Defined Benefit Plans and the SECURE Act
The SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 was signed into law on December 20, 2019. The goal is to provide retirement security through expanded workplace plan coverage, protections for older, longer service employees, reduced employer administrative burdens and various other provisions. Most provisions of the SECURE Act pertain to defined contribution plans, but there are a few provisions that impact all retirement plans, including defined benefit (DB) plans. An amendment reflecting these changes does not need to be adopted until the 2022 plan year.
All Plans are subject to Required Minimum Distribution rules (RMDs). The SECURE Act extends the applicable age from 70 ½ to 72 after December 31, 2019.
- Terminated employees who attained age 70 ½ during 2019 or retired in 2019 after attaining age 70 ½ still have a required beginning date of April 1, 2020.
- The SECURE Act changed RMD rules on post-death distributions from DC plans and IRA’s but this does not apply to DB Plans.
The SECURE Act lowered the permissible in-service distribution age in DB plans from age 62 to age 59 ½
Late Filing Penalties
Penalties for late government filings have increased tenfold:
- Form 5500 filings increased to $250/day (max. $150,000)
- Form 8955-SSA increased to $10/day per unreported participant (max $50,000)
Non-discrimination Testing Relief
The SECURE Act provides permanent limited relief to both minimum participation and nondiscrimination requirements, and employers have the option to retroactively apply this relief to plans beginning after 2013. Plans still need to test and meet nondiscrimination requirements, but the relief modifies the testing rules.
Minimum Participation. A DB plan which has ceased all benefit accruals (hard frozen) or provides future benefit accruals only to a closed group of participants (soft frozen) will be deemed to satisfy minimum participation if it meets certain qualifications.
Nondiscrimination Testing. Relief provisions have been included for both hard and soft frozen plans, which makes it easier to meet the nondiscrimination rules when a defined contribution plan covers newer employees.