IRS Notice 2020-68 Provides SECURE Act and Miners Act Guidance

October 05, 2020

Notice 2020-68 from the Internal Revenue Service provides clarifications for sponsors and administrators of 401(k) plans and other qualified retirement plans, 403(b) plans, and 457(b) governmental plans on certain provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019 and the Bipartisan American Miners Act of 2019. The notice also provides valuable guidance for sponsors of multiple employer plans and pooled employer plans, as described below.

Expanded 401(k) Plan Eligibility for Certain Longer Service, Part‑Time Employees

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) added a special eligibility rule and a corollary special vesting rule for 401(k) plans effective for plan years starting in 2021. The special eligibility rule extended participation—solely for purposes of making elective deferrals—to any part-time employee who worked at least 500 hours in each of the immediately preceding three consecutive 12‑month periods. The special vesting rule provides that a long‑term, part-time employee must be credited with a year of service for purposes of determining whether an employee has a nonforfeitable right to employer contributions (other than elective deferrals) for each 12-month period during which the employee completes at least 500 hours of service. The SECURE Act specifies that pre‑2021 hours of service are not taken into account for purposes of the special eligibility rule.

The notice confirms that the prohibition against counting hours of service during 12-month periods beginning before 2021 does not apply to the special vesting rule. Thus, unless excludible under another statutory exception (e.g., years of service before the employee reaches age 18), all 12‑month periods with at least 500 hours of service—even before the SECURE Act was passed—must be counted for vesting. For example, assume Employee A works for 700 hours each year from 2018 to 2023, and then switches to full time and becomes eligible for an employer contribution under the plan in 2024. Employee A’s years of service for 2018 and subsequent years would count toward vesting.

Determining pre‑2021 vesting service could be burdensome for employers that lack the hours information for employees under 1,000 hours before 2021. Recognizing these potential difficulties, the Internal Revenue Service (IRS) requested comments on how to reduce potential administrative burdens related to counting pre‑2021 years of service for vesting purposes.

Qualified Birth or Adoption Distributions

Section 113 of the SECURE Act permits qualified birth or adoption distributions from eligible retirement plans beginning in 2020. A qualified birth or adoption distribution means a distribution of up to $5,000 to a parent if made during the one-year period beginning on the date on which the child is born or the legal adoption is finalized. A participant may later recontribute the distributed amount to an “eligible retirement plan,” which includes a qualified defined contribution plan such as a 401(k) plan, a 403(a) annuity plan, a 403(b) plan, a governmental 457(b) plan, and an individual retirement account (IRA).

The notice answers various questions regarding qualified birth or adoption distributions, including the following:

  • A plan that offers a qualified birth or adoption distribution is required to accept recontribution of all or a portion of the distribution, provided the parent is eligible to make a rollover contribution to the plan at the time of the recontribution.
  • Plan sponsors and administrators may rely on the parent’s reasonable representation of eligibility for a qualified birth or adoption distribution (e.g., the timing of birth or legal adoption, the number of eligible children or adoptees), absent actual knowledge to the contrary.
  • Both parents may make a $5,000 withdrawal for the same child or adoptee. In the case of multiple births, a withdrawal may be made for each child.
  • A permissible in‑service distribution from a plan that does not provide for qualified birth or adoption distributions may be treated as a qualified birth or adoption distribution on the participant’s tax return. The distribution would not be subject to the 10% early distribution penalty tax and may be recontributed to an IRA.

Minimum Age for In‑Service Distributions from Defined Benefit and 457(b) Plans

The Bipartisan American Miners Act of 2019 (Miners Act) lowered the minimum age for permissible in‑service distributions from 62 to 59½ for a defined benefit plan, and from 70½ to 59½ for a 457(b) governmental plan, effective for plan years after 2019. The notice clarifies that these changes are optional.

Small Employer (Up to 100 Employees) Auto‑Enrollment Credit Available Under MEPs and PEPs

Under Section 105 of the SECURE Act, small employers that adopt an eligible automatic contribution arrangement (EACA) provision for the first time are eligible for a $500 annual credit during the initial three‑year period beginning when the employer first adopts an EACA. This credit applies with respect to a 401(k) plan, a 403(a) annuity plan, a SIMPLE IRA plan, and a SEP IRA. An EACA is a type of automatic contribution arrangement that provides a grace period during which an employee may withdraw their automatic contributions without penalty if they decide not to participate. This credit is effective for plan years beginning after 2019.

The notice clarifies that the credit only applies with respect to the employer and not the plan, meaning sponsoring more than one plan providing an EACA will not increase the credit. In addition, the credit is available only with respect to the initial three‑year period beginning when the employer first adopts an EACA. Within the initial three‑year period, the credit will be available after the first year only if the EACA provision is maintained in the plan or if any portion of the plan is spun off with the EACA. Otherwise, if the employer completely removes the EACA for the second and/or third year within the initial three‑year period, then the credit will not be available.

The notice also clarified that the credit is available to each eligible employer that participates in a multiple employer plan (MEP), including one sponsored by a pooled plan provider (PPP) that constitutes a pooled employer plan (PEP). This clarification might provide incentive for financial institutions that are sponsoring MEPs and/or are designing MEPs or PEPs to offer EACA features to attract small employers, for whom the three $500 annual credits might offset at least some of the initial cost of establishing a defined contribution retirement plan though a MEP or PEP.

Amendment Deadlines

Consistent with the statutes, the notice reiterates that in order for anticutback and operational compliance relief to apply to a retroactive plan amendment made pursuant to the SECURE Act or Miners Act, the amendment must be adopted by the last day of the plan year beginning on or after January 1, 2022 (or on or after January 1, 2024, for governmental plans and collectively bargained plans). Despite the delayed date that an employer has to amend its plan, it still must administer the plan in compliance with the applicable requirements once they are in effect.


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

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

Washington, DC
Rosina Barker
Althea Day
Yongo Ding
Greg Needles
Jonathan Zimmerman