Impacts of the Miners Act and SECURE Act on Retirement Plans

Two laws enacted in December—the Miners Act and the SECURE Act—will have wide-ranging effects on retirement plans. A recent American Society of Enrolled Actuaries (ASEA) webcast provided a closer look. 

Both measures really are part of the Further Consolidated Appropriations Act, 2020. In “DB Provisions of the SECURE Act (and American Miners Act),” Martin Pippins, Executive Director, ASEA and Jim Holland, Chief Research Actuary, Cheiron, Inc., discussed their impact, specifically on defined benefit plans.

American Miners Act

A critically important provision of the Bipartisan American Miners Act of 2019 concerns in-service distributions.

Before enactment of the Further Consolidated Appropriations Act, 2020, in-service distributions could occur at age 62 under the Pension Protection Act of 2006. But with its enactment, effective for plan years after Dec. 31, 2019, in-service distributions are allowed at age 59½. This provision is voluntary for plan sponsors, and applies to DB, money purchase and 457(b) plans only.

But while the measure makes some changes, there remain some unresolved issues, Pippins noted, such as:

• Will a plan amendment be necessary in for in-service distributions to happen at age 59½, or can a plan be operated under the new provision immediately and the plan be amended later?
• Will Section 411(d)(6) relief be needed?

Also, asked Pippins, how will Treasury and IRS amend existing regulations? And they offer some answers. Specifically:

• Will the rule that normal retirement age (NRA) must be “not earlier than earliest age that is reasonably representative of the typical age for the industry in which the covered workforce” still be the standard? Pippins and Holland think probably, yes.
• Will an age 59½ safe harbor for the NRA be allowed? Pippins and Holland think probably not.
• Will age earlier than 55 still be presumed to be earlier than a reasonably representative age? Pippins and Holland think probably, yes.

SECURE Act Provisions

Pippins also zeroed in on several provisions of the SECURE Act.

Nondiscrimination Rules. The measure contains a provision that modifies nondiscrimination rules to protect older, longer-serving plan participants. It was included, Pippins and Holland noted, to avoid freezing of defined benefit plans and to protect their participants. Pippins noted that there is concern that plans could run into trouble because of demographic and other issues, such as increasing age.

Holland observed that the SECURE Act provisions concerning nondiscrimination testing for DB plans raise some concerns. For instance:

• There is a provision which states that benefits being provided to a closed class of participants will not fail Code Section 401(a)(4) under certain circumstances. However, Holland said, the term “closed class” is not defined in the law.
• The SECURE Act cites as one of those circumstances that after the closing date, plan amendments for a closed class do not discriminate significantly in favor of highly compensated employees, Holland said, noting that the measure also fails to define the term “significantly” in this context.
• The provision concerning matching contributions when DB plans are aggregated with DC plans for purposes of testing also “raises some important questions,” Holland said. For instance, what does it mean for testing under Sections 401(k) and 401(m)? How the provision affects those rules “is very much in the air,” he remarked.

The “real meat” of the provision concerning nondiscrimination testing for DC plans, said Holland, concerns make-whole contributions, i.e., nonelective allocations reasonably calculated, in a consistent manner, to replace some or all of the retirement benefits participants would have received under DB plan (and any other plan if class was not closed).

Holland flagged two uncertainties: “How much is ‘some’ and what is a ‘consistent manner’?” he asked. Holland suggested an answer, remarking that the “consistent manner” term “seems to mean those covered by the same formula.”

Required Minimum Distributions. The SECURE Act raises the age at which RMDs must be taken from 70½ to 72 for qualified retirement plans. For 401(k), 403(a), 403(b) and governmental 457(b) plans, as well as IRAs, this applies to distributions required after Dec. 31, 2019 regarding individuals who turn 70½ after that date. However, Holland and Pippins noted, the SECURE Act does not change the actuarial adjustment for post-age 70½ distributions in DB plans. They outlined why a technical correction may be needed.

Holland and Pippins note that the congressional Joint Committee on Taxation (JCT) report on the House Ways & Means Committee’s markup of the SECURE Act makes it clear that the pre-SECURE Act requirement to actuarially adjust benefits beginning at age 70½ “is not changed.” However, they said that there is “a technical glitch”—citing Code Section 401(a)(9)(C)(iii), which provides:

In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 70½, the employee’s accrued benefit shall be actuarially increased to take into account the period after age 70½ in which the employee was not receiving any benefits under the plan.” (emphasis added).

“We think that’s problematic,” Pippins said in addressing the application of that provision to employees who retire in the year following the calendar year in which they attain age 70½. “In a nutshell, the actuarial adjustments between age 70½ and age 72 may not work as intended for both nonowners and 5% owners,” Pippins added.

Pippins told attendees that the changes concerning RMDs for DC plans and IRAs “are even more significant.” These changes, contained in Section 401 of the new law, say that distributions must be made by the end of the 10th calendar year following the year of employee or owner’s death to individuals other than eligible designated beneficiaries, which include:

• the surviving spouse of an employee or IRA owner;
• disabled or chronically ill individuals;
• individuals not more than 10 years younger than the employee or IRA owner; and
• a child of an employee or IRA owner who has not reached the age of majority.

These changes are effective for distributions for employees who die after Dec. 31, 2019. And, Holland and Pippins note, the 10-year rule applies regardless of whether employee dies before, on or after the required beginning date (RBD), unless the beneficiary is an eligible designated beneficiary.

Revenue Raiser. Pippins and Holland said that the provision that makes modifications concerning stretch IRAs “essentially paid for the SECURE Act.” They reported that the JCT estimated that the stretch IRA provision will raise $15.749 billion in revenue over 10 years. Additionally, they said that the increase in the RBD to age 72 is projected to cost $8.859 billion over 10 years, and that the RMD provisions of the SECURE Act have the biggest revenue impact of any provision in the measure.

Compliance. The provisions concerning RMDs are effective as follows:

• the 10-year rule/stretch IRA changes apply to distributions for employees who die after Dec. 31, 2019;
• a collective bargaining exception may give more time, but not later than deaths after Dec. 31, 2021;
• 414(d) governmental plans have until deaths after Dec. 31, 2021 to comply;
• existing annuity contracts in effect on Dec. 20, 2019 and at all times thereafter are grandfathered; and
• there are exceptions for individuals who die before one of the above effective dates.

Pippins and Holland noted that the IRS has provided relief concerning RMD reporting in Notice 2020-6. It is effective for individuals attaining age 70½ in 2020.  

If there is an RMD for 2020, financial institutions must:

• file 2019 Form 5498 by June 1, 2020; and check box 11 that RMD required for 2020; and 
• under Notice 2002-27, furnish an RMD statement to an IRA owner by Jan. 31, 2020.

In Notice 2020-6, the IRS also provided relief for January 2020 RMD statements which may be incorrect because a 2020 RMD may no longer be required under the SECURE Act.

Available on Demand

The webcast “DB Provisions of the SECURE Act (and American Miners Act)” is available on demand. For more information, click here.