To provide for the financial well being of our customer owners and their employees through the use of advanced design and administration of individually-designed, qualified retirement plans for closely held businesses.
The SECURE Act, the CARES Act, and the SECURE Act 2.0
Congress passed the Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”) at the tail-end of 2019 with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) following in March of 2020 in response to the Coronavirus Pandemic. December 2022 also saw the passage of the SECURE Act 2.0 Act. Together, this legislation is the most significant change to impact retirement planning in recent memory.
Perhaps the most enticing change for small employers with 100 employees or less is the creation in the SECURE Act 2.0 of an additional tax credit for employer contributions to defined contribution plans that are starting up. Over a four-year period following the establishment of a plan, an employer can get a credit for a percentage of contributions that starts at 100% and declines by 25% each year. Contributions to employees who receive FICA wages of over $100,000 are not creditable, and there is a $1,000 limit per employee that decreases by 2% for each employee over the 50th. For employers with no more than 50 employees, the SECURE Act 2.0 also increased the tax credit for startup costs from 50% to 100% of those expenses.
Both the SECURE Act and the SECURE Act 2.0 increased the Required Minimum Distribution (“RMD”) age: the SECURE Act from 70½ to 72 for those who reach age 70½ after 2019 and the SECURE Act 2.0 from 72 to 73 for those attaining 72 after 2022. After 2032, the RMD age is 75 for those who will not have reached 74 by that point. To allow flexibility during the pandemic, the CARES Act allowed a waiver of any 2020 RMD, including grace period distributions of 2019 first-time RMDs. The SECURE Act and the SECURE Act 2.0 also overhauled the treatment of RMDs when a participant dies, setting apart from other designated beneficiaries the following individuals: spouses, minor children, disabled and chronically ill designated beneficiaries, and other designated beneficiaries not more than 10 years younger than the participant. Only these “Eligible Designated Beneficiaries” can now receive distributions of their interests over their life expectancy if the participant dies before any RMD is made. Designated beneficiaries, who are not Eligible Designated Beneficiaries, now generally receive payouts over a maximum of 10 years.
The SECURE Act and the SECURE Act 2.0 also made a number of other changes. IRA fiduciaries who received the balance from a missing participant in a force-out can act as an automatic portability provider by looking monthly for any new plan account of a missing participant and can automatically transfer that balance to the new plan if they find it. In 2024, participants who earn FICA wages of over $145,000 and want to make 401(k) catch-up contributions must do so as Roth contributions. Those employees working at least 500 hours for three consecutive years can now participate in 401(k) plans as “Long-Term, Part-Time Employees,” and the time requirement drops to two years in 2025. Starting in 2025, too, all 401(k) plans must include an automatic-enrollment feature. The Department of Labor will create an online searchable database as a “Lost and Found” for missing participants that will include plan, administrator and participant information submitted by plans in 2025. Changes to notices are set to be rolled out through regulations in the coming years, and a number of new in-service distribution features are also available.
If you have any questions about these changes or any other issues related to qualified retirement plans, please do not hesitate to contact us.
Integrated Retirement Plan Solutions focuses on the design, implementation and maintenance of qualified retirement plans that are individually-tailored for closely-held businesses and provides complete consultation and actuarial services for these plans within one integrated company.
Meet our team of attorneys, actuaries, consultants and professionals who are here to aid you in achieving your retirement planning goals.
Our qualified retirement plans are individually-designed to provide the maximum efficiency possible and reflect the desires and goals of closely held business owners.