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SECURE Act breaks congressional gridlock; Retirement provisions fast tracked

By W. “Andy” Larson

Just when we thought it was safe to enjoy a quiet year end (at least from a retirement policy perspective) our supposedly gridlocked politicians fast tracked the Setting Every Community Up for Retirement Enhancement (SECURE) Act as part of the Further Consolidated Appropriations Act, 2020 —a necessary, year-end government spending bill. The SECURE Act contains some of the biggest retirement-related changes in years.  The president is expected to sign the bill on 12/20/2019 to avoid a shut-down. Many provisions are effective January 1, 2020, and we need to move quickly to get advisors and clients prepared for the changes. We encourage you to contact RLC to discuss SECURE Act training for advisors and clients

What will change?

Many aspects of retirement plans are affected by the SECURE Act.  We will focus on just a few of the major provisions here, and then discuss initial steps advisors can take to address these changes.


  • Required Minimum Distributions (RMDs) begin at age 72
  • Stretch IRAs eliminated or curtailed for many beneficiaries
  • Traditional IRA contribution eligibility regardless of age

Qualified Plan

  • Expanded availability of Multiple Employer Plans (MEPs) to unrelated employers through “Pooled Plan Providers”
  • Opened eligibility for 401(k) plans for certain long-service, part-time employees
  • Enhanced tax credits for small employers establishing qualified plans
  • Mandated retirement income disclosures for participants in defined contribution plans
  • Increased penalties for late IRS Form 5500 filings
  • Reduced the voluntary in-service distribution age for defined benefit plans and 457(b) plans from age 62 to 59½ (a provision originally from the Bipartisan American Miners Act of 2019)


  • New qualifying distributions (for apprenticeships, homeschooling, private school costs and up to $10,000 of qualified student loan repayments)


  • New provisions for the disposition of terminated 403(b) plans

Next steps

Despite their near immediate effectivity, some implementation aspects of these new rules won’t be finalized until the IRS issues additional regulations.  Regardless, we feel it’s important to begin discussions post haste with individuals potentially impacted by these changes.  We encourage the following preliminary steps in addressing the SECURE Act changes:

  • Notify IRA clients under age 72 of the new ability to postpone RMDs.
  • Alert IRA clients with nonspousal beneficiaries that the stretch distribution provisions will be cut back, and work with them to consider alternatives in conjunction with their estate planning counsel.
  • Alert nonspouse beneficiaries with inherited IRAs of the changes to the stretch distribution rules. Discuss mitigating tax strategies with them and their tax and legal advisors.
  • Inform individuals over age 70 and still working they may continue making traditional IRA contributions if they are otherwise eligible.
  • Discuss with small business owners MEP opportunities and the expanded tax credits.
  • Review with 401(k) plan sponsors the new eligibility rules for part-time employees.
  • Modify 401(k) employee communication strategies based on new retirement income projection requirements.
  • Discuss with 401(k) plan sponsors the importance of timely and accurate IRS Form 5500 filing in light of the increases in late filing penalties.
  • Consider amendments to plan documents that will be required by the end of the 2022 plan year (2024 plan year for certain governmental plans).
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Oops … How to fix switched contributions

“My client initially elected to make designated Roth contributions to her 401(k) plan and a few years later switched her election to pre-tax elective deferrals. We just discovered the employer is still treating her deferrals as designated Roth contributions. Is there a way to retroactively treat these amounts as pre-tax salary deferrals?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Massachusetts is representative of a common inquiry related to designated Roth contributions in 401(k) plans.

Highlights of the Discussion

Yes, there is a way of correcting the situation where an employer has failed to make the correct type of salary deferral to a 401(k) plan (i.e., pre-tax/designated Roth, or vice versa) based on the participant’s deferral election. It will require some correcting of IRS tax forms and the employer’s participation in the IRS’s Employee Plans Compliance Resolution System (EPCRS) program. Please refer to Fixing Common Mistakes-Correcting a Roth Contribution Failure and Revenue Procedure 2019-19.  

Generally speaking, an employer in this situation can correct the error by executing three steps.

Step 1: Transfer deferrals

The employer transfers the erroneously deposited deferrals, adjusted for earnings, from the designated Roth account to the pre-tax salary deferral account. The employer must ensure the information on IRS Form W-2, Wage and Tax Statement, for the participant is correct (i.e., reflecting the correct contribution type). That may involve the employer filing a corrected Form W-2 with the IRS showing the previously misidentified designated Roth contributions as pre-tax salary deferrals.

Step 2: Follow EPCRS or Audit CAP

Since the error represents an operational failure on the plan sponsor’s part, the sponsor should follow plan correction procedures outlined in the IRS’s EPCRS program. Depending on the circumstances, it may be possible for the employer to self-correct the error, without penalty or a formal filing with the IRS. Otherwise, a sponsor can file with the IRS under the IRS’s Voluntary Correction Program (VCP). If the error was discovered during an IRS audit, the only corrective option is to follow the Audit Closing Agreement Program (Audit CAP).

Step 3: Establish avoidance procedures

Part of correcting a plan error is to ensure that the error will not happen again. Plan sponsors should create, document and follow new policies and procedures that will prevent future failures such as these.


The IRS has identified the misclassification of employee salary deferrals as designated Roth contributions and vice versa by plan sponsors as a common plan mistake. Fortunately, there is a relatively painless IRS process to remedy the situation.

© Copyright 2024 Retirement Learning Center, all rights reserved