Top 3 SECURE Act Questions and Answers

March 29, 2021

Even though the SECURE Act has been law since December 2019, plan sponsors continue to have questions about it. The goal of the SECURE Act is to make retirement plans more accessible to Americans. So the better you understand its provisions, the more value you can offer to your clients and their employees.

We’re here to help. We’ve provided the answers to the top three questions we hear from plan sponsors. Here we go.

Question 1: Do I have to allow my part-time employees to make elective deferrals?

Answer: Yes, certain long-term, part-time workers are eligible if these things are true:

They’ve worked part-time for three consecutive 12-month periods and worked at least 500 hours each year.
They’re at least 21 at the end of the three-year period.

Eligibility for these long-term, part-time workers begins Jan. 1, 2024. Employers must begin counting hours for them as of Jan. 1, 2021.

Question 2: Is the reduction in age for in-service distributions for certain plans required or optional?

Answer: It’s optional. The SECURE Act lowered the minimum age for in-service distributions in qualified pension plans from 62 to 59½. It lowered the minimum age in governmental 457(b) plans from 70 to 59½. Last September, however, an IRS notice clarified that choosing an earlier in-service distribution is an optional amendment.

A plan sponsor who wants to apply the earlier in-service distribution for these plans will need to adopt the amendment by the plan-year end, rather than with the rest of the SECURE Act amendment. The SECURE Act amendment is not required to be adopted until the end of the 2022 plan year end for non-governmental plans and 2024 for governmental plans.

Question 3: Can I claim the small employer auto-enrollment credit?

Answer: Yes, you may be eligible to claim the $500-per-year credit if you sponsor a qualified plan with an Eligible Automatic Contribution Arrangement. You’re considered a small employer if you have 100 or fewer employees who received at least $5,000 of compensation for the prior year. The credit only applies during the initial three-year period from the time you first adopt the EACA. It’s effective for plan years that begin after 2019.

Each employer in a multiple employer plan may be eligible to take the credit if they qualify. The credit applies to the employer and not the plan. This means the employer cannot receive multiple credits for maintaining more than one plan with an EACA.

We’ll let you know about SECURE Act updates as we hear about them. Keep reading In the Loop for details.