The Settling Every Community Up for Retirement Enhancement (SECURE) Act has gone into effect as of January 1 and aims to motivate businesses to create and effectively run retirement plans for their employees. That being said, the details and incentives are extensive, with many relating to operational size or type of employees.
As an employer of an hourly workforce, you should be on top of which parts of this new legislation apply to your business. However, that’s easier said than done. If you’re ready to start implementing benefit policies and putting these new federal incentives to good use, here are the critical pieces necessary for complying with the SECURE Act in 2020.
What is the Secure Act?
The SECURE Act aims to incentivize employers into offering long-term retirement income options and allowing participants to continue deferring distribution withdrawals from their accounts for a longer period of time following retirement. It specifically addresses pooled employer plans, small business start-up credits, plan adoption dates, distribution plans, compliant administration requirements, and the repeal of the ACA Medical Device and High Cost Employer-Sponsored Health Coverage Excise Taxes. In addition, it details obligatory plan disclosures about contributors’ retirement annuities and providing employers with a fiduciary safe harbor... and that’s only the start.
For full details, see the full legislative breakdown. For now, let’s take a closer look at the most impactful details of this new law on your business.
Top 3 SECURE Act Incentives That Impact the Hourly Workforce
There are three primary aspects of this law which can influence hourly workforce employers in particular, which include:
- Allowing the inclusion of long-term, part-time workers as participants in defined-contribution plans with the exception of collectively bargained plans. Eligible employees need to complete at least 500 hours of service a year for three consecutive years and be 21 years of age or older. This ultimately provides flexibility on the hours per year requirement for long-term, part-time employees to qualify for a workplace retirement plan. It also creates a huge opportunity for hourly workforce employers struggling with hiring and turnover as an enticing benefit to potential employees and leverage against the competition.In this tight labor market, this is a sure way to recruit and retain workers.
- Allowing unrelated small employers to band together in open, multiple-employer retirement plans (MEPs), or pooled employer plans (PEPs)- usually within the same industry or labor union- to reduce the costs and administrative burden retirement plans place on individual employers. These combined efforts result in more workers gaining access to retirement plans and easier administration for ‘controlled group’ businesses.
- Increasing the business tax credit for plan startup costs, to make setting up retirement plans more affordable- from the current cap of $500 to up to $5,000 depending on the circumstances. Hourly workforce function with some extremely tight operational margins, so every tax benefit and dollar saved makes a difference. With the SECURE Act’s updated financial structure, it’s possible to use the savings of your new employee benefits investment to re-invest in the operation they serve
- How the SECURE Act is Motivating Businesses
Without a full understanding of the SECURE Act’s details and other potential impacts, you could inadvertently create long-term consequences or incur fees related to noncompliance.
Among the provisions to encourage employers to become plan sponsors, the SECURE Act:
- Provides adjustments to contribution and age caps, so retirees can delay taking required minimum distributions (RMDs) until 72 and allows for higher payroll contributions of up to 15%.
- Encourages business owners to adopt automatic enrollment by providing an additional $500 tax credit for three years for plans that add auto-enrollment of new hires.
- Simplifies rules and notice requirements related to qualified non-elective contributions in safe harbor 401(k) plans.
- Extends the period of time for companies to adopt new plans beyond the end of the year to the due date for filing the company tax return, giving employers additional time to cover their employees with a profit-sharing contribution.
- Offers a consolidated Form 5500 for certain defined-contribution plans with a common plan administrator to reduce administrative costs, but also increases penalties for failure to file retirement plan returns such as Form 5500 or required notifications of changes and withholding notices.
- Expands 529 education savings plans to include student loan repayments and the costs of apprenticeship programs under the definition of qualified higher education expenses.
- Provides penalty-free withdrawals from retirement plans of up to $5,000 within a year of the birth or adoption of a child for related costs.
- Prohibits the distribution of plan loans through savings plan credit cards so that funds are not easily available for arbitrary purchases.
- Permits employers to add a safe harbor feature to their existing 401(k) plans after January 1 if they contribute at least 4 percent of employees' pay instead of the regular 3 percent.
- Converts custodial accounts from terminated 403(b) plans into IRAs.
Here are some additional details to keep in mind as you navigate the SECURE Act’s employer requirements:
- Plan sponsors must provide an annual estimate of monthly payments participants can expect to receive if their total 401(k) balance were used to purchase an annuity for the participant and their spouse.
- Sponsors must recognize a 10-year distribution limit for most nonspouse beneficiaries to spend down inherited IRAs and defined-contribution plans.
- Employers will pay penalties on qualified plans that file late or have materially incomplete returns. These penalties are as follows:
- Failing to timely file Form 5500 can be assessed up to $250 per day, not to exceed $150,000 per plan year. Before the SECURE Act, the penalty was $25 a day, not to exceed $15,000.
- Failing to file Form 8955-SSA can be assessed up to a daily penalty of $10 per participant, not to exceed $50,000, up from a daily penalty of $1 per participant, not to exceed $5,000.
- Failing to provide income tax withholding notices can be assessed up to $100 for each failure, not to exceed $50,000 for the calendar year, up from $10 for each failure, not to exceed $5,000.
Easier HR Administration with EPAY
From hire to retire, EPAY Systems has your back. Our Human Capital Management includes an employee portal that gives workers immediate access to benefit plans and payroll statements, so they can review and manage them as needed—while our benefits administration software eases HR’s workload. What’s more? You’ll rest assured you’ve done everything you can to achieve compliance and employee happiness.