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Recordkeepers to defined contribution plans are asking regulators for as immediate-as-possible guidance on provisions of the SECURE Act that became effective with the New Year.

"Our members are being deluged with questions from plan sponsors," said Tim Rouse, executive director of the SPARK Institute, which advocates for recordkeepers and other providers to retirement plans.

Many of the core provisions in the SECURE Act, such as new regulations on Open Multiple Employer Plans, will need substantial regulatory input from the Labor and Treasury Departments. But Open MEPs won't be available to the market until 2021.

However, other provisions were designed by Congress to be available to retirement savers now.

Integrating those changes in the law into recordkeeping platforms will require substantial investments in technology, call center training, and outreach to plan sponsors.

A recent letter from SPARK to the IRS and Treasury Department outlines the provisions of SECURE that cannot be implemented by recordkeepers without guidance.

"The immediate pressing issue is with withholding," said Mike Hadley, a partner with Davis & Harman and a member of SPARK's advocacy team.

Under tax law, recordkeepers withhold 20 percent of 401(k) distributions. SECURE raised the Required Minimum Distribution age from age 70 ½ to 72. With the RMD's increased age now in effect, and because recordkeepers have not had the time, or necessary guidance, to change their systems, some distributions this year will be treated as an RMD even though they are not.

An RMD is not subject to the 20 percent withholding requirement, nor do recordkeepers and sponsors have to provide the legal notice of a distribution if it is an RMD.

The question recordkeepers are asking is should they withhold the 20 percent and give legal notice for RMDs made this year under the old rules—and if they do, could that disqualify a plan from its tax exemptions.

Hadley says Treasury could—and in previous changes to the tax code—has offered "good faith" relief for retirement plan providers if they execute on reasonable interpretations of the law absent formal guidance.

"I'm not seriously concerned Treasury will play 'gotcha' with this, but getting relief will allow SPARK members to move forward," said Hadley.

New birth and adoption distribution raises tricky questions

With some of the immediately effective provisions, recordkeepers will be better able to move forward if they can assume regulators offer good faith relief.

Changes to the RMD age are relatively straightforward, said Hadley, and should require only common sense guidance.

But a provision that allows new parents to take a distribution of up to $5,000, penalty free, is not straightforward, and will be difficult, if not impossible, for recordkeepers to implement without guidance from Treasury.

That provision, which was lifted from the Family Savings Act, a Republican bill first introduced in the 114th Congress, raises difficult questions for recordkeepers, and will require extensive guidance before young families will be able to benefit from the feature.

First, recordkeepers need confirmation that the birth or adoption withdrawal is optional for sponsors to offer. "Everyone is assuming it's optional," said Hadley, but no one can be certain it is until regulators weigh in.

Recordkeepers will also need guidance on how they should determine a birth distribution from a standard distribution, for an RMD or for a terminated employee.

"No SPARK member has systems in place to capture and verify whether a distribution would meet the definition of a qualified birth or adoption distribution," wrote Rouse in his letter to the IRS.

"This raises a lot of questions," said Hadley. As written, the provision allows the distribution to be paid back without any time limit. SPARK is hoping for guidance that will allow recordkeepers to treat the birth distribution as they would a rollover.

Deliberate speed, thoughtful regulation

Rouse and Hadley said they have not heard back from the Treasury Department, apart from an acknowledgement that their letter was received.

"I don't have a sense of when guidance is coming," said Hadley. "Getting good, substantive answers to questions takes time. We want regulators to work with deliberate speed, but be thoughtful."

In the short-term, recordkeepers would welcome good faith relief on the withholding issues raised by SECURE.

Hadley expects initial guidance could come in a Q & A from the IRS, but regulators are limited in the ground rules they set in that less-formal format, which does not include public comment period and other requirements of more formal rulemaking.

"It could take many months before we get meaningful guidance, and they could do it in batches," added Hadley.