Keeping Up with CARES Act & Secure Act Provisions
Meeting the requirements and opportunities presented by the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act can be
Key considerations as we move forward in 2021 include the following:
Potential Confusion Surrounding RMDs
By deferring the RMD, (“required minimum distribution”), age from 70.5 to 72, the SECURE Act allowed participants to wait longer to start distributions.
- However, individual plans are allowed to have earlier required distribution ages. They could ‘grandfather’ in the 70.5 RMD age if they so choose.
- Even after the SECURE Act’s passage, RMDs that had already previously started at the required age of 70.5 cannot be stopped. Once RMDs commence from an account, they must continue.
- Although the CARES Act allowed a pause in 2020 for RMDs that had already begun. Pausing RMDs and outright stopping RMDs are not the same thing.
Tracking Part-Time Employee Hours
The SECURE Act says that plans must allow long-term, part-time employees to participate after they have logged three consecutive 12-month periods with 500 or more hours of service.
- Hour counting for this purpose started on January 1, 2021.
- Employees who work 500 hours per year in 2021 through 2023 will become eligible for retirement plan participation in 2024.
- Employees may receive but are not required to receive matching employer contributions and these employees can be excluded for nondiscrimination testing purposes.
The SECURE Act allowed participants to withdraw retirement plan funds penalty-free in the case of a birth or adoption while giving them the option to recontribute the funds later. Under the CARES Act, individuals impacted by coronavirus could access up to $100,000 in total from their 401(k)s and IRAs. Keeping track of these withdrawals and the reason for withdrawal is key.
- Withdrawals need to be labeled accurately as being for a birth/adoption or a coronavirus-related hardship distribution (CRDs), with a system in place that can keep track of them over the long term.
- The question may arise, if a participant wants to recontribute a certain sum of money, how do you differentiate these dollars from other types of new contributions? How should the contributions be treated in terms of pre-tax or after-tax dollars?
- CRDs, in particular, will need to be tracked over the next three years, and either the participant will pay the funds back over that period, or the plan sponsor may need to determine whether the money that exited their plan did so in the form of a taxable distribution.
We Welcome Your Questions
As you navigate the complexity of some of these retirement plan issues, ABGSW is here to help. Please contact your representative with any questions you may have, or Contact Us.