including allowing cross-testing with certain matching contributions.

This provision of the SECURE Act was effective upon enactment.

Lifetime income disclosures required

The SECURE Act amends ERISA Section 105 to require plan administrators of defined contribution plans (individual account plans) to communicate at least annually an estimate of a single life annuity and qualified joint survivor benefit equivalent of each participant’s total accrued benefit. 

The estimate will need to be based on certain assumptions and the interim final rules that will be published by the Department of Labor.  The Department of Labor must also publish a model disclosure notice.  All of the details for calculating and communicating the equivalencies are expected to be published within one year of the enactment of the Act. 

The equivalencies are to be contained in an easily understood disclosure notice that will explain that the lifetime income stream calculations are provided as an illustration and that actual payment amounts may vary substantially based on actual participant data versus the prescribed assumptions.  The amendment to ERISA Section 105 clearly provides that plan sponsors and any other plan fiduciaries will not be liable for providing the required explanations if the disclosure notice is in compliance with the guidance the Department of Labor is directed to publish. 

Plan sponsors should discuss this disclosure requirement with their third-party vendors.  It may be possible to include the lifetime income stream equivalencies in one of the quarterly participant benefit statements.  Plan sponsors will have to wait to finalize the disclosures until the Department of Labor publishes the interim regulations and the model notice.

This provision of the SECURE Act and the effective date of providing the disclosure notice is 12 months after the latest of the issuance of the interim final rules, the model disclosure or the assumptions. 

Fiduciary safe harbor provided for selection of lifetime income provider

The SECURE Act provides a safe harbor for the selection of an insurance company that offers guaranteed retirement investment contracts.  A guaranteed retirement investment contract is an annuity contract for a fixed term or that provides guaranteed benefits at least annually for the life or joint lives of a participant and the participant’s beneficiary. 

The Secure Act makes it clear that a plan fiduciary satisfies its fiduciary responsibility in selecting a provider of a guaranteed retirement investment contract if, after review of the sponsoring insurance company’s financial capability and the costs of the contract, it determines that the insurer is financially capable of satisfying its obligations and the costs of the contract are reasonable in relation to its benefits and product features.  The safe harbor requires the plan fiduciary to obtain specific written representations from the insurer as to its status under state insurance laws and its satisfaction of those laws. 

The requirement that a plan sponsor must make a determination that the costs of the contract are reasonable in relation to its benefits and product features requires a thorough understanding of the features of a guaranteed investment contract.  Plan sponsors should consider reviewing and documenting their review of the pros and cons of these products before permitting them to be part of a plan’s investment lineup.

This provision of the SECURE Act is effective upon enactment.  

Certain in-service trustee transfers permitted

The SECURE Act amends the distribution provisions for defined contribution, 403(b) and 457(b) plans to allow participants to direct an in-service trustee-to-trustee transfer or distribution of lifetime investment options on or after 90 days before a plan is amended to terminate such an option from the plan’s investment line-up.  Participants making such an election would not incur an early distribution penalty. 

When deciding whether to merge two defined contributions plans, it will be important for plan sponsors to review whether a lifetime investment option is contained in either plan’s investment line-up.  The plan fiduciaries of the surviving plan may want to consider the timing for terminating such option when creating the timeline for the actual merger of the plans.

This provision of the SECURE Act is effective for plan years beginning after December 31, 2019.

Certain 401(k) safe-harbor notices eliminated and amendment rules loosened

The SECURE Act provides that a safe-harbor notice is no longer required annually if the plan achieves safe-harbor status through qualified non-elective employer contributions (QNECs).  Previously, employers were required to provide employees with a safe-harbor notice before the beginning of the plan year.  Despite the elimination of the safe-harbor notice requirement, the plan must still permit participants to make or change their deferral elections at least once per year.  Notably, this change does not extend to plans that are safe-harbor through the use of employer safe-harbor matching contributions.  Therefore, for plans that only provide for safe-harbor matching contributions, a safe-harbor notice will still be required. 

The SECURE Act also permits plans to amend their non-elective status at any time before the 30th day before the close of the plan year.  Previously, mid-year amendments to safe-harbor plans were limited.  The non-elective status may be amended after the standard deadline if:

  • A non-elective contribution of at least 4 percent of compensation (increased from 3 percent previously) is made for all eligible employees for the specific plan year; and
  • The plan is amended no later than the last day for distributing excess contributions for the plan year (ie, by the close of the following plan year).

This extension may help plan sponsors, for example, in the event the plan failed non-discrimination testing at plan-year end by permitting an amendment to the plan to permit non-elective contributions after the end of the plan year.

This provision of the SECURE Act is effective for plan years beginning after December 31, 2019.

Cap for automatic enrollment safe-harbor increased after first plan year

The SECURE Act increases the deferral percentage maximum cap from 10 percent to 15 percent for plans with a safe harbor automatic enrollment and escalation under Code Section 401(k)(13)(C) (also known as a “qualified automatic contribution arrangement” or QACA). Providing for an increase in the automatic escalation cap will allow employers to help employees save more for retirement without taking any additional action to increase their deferral elections. Participants will still be able to opt out of the automatic increase if they so choose.  Employers should review their plan design and consider updating plan terms to reflect the increase in the QACA deferral limit.

This provision of the SECURE Act is effective for plan years beginning after December 31, 2019.

Small unrelated employers permitted to adopt multiple employer plans

Prior to the SECURE Act, employers participating in a multiple employer plan (MEP) were required to have a commonality of interest. The SECURE Act permits employers with no commonality of interest to participate in “open” MEPs.  In addition, before the SECURE Act, the one-bad-apple rule provided that the failure of one participating employer in a MEP to meet plan qualification − for example, delinquent contributions − could jeopardize the entire MEP’s tax qualification. The SECURE Act provides relief from the one-bad-apple rule.

Following the changes under the SECURE Act, MEPs will most likely become more popular. MEPs can be administratively burdensome in an acquisition if a buyer requires the seller to terminate its plan prior to the closing of the transaction.   

This provision of the SECURE Act is effective in plan years beginning after December 31, 2020.

Small employer automatic startup credit

Prior to the SECURE Act, a tax credit was available for qualified startup costs of an eligible small employer that adopted an eligible employer plan, provided that the plan covered at least one non-highly compensated employee (NHCE).  The dollar amount credit was equal to the lesser of (x) $500 per year or (y) 50 percent of the qualified startup costs.

The SECURE Act increases the dollar amount credit limitation to the greater of (x) $500 per year or (y) the lesser of (i) $5,000 or (ii) $250 times the number of NHCEs who are eligible to participate in the plan.

This provision of the SECURE Act is effective for tax years beginning after December 31, 2019.


Retroactive adoption of certain plans permitted

Prior to the SECURE Act, a qualified retirement plan must have been in existence by the last day of a taxable year.  Code section 401(b) does not permit a plan to be made retroactively effective for a taxable year prior to the taxable year in which the plan was adopted.

The SECURE Act provides that if an employer adopts a new stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the employer’s tax return is due (including extensions), the employer may elect to retroactively adopt the plan as of the last day of the taxable year.

This provision of the SECURE Act is effective for plans adopted for taxable years beginning after December 31, 2019.

Combined annual reporting for group of defined contribution plans allowed

The SECURE Act allows defined contribution plans with the same trustee, named fiduciary, administrator, plan year, and investment fund line-up to file a single Form 5500. 

This provision of the SECURE Act is to be implemented no later than January 1, 2022 and will apply to returns and reports for plan years beginning after December 31, 2021.

Penalties increased for failure to file plan returns

The SECURE Act increases penalties for failure to timely file plan returns.   The associated penalties for failure to timely file have increased as follows:

  • Failing to timely file Form 5500 (Annual Return/Report of Employee Benefit Plans) can be assessed up to $250 per day, not to exceed $150,000 (increased from $25 and $15,000, respectively)
  • Failing to file Form 8955-SSA (Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits) can be assessed up to $10 per day, not to exceed $50,000 (increased from $1 and $5,000) and
  • Failing to provide income tax withholding notices can be assessed a penalty of up to $100 for each failure, not to exceed $50,000 (increased from $10 and $5,000 respectively)

This provision of the SECURE Act applies to returns, statements and notifications required to be filed after December 31, 2019.

Period for adopting plan amendments extended

The SECURE Act provides for an extended remedial amendment period for any plan amendments required under the Act or a Treasury or Labor regulation issued under the Act, if made on or before the last day of the first plan year beginning on or after January 1, 2022 (2024 for governmental plans under IRC Section 414(d) and certain collectively bargained plans), or a later date prescribed by the Treasury Secretary.

Employers should review their plans in light of this legislation to ensure that any required plan amendments are made before the deadline.



Repeal of the Cadillac tax and other ACA taxes


The Act repeals the ACA excise tax on high-cost health plans, commonly referred to as the “Cadillac tax,” which received significant criticism and attention at the time the ACA was enacted.  Given the delays in the effective date of the tax (which was originally set to take effect in 2018 and most recently delayed to 2022), many employers in recent years had postponed making design changes to their plans.  The Cadillac tax would have imposed a 40 percent excise tax on the cost of employer health plans in excess of annual cost thresholds. The intent of the excise tax was to target high-value plans, but could have impacted modest plans and resulted in higher co-pays and deductibles. 


The Act also repeals the health Insurance tax, an annual fee on health insurance providers, and permanently eliminates the excise tax on medical devices, which was suspended by Congress from 2016 to 2019.

Finally, the Act extends the Patient Centered Outcomes Research Institute (PCORI) fee for ten years.  The Act provides that self-funded plan sponsors will need to make PCORI fee payments through 2029 for most plans. 

Looking ahead


We expect the IRS and the Department of Labor will release guidance on the SECURE Act. Provisions relating to lifetime income disclosures, part-time workers, auto escalation and multiple employer plans require guidance so that employers can begin to implement the changes.  Stay tuned as we will continue to issue alerts and will present upcoming webinars or podcasts to keep you informed of these significant changes.


Action items for employers


Even though many provisions are currently effective, employers have time to adopt changes and make amendments to their plans.  Most plans will have until December 31, 2022 to adopt conforming amendments.  Government and collectively bargained plans have until December 31, 2024 to adopt changes. 


In the interim, here are steps for employers to consider:


  • Determine which of the SECURE Act provisions are applicable to company benefit and retirement plans.
  • Coordinate with third-party administrators, as provisions may affect plan administration.
  • Prepare plan amendments and update relevant summary plan descriptions, service provider agreements, forms, notices, policies, procedures and any employee communications materials.

For more information, please contact any of the members of our Employee Benefits and Executive Compensation group.


Sherry Klenk is a consultant with DLA Piper’s Employee Benefits and Executive Compensation group, based in Chicago. Reach her at