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This is the third in a series of articles describing key provisions of the SECURE Act with a focus on defined benefits plan changes. The Setting Every Community Up for Retirement Enhancement Act is part of the Further Consolidated Appropriations Act, 2020. It makes numerous changes (including a variety of enhancements) affecting qualified retirement plans, 403(b) and 457(b) plans, individual retirement accounts, and other employee benefits as well as defined benefits retirement plans.

Plan sponsors generally have sufficient time to amend plan documents to comply with any required or optional changes because although some of the changes under the SECURE Act are effective immediately, others are effective in plan or tax years beginning on or after January 1, 2020. The Act provides for a remedial plan amendment period that does not end until the last day of the 2022 plan year (the 2024 plan year for governmental plans).

Nevertheless, employers must modify certain aspects of plan administration (and potentially financial planning decisions) now to align with the SECURE Act's more immediate changes.

Defined benefits plan changes

A few of the SECURE Act's changes apply only to defined benefit plans, including relaxed nondiscrimination testing for frozen plans and in-service distributions permitted at age 59½.

1. Relief for certain closed or "soft-frozen" defined benefits plans: The Act provides nondiscrimination testing, minimum coverage, and related relief for certain closed or "soft-frozen" defined benefit plans. The relief permits existing participants in such plans to continue accruing benefits without violating these testing requirements. This affects only defined benefit plans that were closed or frozen before April 5, 2017, and those that satisfy other detailed requirements.

This is optional but effective immediately, and this change may be particularly helpful for "soft-frozen" plans with older, more highly compensated participant demographics.

2. Reduction in age for in-service distributions: Another portion of the legislation that included defined benefits plans is the provision that reduces the age at which in-service distributions may be taken from defined benefit, money purchase pension, and governmental 457(b) plans. Such distributions now may be taken at age 59½ — rather than 62 for pension plans and 70½ for governmental 457(b) plans.

Defined benefit plans, money purchase pension plans, and governmental 457(b) plans have this option for plan years beginning on or after January 1, 2020.

If chosen, modify notices and request forms appropriately

This change was designed as a revenue generator in order to offset the cost of other changes made by the legislation, and although plan amendments are not immediately required, employers choosing to offer the earlier distribution option should modify participant notices and distribution request forms appropriately.

Greg Ash is a partner at Spencer Fane LLP in the firm's Overland Park, Kansas office. He is chair of the firm's Employee Benefits Practice Group and helps his clients maximize the value and minimize the risks inherent in their benefit plans.

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SECURE Act - What are the defined benefits changes?

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