SECURE Retirement Legislation Passed in House, Pending in Senate

August 19, 2019

The SECURE Act is still pending in the US Senate, but the legislation passed the House of Representatives with proposed changes that would increase access to defined contribution plans, promote lifetime income options, and affect retirement plan design and administration.

The US House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (the Act) on May 23. The Act contains many provisions affecting sponsors of large defined contribution and 401(k) plans, as well as sponsors of traditional pension plans and retirement plan service providers. The Act’s key provisions, summarized below, address a number of areas and are intended to increase retirement plan access and participation, promote defined contribution plan retirement income features, and simplify plan administration. While there appears to be bipartisan support for many of the Act’s provisions, the Act is not yet law and there are a number of legislative hurdles that would need to be cleared in order for the Act (or some version of it) to be signed into law—including Senate approval, a possible reconciliation process for any differences between competing House and Senate versions, and presidential approval.


Expanded 401(k) Eligibility for “3 x 500” Part-Time Employees. Under existing law, qualified retirement plans may exclude part-time employees from participation if the employees do not complete 1,000 hours of service in a year. The Act would add a new “3 x 500” rule that would require 401(k) plans to extend participation—solely for purposes of making elective deferrals to the plan—to any part-time employee who has worked at least 500 hours in each of three consecutive 12‑month periods. 401(k) plans would not be required to provide matching or other employer contributions to these part-time employees, and special nondiscrimination and top-heavy testing relief would be provided to exclude these employees from required testing. These changes would be effective for plan years beginning after 2020.

Pooled Employer Plans (Open MEPs). Under existing rules and interpretations, unrelated employers may join together and participate in a “multiple-employer plan” (MEP) only if the employers satisfy certain commonality‑of‑interest requirements apart from providing benefits (for example, the employers are members of an association based on their common line of business and the employers participate in the association-sponsored MEP). While the US Department of Labor (DOL) recently relaxed and expanded the commonality‑of‑interest requirements for MEPs, the Act would go further and allow completely unrelated employers to pool their defined contribution plans together to create a “pooled employer plan” or “open MEP.” In addition to approving these arrangements, the Act also would establish protections to ensure that a tax-qualification error or defect affecting one participating employer would not undermine the tax-qualified status of the entire MEP. These changes would be effective for plan years beginning after 2020.


Defined Contribution Lifetime Income Disclosure. Under existing law, plan administrators of defined contribution plans must furnish participants with benefit statements describing the value of their accounts and underlying investments. The Act would require these benefit statements to include estimates of the monthly income a participant could receive in retirement if his or her balance were used to purchase a qualified joint and survivor annuity or a single life annuity. This disclosure would be required even if the plan does not offer any annuity distribution options. The Act directs the DOL to issue safe harbor model disclosures and specified assumptions that plans could rely on in preparing these lifetime income disclosures and estimates. These requirements would not take effect until the DOL has issued each of the interim final rules, model disclosures, and specified assumptions.

Default‑Risk Safe Harbor for Selecting Lifetime Income Provider. The Act would create a new safe harbor for defined contribution plan fiduciaries to rely on in selecting lifetime income investments. Plan fiduciaries that comply with the safe harbor’s requirements for selecting the annuity provider and evaluating the financial capability of the annuity provider would be shielded from fiduciary liability with respect to participant losses due to the insurer’s inability to satisfy its annuity payment obligations. The Act does not specify the effective date for this change; presumably, this change would be effective on the date of enactment.

Portability of Lifetime Income Investments. Participants with lifetime income investments in a defined contribution plan may be adversely affected by plan-level changes in investment menu design or administration (e.g., lifetime income investments might be removed in connection with a plan sponsor’s decision to change recordkeepers). The Act would allow participants affected by these types of changes to take a distribution of the lifetime income investment option without regard to any other plan-level restrictions on in-service distributions. The distribution would have to be in the form of a direct transfer to another retirement plan or IRA. This change is designed to allow participants to preserve their lifetime income investments and avoid surrender charges and fees that might otherwise be imposed as a result of a plan-level change. The change would be effective for plan years beginning after 2019.


Increase to Age 72 for Life‑Time Required Minimum Distributions (RMDs). Currently, RMDs in qualified retirement plans must generally start by April 1 of the calendar year following the year in which the participant reaches age 70½ or terminates employment, whichever comes later. To reflect the increase in life expectancy since the RMD statute was enacted in the early 1960s, the Act would increase the RMD‑trigger age to 72. This change would apply to both defined benefit plans and defined contribution plans, and would be effective for participants who turn 70½ after 2019.

Changes to Post‑Death RMDs for Defined Contribution Plans. Under the Act, all RMDs after the employee’s death under a defined contribution plan payable to a designated beneficiary must be made by the end of the 10th calendar year following the year of death. This 10-year rule generally does not apply to an “eligible” designated beneficiary, which is defined as a person who, as of the date of death, is a surviving spouse, a child of the employee before reaching the age of majority, a disabled person, a chronically ill person, or any person not more than 10 years younger than the employee. For eligible designated beneficiaries, RMDs may be spread over the beneficiary’s expected lifetime, except that a child beneficiary upon reaching the age of majority will be subject to the 10‑year rule.

Child Birth or Adoption Distribution up to $5,000. The Act would permit penalty‑free distributions of up to $5,000 from qualified defined contribution plans for expenses related to the birth or adoption of a child. The adopted child must be either under age 18 or physically or mentally incapable of self‑support, and the distribution must be made during the one‑year period following the birth or legal adoption. In addition, these special distributions could be repaid later to a qualified retirement plan. This change would be effective for distributions after 2019.

Changes to Make Nonelective 401(k) Safe Harbor Easier to Administer and Adopt. Under existing law, nonelective safe harbor 401(k) plans (plans that provide a minimum 3% nonelective contribution and satisfy certain other requirements to avoid 401(k) nondiscrimination testing) must provide safe harbor notices to covered participants, and it is difficult to adopt a nonelective safe harbor design midyear. The Act would eliminate the notice requirement. It would also permit a 401(k) plan to be amended to elect nonelective safe harbor status at any time midyear; provided, however, that if the plan is amended within 30 days of the close of the plan year, the safe harbor nonelective contribution percentage must be at least 4% (rather than at least 3%), and the amendment generally must be made by the close of the following plan year. This change would be effective for plan years after 2019.

Increased QACA Safe Harbor Rate Cap. Under existing law, 401(k) plan automatic contribution arrangements that satisfy the qualified automatic contribution arrangement (QACA) safe harbor to avoid 401(k) nondiscrimination testing must cap default automatic contribution rates at no more than 10%. The Act would retain this 10% cap for a participant’s first year of participation, but permit it to be increased to 15% for subsequent years. This change would be effective for plan years beginning after 2019.

Prohibition on Credit Card Loans and Similar Arrangements. This change would prohibit plan loans through credit card loans or similar arrangements, effective for plan loans made after the enactment of this Act.

Extended Nondiscrimination Relief for Soft‑Frozen Plans. The Act would provide nondiscrimination testing relief with respect to closed or “soft-frozen” defined benefit plans so as to permit existing participants to continue accruing benefits without running afoul of the testing requirements. This relief would cover 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. These changes are effective as of the date of enactment of the Act, or if the plan sponsor so elects, plan years beginning after 2013.

Consolidated Form 5500 Reporting for Defined Contribution Plans. The Act directs the Internal Revenue Service and DOL to modify annual retirement plan reporting rules so that all members of a group of individual account plans or defined contribution plans may file a consolidated Form 5500. The modified rules must be issued by the end of 2021, and would apply for plan years beginning after 2021.

Increased Penalties for Failure to File Returns. To raise revenue and offset the tax costs of certain of the Act’s changes, the Act raises the late filing penalties for a number of required tax returns and filings. For example, the late filing penalty for failing to file a Form 5500 is increased to $250 per day, capped at $50,000 (increased from $25 and $15,000, respectively).


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Lisa Barton

Marla Kreindler
Dan Salemi
Julie Stapel

New York
Craig Bitman

Bob Abramowitz
Amy Kelly

John Ferreira
Matt Hawes
Randall C. McGeorge
R. Randall Tracht

Washington, DC
Rosina Barker
Althea Day
Greg Needles
Michael Richman
Jonathan Zimmerman