Posted By: Christopher Ciminera, CPA
Act 2 – The SECURE Act…Continued
In our last two blogs, we discussed the beneficial changes of the Bipartisan Budget Act of 2018 and Title 1 of the SECURE Act. But it doesn’t stop there because there were more changes included in the SECURE Act, which we will now discuss in this blog. The SECURE act Title 1 was Scene 1 of our second act of the retirement plan legislative updates. Let’s move on to Scenes 2-4 of our play.
Scene 2 – Title 2 – Administrative Improvements
- Section 201 – Plan Adoption – This section provides additional time for employers to adopt a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year, but before the extended due date of the employer’s tax return for the taxable year. An employer may elect to treat the plan as having been adopted as of the last day of the taxable year.
- Section 202 – Combined Annual Report for Group of Plans – This section directed the IRS and DOL to allow members of a group of plans to file as a single aggregated annual return or report. A plan will be considered a group of plans if all plans in the group are individual account plans or defined contribution plans, that have a) the same trustee, b) the same one or more named fiduciaries, c) the same plan administrator and d) plan years beginning on the same date, and provide the same investments or investment options to participants and beneficiaries.
- Section 203 – Lifetime Income Disclosures – This section covers lifetime income disclosures. This section requires that benefit statements provided to defined contribution plan participants must now include a lifetime income disclosure annually. The disclosures must include an illustration of the monthly payments the participant would receive if the participant were to begin receiving lifetime income streams from his or her account balance. This requirement applies to pension benefit statements furnished 12 months after the later of the issuance of i) the interim final rules, ii) the model disclosure that the IRS is tasked to provide, iii) the IRS provides assumptions of individual account plans that may use in converting total accrued benefits into lifetime income stream equivalent.
- Section 204 – Fiduciary Safe Harbor for Lifetime Income Option – This section will help alleviate employer hesitations about offering lifetime income benefit options under a DC plan by providing a fiduciary safe harbor on the selection of a lifetime income provider. Employers will be protected from liability for any losses that may result to the participant or beneficiary due to an insurer’s inability in the future to satisfy its financial obligations under the terms of the contract, keeping the employer shielded from litigation by the participant due to an insurer’s inability to pay those benefits.
- Section 205 – Nondiscrimination Rule Modification – This section modifies nondiscrimination rules to protect older participants – specifically concerning closed plans to permit existing participants to continue to accrue benefits.
Scene 3 – Title 3 – Other Benefits
We now move on to the next title in the SECURE Act. Title III covers other benefits and is fairly short and sweet. The sections have limited applicability since they cover certain benefits for volunteer firefighters and emergency medical responders and provide some additional provisions for 529 plans, so I won’t focus on these sections for this blog series.
We can now cue some dark clouds since Congress had to enact revenue-raising provisions.
Scene 4 – Title 4 – Revenue Raising Provisions
We now get to the last title, Title IV. Title IV covers revenue-raising provisions since some of the provisions we previously discussed will cost the government future revenue.
- Section 401 – Removal of Stretch IRA Provisions – To the dismay of many individuals, the Act removes the stretch IRA provision. This section modifies the RMD rules concerning DC and IRA balances upon the death of an account owner. All beneficiaries, except for specifically excluded individuals, are required to have account balances distributed by the end of the 10th calendar year following the year of the employee’s death. Eligible designated beneficiaries are excluded from these changes. An eligible designated beneficiary is defined in the act as i) a surviving spouse of the employee, ii) a child of the employee who has not attained 18 years of age, iii) a disabled individual, iv) a chronically ill individual, or v) an individual not previously mentioned who is not more than 10 years younger than the employee.
- Section 402 – Increase Penalty for Failure to File – This section increases the penalty for failure to file a return of tax within 60 days of the date prescribed for filing such return to be not less than $400 (was $205) or 100% of the amount of tax that is due.
- Section 403 – Increase Penalty for Failure to File Retirement Plan – Increases the penalties for failure to file retirement plan returns. The Form 5500 penalty is modified to $105 per day, not to exceed $50,000. Failure to file a registration statement (Form 8955-SSA) would be $2 per participant per day, not to exceed $10,000. Failure to file a required notice of change (Form 8955-SSA) would result in a penalty of $2 per day, not to exceed $5,000 for any failure. Failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year.
- Section 404 – Increase in Information Sharing to Administer Excise Tax – Allows the IRS to share returns and return information with the U.S. Customs and Border Protection for purposes of administering and collecting the heavy vehicle use tax.
The removal of the stretch IRA was a big provision that we still must work to adjust to. We have covered the entirety of the SECURE Act and with the clouds looming from Title IV of the SECURE Act, the world hit a maelstrom with the COVID-19 pandemic. In our next Act, we will cover the CARES Act, which was part of the assistance that Congress provided to affected individuals by the COVID-19 pandemic.
