SECURE Retirement Legislation Becomes Law: Overview of Provisions Affecting Retirement Plans

December 23, 2019

The SECURE Act—the most impactful retirement plan legislation since the Pension Protection Act of 2006—was included in the bipartisan spending bill signed by US President Donald Trump on December 20, 2019. The SECURE Act will advance the goals of increasing access to defined contribution plans, promoting lifetime income options, and facilitating retirement plan design and administration.

Shortly after an earlier version of the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed by the US House of Representatives, we published a LawFlash summarizing its key terms. Now that the act has been signed into law, we revisit in this LawFlash those key terms as they relate to tax-qualified retirement plans and outline considerations for retirement plan sponsors in response to the new law. While this LawFlash focuses on the SECURE Act's impact on retirement plans, we will issue additional LawFlashes on other key aspects of the SECURE Act in the near future.

Changes to 401(k) Plan Eligibility for Certain Longer-Service, 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 SECURE Act requires 401(k) plans to extend participation—solely for purposes of making elective deferrals—to any part-time employee who has worked at least 500 hours in each of the immediately preceding 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 ensure that extending participation to these part-time employees does not adversely affect nondiscrimination testing. These changes are effective for plan years beginning after December 31, 2020, but hours of service during 12-month periods beginning before 2021 are not taken into account.

  • 401(k) plans that currently exclude part-time employees will need to be amended to incorporate these new eligibility rules.
  • Plan sponsors and recordkeepers may need to update payroll and/or human resources information systems to identify and track this new class of part-time employees for nondiscrimination testing purposes.
  • Calendar year 401(k) plans will need to accommodate the new eligibility rules beginning January 1, 2021. However, because the 12-month periods for purposes of counting the 500-hour requirement are not counted before 2021, the counting of service (for purposes of the 500-hour requirement) will begin but actual eligibility will be delayed. 

Changes Regarding Lifetime Income Options in Defined Contribution Plans

New Defined Contribution Lifetime Income Disclosure Requirement

The SECURE Act requires benefit statements to include an estimate of the monthly income a participant could receive in retirement if a qualified joint and survivor annuity or a single life annuity were purchased. These estimates must be provided at least annually and regardless of whether any annuity distribution option is offered under the plan. The SECURE Act directs the US Department of Labor (DOL) to issue safe harbor model disclosures and specified assumptions that plans may rely on in preparing these lifetime income disclosures and estimates. These requirements do not take effect until one year after the DOL has issued each of the interim final rules, model disclosures, and specified assumptions.

  • Defined contribution plan sponsors and recordkeepers will need to revisit the processes for distributing benefit statements (e.g., who is responsible for producing and sending benefit statements). While it will take some time for the DOL to issue the rules, model disclosures, and specified assumptions, and it will likely provide a grace period to implement the changes, plan sponsors and recordkeepers should begin planning for the required changes as soon as possible. This is particularly true if the plan intends to implement a lifetime income provider as described below.
  • Many recordkeepers voluntarily provide lifetime income disclosures on websites and/or benefit statements. Plan fiduciaries will want to be sure to understand how those disclosures may change—and, in particular, how the lifetime income amount in those disclosures may change—under the DOL rules, model disclosures, and specified assumptions in order to evaluate whether any communications might help participants during the transition.

Safe Harbor for Plan Fiduciary Selecting Lifetime Income Provider

The SECURE Act provides a new safe harbor that defined contribution plan fiduciaries can rely on in selecting lifetime income investment providers to make available as an investment option or a component of an investment option under the plan. The new safe harbor is similar in some respects to the safe harbor set forth in the DOL’s 2008 regulations, but importantly sets forth specific representations that a defined contribution plan fiduciary can obtain from the provider of the lifetime income product (typically an insurance company). In particular, the safe harbor allows a fiduciary to satisfy its obligation to “consider the financial capability of such insurer to satisfy its obligations under the guaranteed retirement income contract,” and its obligation to conclude that “at the time of selection, the insurer is financially capable of satisfying its obligations under the guaranteed retirement income contract” by obtaining specific representations from the insurer providing the lifetime income product. The safe harbor also requires the plan fiduciary to consider the costs and fees associated with the guaranteed retirement income contract and conclude those costs are reasonable. There are no specific representations that allow the plan fiduciary to satisfy those requirements.

Plan fiduciaries that satisfy these requirements and qualify for the safe harbor would be shielded from liability with respect to participant losses in the event of the annuity provider's inability to pay the full benefits when they are due. No specific effective date is provided in the SECURE Act for these safe harbor provisions, meaning they are effective on the date of enactment.

  • While the safe harbor will provide some degree of protection to plan fiduciaries regarding the selection and implementation of a lifetime income option, the decision to offer (or not offer) a lifetime income option as an investment option or a component of an investment option still requires significant fiduciary consideration and diligence.
  • Annuity investment products are inherently different and more complicated than typical mutual fund investment alternatives. Thus, the fiduciary considerations for annuity investment products may include consideration of the nature of annuity investments as investment options or components of investment options as compared to other investments, the costs and benefits of offering such an investment option, and whether offering such an option is in the best interests of the plan's participants.

Portability of Lifetime Income Investments

Lifetime income investments often can be subject to termination penalties, surrender charges, and other fees upon liquidation. These concerns of penalties, charges, and fees often lead to plan fiduciaries not offering lifetime income investment options, or if offered, to participants not taking advantage of such options. The SECURE Act addresses these concerns by providing additional assurances of portability—that is, allowing for the transfer or distribution of the lifetime income investment to potentially avoid some or all of the penalties, charges, and fees. Under the changes in the SECURE Act, participants who invest in lifetime income investment options in their plans, and who are faced with a plan-level decision to eliminate the option, may take a distribution of the investment without regard to any other plan-level restrictions on in-service distributions (such as a prohibition on in-service distributions before age 59½). The distribution would have to be in the form of a direct transfer to another retirement plan (such as an IRA or another qualified plan) or a distribution of an annuity contract. The change is effective for plan years beginning after 2019. 

  • For plans that intend to offer one or more lifetime income investment options, an amendment to the plan documents will be needed to permit these types of in-service and in-kind distributions of lifetime income investments.
  • Plan sponsors should also consider whether the plan should be amended to accept in-kind transfers of lifetime income investments, such as through a rollover from a previous employer-sponsored plan. Similarly, as more plans adopt lifetime income investment options, there will be an increased possibility that such investments may be acquired through corporate transactions and resulting plan mergers. Plan sponsors will want to consider how to handle these investments under such circumstances.

Changes to Plan Distribution Rules

Required Beginning Date Increased to Age 72 for Required Minimum Distributions

Currently, a participant in a qualified retirement plan generally is required to begin receiving certain minimum distributions by April 1 of the calendar year following the year in which the participant attains age 70½ or terminates employment, whichever comes later. The SECURE Act increases the required minimum distributions (RMD) age to 72. However, we note that plan sponsors can still choose to require distributions at an earlier age (for example, at normal retirement age). This change applies to both defined benefit plans and defined contribution plans, and is effective for participants who turn 70½ after December 31, 2019.

  • Plan sponsors will need to evaluate the new RMD rules and generally amend plan documents to reflect the new RMD age of 72 in required provisions that govern the required minimum distribution rules. However, as stated, plan sponsors could choose to retain provisions that mandate distributions at an earlier age.
  • Plans will need to evaluate, and likely update, current policies and procedures for notifying participants of an upcoming RMD trigger date and for updating any notices that it sends to participants regarding RMDs.
  • Plan sponsors and recordkeepers will need to coordinate their approach to address the new RMD rules. For example, distribution reporting will need to be updated beginning January 1, 2020, for participants who turn 70½ in 2020 to ensure that distributions between age 70½ and 72 are treated as being eligible for tax-free rollover, and subjected to a mandatory 20% withholding to the extent not rolled over.

Changes to Earliest Age for Pension Plan In-Service Retirement

Pension plans, such as defined benefit pension plans, money purchase pension plan, and hybrid plans, generally are not allowed to permit distributions before the earlier of retirement (i.e., termination of service) or normal retirement age. However, since 2007, current law has also permitted an employee to receive benefits while still in-service and before retirement as long as the participant had reached age 62. The SECURE Act reduces the earliest age an employee can receive in-service retirement benefits from a pension plan from age 62 to age 59½. The change is effective for plan years beginning after December 31, 2019.

  • Many plan sponsors that have added in-service retirement provisions to their plans have done so in order to retain older and more experienced workers who might otherwise leave employment (and perhaps even work for a competitor) solely for the opportunity to start receiving pension plan benefits. Plan sponsors that currently offer in-service retirement—or that are considering adding in-service retirement—will want to consider whether lowering the earliest in-service retirement age to 59½ would be beneficial to the company and help achieve its business objectives. Plan sponsors will continue to be able to pick any in-service retirement age for its plan, so long as the age is no younger than age 59½.  

Changes to Post‑Death RMDs for Defined Contribution Plans

Under current law, a plan may allow a designated beneficiary to “stretch” distributions from a plan over the beneficiary’s remaining life expectancy. The SECURE Act places caps of 10 years (for designated beneficiaries) and 5 years (for nondesignated beneficiaries) on the time permitted to exhaust the plan or IRA assets. The 10-year rule generally does not apply to an “eligible designated beneficiary,” which includes a beneficiary who, as of the date of the participant’s death, is a surviving spouse, a minor child, a disabled person, a chronically ill person, or any person not more than 10 years younger than the employee. Such eligible designated beneficiaries may spread RMDs over the beneficiary’s expected lifetime, except that for minor children, the 10-year rule begins to apply on the date that the minor child reaches the age of majority. We also note that there are special rules for employees subject to collective bargaining agreements, and these rules do not apply to binding annuity contracts. These new rules generally apply with respect to participants who die after December 31, 2019, subject to possible additional delays for employees subject to collective bargaining agreements.

  • Plan sponsors should consider whether a plan document amendment is required in response to this new limitation (e.g., if stretch distributions are currently permitted under the plan documents). For plans that provide for more rapid post-death distributions, no amendment may be necessary.
  • Depending on the plan's existing provisions and the impact of the SECURE Act changes, plans may need to notify participants of the changes and solicit new beneficiary elections from affected participants.

Child Birth or Adoption Distributions up to $5,000

The SECURE Act allows defined contribution plans to permit penalty‑free distributions of up to $5,000 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 of the child. In addition, these special distributions can later be repaid to a qualified retirement plan. This change is effective for distributions after 2019.

  • Plan sponsors should consider whether to offer this special distribution. To the extent plan sponsors adopt this change, corresponding plan amendments and updates to participant forms and communications will be required.

Changes to Other Defined Contribution Safe Harbors

Safe Harbor Plan Adoption and Administration

Under existing law, safe harbor 401(k) plans that avoid nondiscrimination testing by providing a minimum 3% nonelective contribution to participants must provide annual safe harbor notices to covered participants. The SECURE Act eliminates the notice requirement. It also permits a 401(k) plan to elect into the 3% nonelective safe harbor at any time up until 30 days before the close of the plan year. Further, the SECURE Act permits a 401(k) plan to elect into the nonelective safe harbor even after the 30th day before the close of the plan year so long as (1) the amendment to adopt the nonelective safe harbor is made by the end of the following plan year, and (2) the nonelective contribution is at least 4%. This change is effective for plan years after 2019.

  • Plans sponsors that are considering adopting a 401(k) safe harbor provision in 2020 have additional flexibility and can wait until later in 2020 or even into 2021 to make the decision. However, we note that the new rules only apply to nonelective safe harbor contribution plans and generally not to matching safe harbor plans.

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 SECURE Act would retain this 10% cap for a participant’s first year of participation, but permits the rate to be increased to 15% for subsequent years. This change is effective for plan years beginning after 2019.

  • Plan sponsors with QACA arrangements or that are considering QACA arrangements may consider higher contribution rates.

Soft-Frozen Defined Benefit Plans

The SECURE Act provides 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 immediately, or if the plan sponsor so elects, for plan years beginning after 2013.

Form 5500 Changes

Consolidated Form 5500 Reporting for Defined Contribution Plans

The SECURE Act directs the Internal Revenue Service and the DOL to modify annual retirement plan reporting rules to permit certain common individual account plans or defined contribution plans (for example, multiple defined contribution plans sponsored by the same employer with the same trustee, fiduciary, and investment menu) to file a consolidated Form 5500. The modified rules must be implemented by the end of 2021 and apply for plan years beginning after 2021.

Increased Penalties for Failure to File Returns

The SECURE 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 $150,000 (increased from $25 and $15,000, respectively). The increased penalties are effective for returns and filings due or required to be provided after December 31, 2019.

Other Changes

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 non-highly 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.


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
Mark Simons
William Marx
Gena Yoo

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

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