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This is the first in a series of articles describing keyprovisions of the SECURE Act, with a focus on the legislation'seffect on required minimum distributions and otherdistributions and withdrawals. Recently signedinto law as part of the Further Consolidated Appropriations Act,2020, the SECURE Act makes numerous changes (including a variety ofenhancements) affecting qualified retirement plans, 403(b) and457(b) plans, individual retirement accounts, and other employeebenefits. Employers should understand these changes toprepare themselves for the resulting effect on retirement plan administration and financialplanning.

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Some of the changes under the SECURE Act are effectiveimmediately, while others are effective in plan or tax yearsbeginning on or after January 1, 2020.  The Act providesfor a remedial plan amendment period that does not end until thelast day of the 2022 plan year (the 2024 plan year for governmentalplans).  Therefore, plan sponsors generally havesufficient time to amend plan documents to comply with any requiredor optional changes. Nevertheless, employers must modify certainaspects of plan administration (and potentially financial planningdecisions) now to align with the SECURE Act's more immediatechanges.

Required minimum distributions

Some of the SECURE Act's most significant changes are to the TaxCode's required minimum distribution rules.

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Prior to the passage of the SECURE Act, the age at which minimumdistributions were required to begin was 70½.  The Actamended Section 401(a)(9) of the Tax Code to increase the age to72. This is a requirement for defined benefit plans and definedcontribution plans, including 401(k), 403(b), and 457(b) plans, andapplies to individuals who turn 70½ after December 31, 2019.

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However, plan sponsors may still choose to require distributionsat an earlier age (e.g., at normal retirement age). Coordinationwith plan record keepers and changes to the special tax noticeunder Code Section 402(f) will be required in order to ensure thatdistributions for participants who turn 70½ in 2020 are treatedappropriately for rollover purposes.

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Additionally, current law allows designated beneficiaries ofdeceased participants or IRA owners to "stretch" distributions overthe beneficiary's remaining life expectancy. The SECURE Actgenerally requires that all distributions after a definedcontribution plan participant's or IRA owner's death be made within10 years. The 10-year rule generally does not apply to an "eligibledesignated beneficiary," which is defined as the participant's orowner's surviving spouse or minor child, a disabled or chronicallyill person, or anyone not more than 10 years younger than theparticipant or IRA owner.

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Those individuals can spread payments beyond 10 years, exceptthat the 10-year rule applies to minor children beginning on thedate they reach the age of majority.  Special rules applyto collectively bargained employees.

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This required change affects defined contribution plans,including 401(k), 403(b), and governmental 457(b) plans and appliesto participants or IRA owners who die after December 31, 2019(December 31, 2021 for governmental plans).

Changes to distribution and withdrawal rules

The SECURE Act makes it easier for participants to access theirdefined contribution plan accounts in certain circumstances, whilemaking it somewhat harder in others. This includes prohibition ofcredit card loans and qualified disasterdistributions. The SECURE Act prohibits plan loans madethrough a credit card or "other similar arrangement" in definedcontribution plans, including 401(k) and 403(b) plans. Few planscurrently allow participants to take loans in this manner, butthose that do should immediately suspend that practice.

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A separate portion of the legislation that included the SECUREAct provides temporary relief from the 10% additional tax on earlydistributions under Code Section 72(t) for "qualified disasterdistributions." The relief applies to distributions of up to$100,000, but is limited to distributions made within 180 daysafter the legislation's enactment.

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The legislation authorizes the repayment of such distributionswithin three years to an eligible retirement plan to which arollover contribution could be made. The maximum plan loan amountfor individuals whose principal residence is in a qualifieddisaster area also may be increased from $50,000 to $100,000, andthe repayment period for such loans may be extended.

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This optional feature affects defined contribution plans,including 401(k) and 403(b) plans and governmental 457(b) plans butonly until June 17, 2020.

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Employers electing to add one or both of these distributionoptions must act quickly.  Because of the limited timewithin which these additional distributions are permitted, suchemployers should prepare and distribute participant notices as soonas possible.

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Greg Ash is apartner at Spencer Fane LLP in the firm's Overland Park, Kansasoffice. He is chair of the firm's Employee Benefits Practice Groupand helps his clients maximize the value and minimize the risksinherent in their benefit plans. 

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