Congress passed the SECURE Act on December 19, 2019. Most provisions were effective as of 2021. The SECURE act includes new participation requirements for long-term part-time employees, a new distributable event for birth/adoption expenses, new rules related to notice requirements for safe harbor plans, and an increased QACA maximum contribution rate.
Long-Term Part-Time (LTPT) Workers
As of January 1, 2024, 401(k) plans will be required to allow long-term part-time workers to participate in the deferral component of the plan.
An LTPT worker is any employee who has been credited with more than 500 hours of service in three consecutive 12-month eligibility computation periods.
The first year to track hours of service under the three consecutive 12-month periods is the plan year beginning after December 31, 2020.
401(k) plans will not be required to give employer nonelective contributions or matching contributions to LTPT workers.
Beginning this year and forward, it is important to track hours of service for all employees. Employers will also want to consider if they want to offer employer nonelective and/or matching contributions to LTPT workers when they become eligible to defer in 2024.
New Distributable Event for Birth or Adoption Related Expenses
401(k), 403(b) and 457(b) plans have the option to allow participants to withdraw funds for the purpose of paying qualified child birth or adoption expenses. The maximum withdrawal amount is $5,000 per participant per child. The withdrawal must take place within 12 months of the birth/adoption.
Plans are not required to permit the new distributable event. However, if plans do permit the new distributable event, the plan must also permit the participant the opportunity to repay the distributed amount.
Annual Safe Harbor Notices for 401(k) and 403(b) plans
The SECURE Act eliminates the notice requirement for certain 401(k) and 403(b) plans that contribute a safe harbor non-elective contribution.
The notice continues to be required for any safe harbor plan with a safe harbor matching contribution or any safe harbor plan that includes a discretionary matching contribution and the employer nonelective contribution is used to help the plan pass the actual contribution percentage nondiscrimination test.
We recommend that all plan sponsors continue to provide the safe harbor notice for at least another year if your safe harbor notice contains language regarding the employer’s right to suspend contributions and terminate the plan (suspension notice).
Past regulation required a suspension notice to participants before the beginning of a plan year for the employer to have the option to amend the plan mid-year to suspend or reduce the safe harbor contribution. The SECURE Act did not specifically address the ability for a plan sponsor to reduce or terminate the safe harbor non-elective contribution mid-year (for reasons other than an economic loss) if the suspension notice is not provided.
Increased QACA Contribution Rates
The SECURE act increases the cap for Qualified Automatic Contribution Arrangements from 10% to 15% of eligible compensation following the initial participation year.
Please contact the Retirement Plan Service Team at Gilliam Bell Moser LLP for further guidance.
FOR MORE INFORMATION
Karen S. Mills, QKA
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