President Trump signed into law a nearly $1.4 trillion spending package that avoided a government shutdown and will fund the government through September 30, 2020. The year-end spending package, signed December 20, 2019, contains a number of retirement and health and welfare provisions that will be of interest to employers and other plans sponsors and plan service providers.

Below is a summary of those key provisions.


The Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act, H.R. 1994) is arguably the most significant and comprehensive retirement saving reform legislation since the Pension Protection Act of 2006 (the PPA). It includes almost 30 provisions intended to, among other things, encourage employers to offer retirement plans, promote additional retirement savings, enhance retiree financial security, and ease administrative requirements of plans. Many of the provisions became effective either immediately or will become effective as of January 1, 2020.

Highlights of the SECURE Act include:

A. Lifetime Income Provisions

a. Lifetime Income Disclosure – Employers and other sponsors of defined contribution retirement plans, such as 401(k) and 403(b) plans, must provide to participants an estimate of the monthly payments their retirement account balance could produce if that balance were used to provide lifetime income in a qualified joint and survivor annuity and a single life annuity. This new disclosure must be included in participants’ annual benefit statements. The SECURE Act directs the Department of Labor to develop a model lifetime income disclosure and prescribe assumptions that may be used in converting participant account balances to lifetime income stream equivalents. Note, employers and plan fiduciaries using the model will not have fiduciary responsibility for providing estimates in accordance with DOL assumptions and guidance. This disclosure would become effective for benefit statements provided more than 12 months after the latest of the DOL’s publication of an interim final rule or model disclosures and assumptions. This disclosure does not apply to non-ERISA plans.

b. Fiduciary Safe Harbor for Selection of Lifetime Income Provider – a new fiduciary safe harbor is available for employers and other sponsors of defined contribution plans who decide to include a lifetime income investment option (i.e., an annuity product) in their plan. Under this safe harbor, a fiduciary is deemed to have satisfied its fiduciary duties when selecting an insurer if it: engages in an objective, thorough and analytical search for such insurer, considers the insurer’s financial capability (based on certain written representations from the insurer as to its status under and satisfaction of state insurance laws), and compares the cost (including fees and commissions) of the contract offered with the benefits, product features and administrative services provided under the contract. If a fiduciary satisfies these requirements, it is not liable after the distribution of any benefit, or the investment by or on behalf of a participant or beneficiary, or for any losses because an insurer cannot satisfy its obligation under a contract. This safe harbor is effective upon enactment.

c. Portability of Lifetime Income Options – The SECURE Act also allows 401(k), 403(b), and governmental 457(b) plan participants to make direct trustee-to-trustee transfers or to transfer annuity contracts from one plan to another or between plans and IRAs without regard to any plan restrictions on in-service withdrawals to help avoid surrender charges and penalties. This is effective for plan years beginning after December 31, 2019.

B. Increase in Age for Required Minimum Distributions (RMDs)

The SECURE Act increases the age at which required minimum distributions (RMDs) must begin from 70 ½ to 72. RMDs are the minimum amount participants must withdraw from their retirement plans and IRAs each year, set by actuarial tables. This is effective for individuals turning 70 ½ after December 31, 2019.

C. Changes to Post-Death RMDs for Defined Contribution Plans and IRAs

Currently, if a participant-employee or IRA owner dies prior to receiving the full distribution from his or her account, a designated beneficiary may receive the account balance over the designated beneficiary’s life. The SECURE Act changes the post-death RMD rules for defined contribution plans to generally require that all distributions be made within 10 years of the participant-employee/IRA owner’s death. Exceptions to this 10-year distribution requirement exist for situations where the designated beneficiary is a surviving spouse, a minor child of the employee/IRA owner (until reaching majority), or an individual if that person is chronically ill, disabled, or not more than 10 years younger than the participant-employee/IRA owner. This is generally effective for post-death distributions after December 31, 2019 (December 31, 2021, for governmental plans and certain collectively bargained plans).

D. 401(k) Safe Harbor Changes

a. Increase on Cap on Automatic Enrollment QACA Safe Harbor Default Rate – A qualified automatic contributions arrangement, or QACA, is an automatic contribution arrangement with special “safe harbor” provisions that exempts 401(k) plans from annual nondiscrimination tests. The special safe harbor includes a schedule of uniform minimum default automatic contribution percentages starting at 3 percent and gradually increases each year an employee participates to a 10 percent cap. The SECURE Act now increases this cap to 15 percent (10 percent cap during the participant’s first year of participation). Employees still retain the ability to opt out of this increase. This is effective for plan years beginning after December 31, 2019.

b. Nonelective 401(k) Safe Harbor Changes for Traditional and QACA Safe Harbors – The SECURE Act eliminates the notice requirement for safe harbor plans that make non-elective contributions to employees. The Act also permits employers to amend their 401(k) plans once the year has started to add a safe harbor feature. If this amendment is made before the 30th day before the close of the plan year, then the employer does not need to take any additional measures. However, if the amendment is made after that deadline, the employer must contribute at least 4 percent of compensation for all eligible employees (instead of 3 percent) and the amendment must be made by the last day for distributing excess contributions for the plan year (i.e., generally by the close of the following plan year). This is effective for plan years beginning after December 31, 2019.

E. Eliminate the Age Limit for Traditional IRA Contributions. Individuals who are still working can continue to contribute to a traditional IRA, regardless of their age. Prior to the change, such individuals could only contribute until age 70 ½.

F. New Type of Multiple Employer Plan – PEP

The SECURE Act provides for a new type of multiple employer plan called a Pooled Employer Plan (PEP), which allows unrelated small employers to pool together to participate in a single plan in order to reduce the administrative costs and other burdens on each employer. A PEP has a single plan document, a single Form 5500 filing and a single independent plan audit. A PEP must designate a Pooled Plan Provider to serve as the ERISA section 3(16) plan administrator as well as the named fiduciary for the plan. The new law would shield employer-members in the PEP from penalties if another member violates its fiduciary obligations—for instance, by failing to remit contributions to the plan timely. This protection is appealing to smaller employers concerned with the potential for co-fiduciary responsibility and liability. The PEP provisions will be effective for plan years beginning after December 31, 2020, and both the IRS and Department of Labor are expected to provide guidance in the coming year.

G. Increase to Small Employer Plan Start-Up Tax Credit

Currently, an eligible employer with 100 or fewer employees (i.e., a small employer) may receive a $500 nonrefundable income tax credit for qualified start-up costs of adopting a new qualified retirement plan. The SECURE Act increases the amount of the tax credit to up to $5,000 for three years. Small employers who add automatic enrollment to either a newly established plan or an existing plan may be eligible for an additional $500 tax credit per year for up to three years. This is effective for taxable years beginning after December 31, 2019.

H. Part-Time Employee Eligibility for 401(k) Plans

The SECURE Act requires that 401(k) plans allow for participation of long-term, part-time employees who work at least 500 hours in three consecutive 12-month periods in their plans. As no employer contributions are required for these employees, the Act provides nondiscrimination and top-heavy testing relief with respect to this employee group. For vesting purposes, a year of service is a 12-month period during which the part-time employee has earned at least 500 hours of service. This is generally effective for plan years beginning after December 31, 2020.

I. Consolidation of Reporting

The SECURE Act directs the IRS and DOL to work together to modify the Form 5500 to enable all members of a group of plans to file a consolidated Form 5500. A group of plans generally would be eligible for a consolidated Form 5500 if the following conditions are met: all the plans in the group are defined contribution plans, use the same plan year, have the same trustee, have the same named fiduciary(ies), have the same administrator; and provide the same investment options to participants and beneficiaries. This is effective for plan years beginning after December 31, 2021.

J. Increased Penalties for Failure to File Retirement Plan Returns

The SECURE Act increases the penalties for: failing to file a Form 5500 to $250 per day (but not to exceed $150,000), failing to provide a required withholding notice (which applies to qualified plans and IRAs) to $100 per day (but not to exceed $50,000 maximum in penalties per year), failing to file a registration statement for deferred vested benefits to $10 per day (but not to exceed $50,000), failing to file a required notification of change in plan status to $10 per day (but not to exceed $10,000, respectively). This is effective for returns due after December 31, 2019.

K. Clarification for Church Plans

Recently, the IRS reversed 30 years of rulings and announced that Tax Code section 403(b)(9) church retirement income accounts could not include non-qualified church-controlled organization (Non-QCCO) employers. The SECURE Act now clarifies that employees of Non-QCCOs may be covered under 403(b)(9) church retirement income accounts. This is effective for years beginning before, on, or after enactment.

L. Extension of Employer Credit for Paid Family and Medical Leave

The 2017 Tax Cuts and Jobs Act introduced new Section 45S to the Internal Revenue Code, which provides a business tax credit for certain employer-paid family and medical leave. The tax credit ranges from 12.5 percent to 25 percent of the amount of wages paid to qualifying employees while on family and medical leave for up to 12 weeks per taxable year, where such wage payments are at least 50 percent of the wages normally paid to an employee. The paid family and medical leave credit was originally available for wages paid in 2018 and 2019, but the SECURE Act now extends the credit through 2020.

M. Repeal of Increase in Unrelated Business Taxable Income for Certain Fringe Benefit Expenses

The 2017 Tax Cuts and Jobs Act also added new Section 512(a)(7) to the Internal Revenue Code, which subjected tax-exempt organizations to unrelated business income tax (UBIT) on the value of qualified parking and transportation fringe benefits provided to employees. The SECURE Act repeals this provision and makes repeal retroactive to the 2017 law’s enactment.

II. Repeal of Affordable Care Act Health Taxes

The spending package also includes a full repeal of three Affordable Care Act (ACA) taxes—the tax on high-cost health plans known as the “Cadillac tax,” the health insurer tax, or “HIT” tax, and the medical device tax.

Below is a brief explanation of each tax.

A. Repeal of Excise Tax on High Cost Employer-Sponsored Health Coverage

The SECURE Act repeals the unpopular and widely criticized ACA excise tax on high-cost employer medical plans, commonly known as the “Cadillac Tax.” The Cadillac Tax was originally intended to curb the preferred treatment of employer-sponsored health plans, reduce excess health spending, as well as raise revenue for administration of the ACA. It imposed a 40 percent tax on the cost of employer-provided health benefits exceeding $11,200 for single coverage and $30,150 for family coverage. The tax would have applied to both employer and employee share of the cost of health coverage, as well as to contributions to health reimbursement arrangements, flexible spending accounts, and health saving accounts. The tax was set to take effect in 2018. However, Congress delayed implementation numerous times and recently pushed the effective date to 2022.

B. The HIT Tax

The Health Insurance Tax—also known as the HIT Tax—is an annual fee on health insurance providers. The HIT applies to insured employer plans, Medicaid managed care, Medicare Part D, Medicare Advantage plans, and policies in the individual and small group markets. The tax is divided among insurers based on the value of their market share and premiums written. When passed through to employers, the HIT tax was typically in the range of 2 percent to 4 percent of the premium. The tax was in effect beginning in 2015, but was suspended in 2017 and 2019. The HIT repeal is effective for calendar years beginning after 2020.

C. Repeal of Medical Device Excise Tax

The medical device tax is a 2.3 percent excise tax on medical devices sold within the United States. The tax is imposed on the manufacturer, producer, or importer of the device. The tax went into effect in 2013 but was suspended by Congress from 2016 through 2019. The medical device excise tax repeal is effective for sales after 2019.

III. 10-Year Extension of PCORI Fees

The Patient-Centered Outcomes Research Institute (PCORI) was established as part of the ACA to conduct research to evaluate the effectiveness of medical treatments, procedures, and strategies that treat, manage, diagnose, or prevent illness or injury. The research considers both the effectiveness of the treatment, as well as an individual’s decisions and outlook regarding the treatment.

The PCORI fee requires insurers and employers with self-insured group health plans to pay an annual fee to fund that medical research. The PCORI fee has been extended for 10 years, meaning that insurers and employers will have to continue to pay this fee until 2029 or 2030, depending on their plan year. The amount due per life covered under a policy will continue to be adjusted annually.


There is a lot to unpack in the year-end spending package that employers and other plan sponsors and plan service providers need to be aware of going forward.

Employers and other plan sponsors in particular will need to understand the SECURE Act’s wide-ranging impact on retirement plans and respond quickly to certain provisions that become effective on January 1, 2020.

Also, employers with self-insured group health plans will need to plan and budget for the PCORI fee extension through 2029 or 2030, depending on the plan year.

With the repeal of the Cadillac, HIT, and medical device taxes, employers, insurance companies, and medical device manufacturers, respectively, no longer need to be concerned about these potentially significant costs. However, the repeal is estimated to cost the government $373.3 billion over 10 years, according to analysis by Congress’s Joint Committee on Taxation (JCT), and will significantly change the manner in which the ACA is funded for budget purposes over the same period.

Other provisions like the creation of a new multiple employer plan, increased penalties for failure to file timely plan returns and lifetime income disclosures will create new recordkeeping and administrative challenges.

The Ballard Spahr Employee Benefits and Executive Compensation Group has stayed abreast of these legislative developments and is well-positioned to assist employers and other plan sponsors and plan service providers in understanding the practical effects of both the retirement and health and welfare aspects of the SECURE Act and the Further Consolidated Appropriations Act, respectively, and on plan design, administration, and compliance.