Washington Insights – Winter 2020

Feb 1, 2020 | By Jon Vogler

Jon Vogler
Senior Analyst,
Retirement Research,
Invesco Consulting

On Dec. 20, 2019, US President Donald Trump signed sweeping spending bills that included a long-sought, comprehensive retirement security package.1

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was tucked into the 1,700-page, $1.4 trillion Further Consolidated Appropriations Act, 2020 to fund half the government for the remainder of fiscal year 2020, which began on Oct. 1. The House of Representatives approved the bill on Dec. 17, followed by the Senate on Dec. 19, before the President signed it into law.2

In this edition of Washington Insights, we examine the SECURE Act, which represents the first major piece of retirement legislation since the Pension Protection Act of 2006. It includes several retirement savings provisions that are likely to have a significant effect on the formation and operation of retirement plans and individual retirement accounts (IRAs), as well as on the savings habits of plan participants and IRA owners.


The inclusion of the SECURE Act in the government’s year-end spending package was applauded by the retirement community. As noted in the Summer 2019 edition of Washington Insights, the bill includes many retirement-related features, including (but not limited to) plans to:

  • Establish open multiple employer plans (MEPs), allowing unrelated employers to band together and form a single plan, thus reducing the administrative responsibilities of the individual participating employers and achieving cost savings through economies of scale. This provision applies to plan years beginning after Dec. 31, 2020.
  • Increase the auto-enrollment safe harbor cap on auto-escalation (raising the limit on these deferral percentages from 10% to 15% after the first year).
  • Expand small employer tax credits by extending a more generous tax incentive to small businesses that start a qualified retirement plan, and adding a new tax credit for small businesses that automatically enroll participants.
  • Expand the definition of compensation for purposes of making IRA contributions to include gross income attributable to payments for graduate or post-doctoral study.
  • Repeal the maximum age for traditional IRA contributions (currently 70½); this provision applies to contributions made for taxable years beginning after Dec. 31, 2019.
  • Permit distributions upon the elimination of certain lifetime income investment options from the plan; the distribution would be made via a direct rollover to an IRA or other retirement plan, or in the case of an annuity contract, through direct distribution to the individual. (This had been a concern about allowing in-plan annuity options, as there would be no way to transfer the income option should it be dropped as an investment choice from the plan or the participant terminated employment with the employer.)
  • Allow 401(k) participation by long-term part-time workers who have at least 500 hours of service in three consecutive years. (These workers would not need to be included for nondiscrimination and coverage requirements or application of the top-heavy rules.)
  • Allow plan or IRA withdrawals (subject to limits) for births or adoptions without the 10% early withdrawal penalty. (Qualified withdrawals are limited to $5,000 in the aggregate across an individual’s accounts with respect to a birth or adoption. The withdrawal must be made within one year after the birth or adoption date, and the distribution may be recontributed to an eligible retirement plan or IRA, subject to certain rules, and is treated as a rollover.)3
  • Increase the age at which required minimum distributions (RMDs) must begin, from 70½ to 72. (This provision is effective for distributions required to be made after Dec. 31, 2019, with respect to individuals who reach the age of 70½ after Dec. 31, 2019.)
  • Require defined contribution (DC) plans to include an annual lifetime income stream estimate on participant benefit statements based on the participant’s total account balance.
  • Provide a fiduciary safe harbor for selection of an insurer for offering guaranteed income contracts under a plan. (Without this type of protection, plan sponsors feared that they would be held responsible if, for example, the insurance company offering the income guarantee went bankrupt 20 years after initial selection and was unable to meet its financial obligations under the annuity contract.)
  • Allow an employer to adopt a plan for a taxable year as long as it is adopted by the due date of the employer’s tax return for that year (including extensions).
  • Expand 529 college savings plans to permit qualified distributions for certain specified apprenticeship program expenses, as well as qualified education loan repayments for the designated beneficiary or a sibling, subject to a lifetime limit.
  • Modify the RMD rules for beneficiary payments (a “stretch” IRA). For post-death distributions from DC plans and IRAs to beneficiaries, the account would have to be fully distributed within 10 years following the year of the participant’s or IRA owner’s death, unless the distribution is made to an “eligible designated beneficiary,” defined as a surviving spouse, minor child, disabled or chronically ill beneficiary, or any other person who is not more than 10 years younger than the participant or IRA owner). This provision is generally effective for RMDs with respect to employees (or IRA owners with a date of death after Dec. 31, 2019, although there are special rules for certain situations and a delayed effective date for governmental and collectively bargained plans).
  • Provide a remedial amendment period for retirement plans and annuity contracts, such that plan or contract amendments needed to reflect changes under the legislation (including regulatory changes pursuant to the legislation) generally must be adopted by the last day of the first plan year beginning on or after Jan. 1, 2022 (or a later date as provided by Treasury).

Among other things, the net results of the passage of the SECURE Act include encouraging plan formation, expanding coverage, promoting retirement savings, and encouraging the inclusion of annuity options within retirement plans.

Many provisions of the legislation contain effective dates that are close at hand, with many requiring implementation as early as the 2020 plan year or taxable year. As such, retirement industry groups and service providers are seeking implementation relief from the government for specific provisions in order to make corresponding systems and administrative changes.

1 Pensions & Investments, “SECURE Act moves to reality from long shot,” Brian Croce, Dec. 23, 2019
2 NAPA Net, “What’s the latest on the SECURE Act?,” Ted Godbout, Dec. 20, 2019
3 Investment Company Institute (ICI), “Congress approves bipartisan retirement legislation,” Elena Barone Chism, Dec. 20, 2019

The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This is not intended to be tax advice. The information presented is based on current interpretation of federal tax law. State income tax laws may differ. Please consult your tax advisor for detailed information. Invesco representatives are not tax advisors.

Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. It is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax advisor for information concerning their individual situation.