The SECURE Act Is Here. Now What?

Key Insights
  • Bipartisan retirement legislation was signed into law on December 20, 2019, and will bring changes to retirement plan sponsors and individual retirement savers.
  • Some provisions became effective as of January 1, 2020, and may merit immediate plan sponsor attention.

On December 20, 2019, the Further Consolidated Appropriations Act (FCAA) was signed into law. It included the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), along with a handful of other retirement measures previously passed in the House.

The legislation closely resembles the original SECURE Act passed by the House on May 23, 2019, with a few changes and new provisions, including:

  • A transition period for employers to amend their plans pursuant to the new law. For private non-collectively bargained plans, the plan amendment deadline is the end of the 2022 year. Governmental and collectively bargained plans get an extra two years to make amendments.
  • In-service withdrawals from governmental 457(b), defined benefit, and money purchase pension plans beginning at age 59½.
  • A provision offering disaster relief comparable to what was offered to victims of certain other federally declared disasters, including most recently the 2017 California wildfires, for a limited time period.

Changes for Private Employer Retirement Plans

The legislation includes some provisions that may have a lasting impact on the structure of private employer retirement plans.

For example, the law includes provisions likely to encourage the addition of annuities or other guaranteed lifetime income investments to defined contribution plans and introduces a new form of multiple employer plans for unrelated employers called Pooled Employer Plans (PEPs).

PEPs are sponsored by firms (known as “pooled plan providers”) that accept fiduciary responsibility and undertake tasks of plan administration.

These provisions have the potential over time to change the common structures of retirement plans. Also important are provisions helping to save from extinction defined benefit plans that are closed to new entrants but continue to accrue benefits for those still covered.

Improving Retirement Savings

Other provisions in the legislation have the potential to improve retirement savings more immediately. Small changes like a delay in required minimum distributions (RMDs) and improved coverage for long-term, part-time employees can help improve the financial security of many individuals.

Particularly encouraging in the legislation is a provision that endorses a retirement savings rate of 15%. Although the provision is narrowly focused on plans offering a qualified automatic contribution arrangement (QACA), the congressional imprimatur on a retirement savings rate as high as 15% reinforces a message that T. Rowe Price has long delivered about how individuals can improve their chances for achieving financial security in retirement.

Timing of the Provisions

The government spending legislation does not alter any of the effective dates in SECURE as originally passed in the House on May 23, 2019. As a result, many of the provisions become effective almost immediately, without an opportunity for regulatory guidance or relief.

T. Rowe Price will participate with industry trade groups in seeking clarification as to how to adapt in the short-run to these immediate changes.

Important Information

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material. Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

T. Rowe Price Investment Services, Inc.

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