IRS Issues Supplemental SECURE Act Guidance

Though many in the industry remain focused on addressing the challenges of the pandemic, major changes to the U.S. retirement planning landscape continue to unfold, thanks to the SECURE Act.

The IRS this week published supplemental guidance related to significant policy changes made as part of the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Presented in Q&A format, the guidance addresses issues under the following sections of the SECURE Act:

  • Section 105, which addresses the small employer automatic enrollment credit;
  • Section 107, which repeals the maximum age for traditional individual retirement account (IRA) contributions;
  • Section 112, which mandates that defined contribution (DC) plans be open to participation by long-term, part-time employees;
  • Section 113, which addresses qualified birth or adoption distributions; and
  • Section 116, which permits excluded “difficulty of care payments” to be taken into account as compensation for purposes of determining certain retirement contribution limitations.

The full document includes an extensive number of questions and stretches to 31 pages.

In discussing Section 105, the document clarifies that an eligible employer may receive a credit for taxable years only during a single three-year credit period that begins when the employer first includes an eligible automatic contribution arrangement (EACA) in any qualified employer plan.

“For example,” the guidance document states, “if an eligible employer (Employer W) first includes an EACA in one of its qualified employer plans (Plan A) during Employer W’s 2021 taxable year and also includes an EACA in a second qualified employer plan, Plan B, during the 2022, 2023 and 2024 taxable years, Employer W may receive no more than a $500 credit for each taxable year during the three-year credit period that begins with the 2021 taxable year and is not permitted to receive the credit for the 2024 taxable year.”

Regarding SECURE Act Section 107, the following question is asked: “Is a financial institution that serves as trustee, issuer or custodian for an IRA (financial institution) required to accept post-age 70.5 contributions in 2020 or subsequent taxable years?”

The IRS says the answer to this question is no. Simply put, a financial institution is not required to accept post-age 70.5 contributions, but it may choose to accept them. However, if a financial institution chooses to accept post-age 70.5 contributions, it must amend its IRA contracts to provide for those contributions. To this end, the IRS says it expects to issue revised model IRAs and prototype language addressing changes made to the relevant Internal Revenue Code (IRC) provisions under the SECURE Act.

The guidance document includes significant technical information about how the IRS views Section 112 of the SECURE Act, including the following key details: “Section 112(b) of the SECURE Act excludes 12-month periods beginning before January 1, 2021, for purposes of determining a long-term, part-time employee’s eligibility to participate under Section 401(k)(2)(D)(ii) of the code. However, Section 112(b) of the SECURE Act does not exclude 12-month periods beginning before January 1, 2021, for purposes of determining a long-term, part-time employee’s nonforfeitable right to employer contributions under Section 401(k)(15)(B)(iii) of the code. Therefore, unless a long-term, part-time employee’s years of service may be disregarded under Section 411(a)(4), all years of service with the employer or employers maintaining the plan must be taken into account for purposes of determining the long-term, part-time employee’s nonforfeitable right to employer contributions under Section 401(k)(15)(B)(iii), including 12-month periods beginning before January 1, 2021.”

Significant discussion of Section 113 is also included, while Section 116 receives relatively little elucidation.

«