The Internal Revenue Service ("IRS") recently issued
Notice 2020-68 ("Notice") to provide additional guidance
on the SECURE Act and the Miners Act for sponsors and
administrators of retirement plans. The Notice addresses the
following issues:
Notice 2020-68: SECURE Act Guidance
To be eligible for the credit, an "eligible employer" must have had no more than 100 employees who received at least $5,000 in compensation for the prior calendar year. A "qualified employer plan" includes 401(a) plans, 403(a) annuity plans, simplified employee pensions, and SIMPLE retirement accounts, but excludes governmental plans and plans maintained by tax-exempt employers.
The Notice clarifies that:
The Notice clarifies that:
The Notice clarifies that:
The Notice clarifies that:
The Notice clarifies that:
The Notice clarifies that the change to age 59½ for in-service distributions does not affect the "normal retirement age" rules. Specifically, a normal retirement age must be an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. A normal retirement age that is age 62 or later is deemed to satisfy this requirement.
The Treasury Department and IRS have requested comments on the Notice. Comments should be submitted by November 2, 2020.
Next Steps
Plan sponsors of all types do have some time to amend their plans to comply with the changes described above from the SECURE Act and Miners Act. Certain changes will require advance planning and operational changes. Plan sponsors should consider which of the optional changes they will implement and then prepare to modify their current administration and amend their plans accordingly.
- Automatic enrollment tax credits for small employers
- Repeal of the maximum age to make traditional IRA contributions
- Participation of long-term part-time employees in 401(k) plans
- Distributions for expenses related to the birth or adoption of a child
- Difficulty of care payments included in eligible compensation
- Reduction in minimum age for in-service distributions
- Deadlines for plan amendments related to the SECURE Act and Miners Act
Notice 2020-68: SECURE Act Guidance
- Small employer automatic enrollment tax credits
To be eligible for the credit, an "eligible employer" must have had no more than 100 employees who received at least $5,000 in compensation for the prior calendar year. A "qualified employer plan" includes 401(a) plans, 403(a) annuity plans, simplified employee pensions, and SIMPLE retirement accounts, but excludes governmental plans and plans maintained by tax-exempt employers.
The Notice clarifies that:
- An employer may receive a credit only during the initial 3-year credit period that begins when the employer first includes an EACA in any retirement plan. The credit applies only to the employer and not the plan, which means sponsors of more than one plan providing an EACA will not increase their benefit.
- To be eligible for the credit in the second and third years, the EACA must be included in the same plan as it was during the first year.
- The credit applies separately to each eligible employer that participates in a multiple-employer plan.
- Repeal of maximum age for Traditional IRA contributions
The Notice clarifies that:
- A financial institution serving as trustee, issuer, or custodian for an IRA is not required to accept post-age 70½ contributions.
- A financial institution that chooses to accept post-age 70½ contributions must amend its IRA contracts and disclosure documents and provide copies to IRA owners.
- Since IRA contributions and required minimum distributions ("RMDs") are reported as two separate transactions, IRA owners may not offset RMDs by the amount of contributions for the same year. In other words, traditional IRA owners may contribute past age 70½, but they may also have to take an RMD for the same taxable year.
- Participation of long-term, part-time employees in 401(k) plans (optional provision)
The Notice clarifies that:
- If the employer does make employer contributions that are subject to a vesting schedule, the long-term part-time employee must be credited with a year of service for ALL of the 12-month periods where he or she had at least 500 hours of service (as compared to the 1,000 hours of service used in many plans with a vesting schedule for employer contributions).
- When determining the three-years of service for eligibility, any 12-month period with at least 500 hours of service prior to January 1, 2021 is disregarded. However, all periods, including those prior to January 1, 2021 are counted for determining vesting (except not those years where the employee was not yet 18 years old). This special vesting rule only applies to those part-time employees who become eligible to participate due to this rule and not all current employees.
- Qualified birth or adoption distributions (optional provision)
The Notice clarifies that:
- An "eligible adoptee" is any individual who is under age 18 or physically or mentally incapable of self-support, excluding the taxpayer's spouse's child.
- A person is physically or mentally incapable of self-support if he/she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to be of long-continued and indefinite duration.
- Each parent may distribute up to $5,000 in the aggregate, per birth or adoption event, from an IRA, a 401(a) defined contribution plan, 403(a) annuity plans, 403(b) annuity contracts, and governmental 457(b) plans (but not defined benefit plans).
- A QBAD may be received for each child of multiple births or adoptions.
- An individual may repay these amounts to an IRA or eligible retirement plan.
- A QBAD is not treated as an eligible rollover distribution for purposes of the direct rollover rules, which means that the 20 percent mandatory withholding requirement and the Code Section 402(f) notice requirement do not apply.
- Sponsors and administrators may rely on reasonable representations that an individual is eligible for a QBAD, unless they have knowledge to the contrary.
- A plan must accept the recontribution of a QBAD if the plan permits these distributions, the individual received the distribution from that plan and is also eligible to make a rollover to that plan at the time of the desired recontribution.
- A participant who receives an in-service distribution from a plan that does not provide for QBADs may still claim the distribution as a QBAD on their income tax return and recontribute the amount to a personal IRA.
- Difficulty of care payments included in compensation (optional provision)
The Notice clarifies that:
- The employer must make the difficulty of care payments to its employees to be included in the definition of compensation when calculating the contribution limits.
- Difficulty of care payments not paid by the individual's employer are not includible in compensation under that employer's plan.
- If an employer does not make difficulty of care payments to employees, the employer's plan is not required to be amended.
- Reduction in minimum age for in-service distributions (optional provision)
The Notice clarifies that the change to age 59½ for in-service distributions does not affect the "normal retirement age" rules. Specifically, a normal retirement age must be an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. A normal retirement age that is age 62 or later is deemed to satisfy this requirement.
- Deadlines for Amendments
The Treasury Department and IRS have requested comments on the Notice. Comments should be submitted by November 2, 2020.
Next Steps
Plan sponsors of all types do have some time to amend their plans to comply with the changes described above from the SECURE Act and Miners Act. Certain changes will require advance planning and operational changes. Plan sponsors should consider which of the optional changes they will implement and then prepare to modify their current administration and amend their plans accordingly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.