401(k) Specialist Issue 1 - 2021 - 13

401(k) INVESTMENT INSIGHT
New Year, New Rules: 3 SECURE Act Changes
By Allison Brecher
LAST YEAR WAS unpredictable, at best,
but as we move into 2021, there is one
thing we can be certain of: more change
is coming. The SECURE Act included a
number of provisions to retirement plans,
several of which went into effect in January.
To best plan for these imminent changes,
here's a look at what lies ahead.
Long-term part-time employees
There is a growing workplace trend of
employees taking leave or changing from
full-time to part-time status. To account for
this, the SECURE Act provides employees
who are 21 or older that have worked more
than 500 hours for three consecutive plan
years, with an opportunity to participate in
their employer's 401(k) plan.
Previously, part-time employees had
to work more than 1,000 hours during
each plan year, which, by definition, precluded
many new mothers or employees
caring for a sick relative from being able
to participate.
Starting in 2024, there will be a whole
new group of employees who become eligible
for the plan, which in turn may impact
the total amount an employer matches,
vesting schedules, and compliance tests
because these part-time employees will
now become eligible sooner than they
would under previous rules and need to be
accounted for in those calculations.
We are awaiting regulatory guidance
as to whether these employees must also
be counted for purposes of determining
whether the plan is a " large plan " and
therefore required to undergo an audit.
Disclosure of lifetime income
Starting in August, the SECURE Act will
require that all participant benefit statements
include a lifetime income disclosure.
The disclosure must express a participant's
total accrued benefits listed as monthly
payments that a participant or beneficiary
Aggregated plans
At long last, the much-awaited concept
of " open " Multiple Employer Plans (MEPs)
has become a reality. The SECURE Act allows
unrelated employers to band together
in Pooled Employer Plans (PEPs), with the
promise of reducing the costs and administrative
burdens that each participating
employer would otherwise bear alone.
A PEP allows unrelated employers to
" The 'one bad apple'
rule no longer
applies, thereby
protecting PEP
members from
liability risks for
other employers'
noncompliance. "
would receive if the account balance were
to provide a lifetime income stream.
Two sets of lifetime income stream illustrations
are required: one a qualified joint
and survivor lifetime income stream based
on the assumption that the participant
has a spouse of equal age, and the other
as a single-life annuity. The Department of
Labor issued model disclosure language
last September.
Benefit statements for self-directed plans
must also contain certain explanations
about the participant's plan investment
rights and the importance of a well-balanced
and diversified investment portfolio,
as well as furnish a notice of a DOL website
providing information about investing.
agree to a single plan document, file a single
Form 5500, and participate in one plan
audit. The " one bad apple " rule no longer
applies, thereby protecting PEP members
from liability risks for other employers' noncompliance
(see related article on page 22).
Still, a PEP may not be appropriate for all
employers, including small businesses that
would now have to bear some of the cost
for a potentially expensive plan audit. Not
to mention that index funds and technology
have made 401(k) plans highly efficient
and possibly less expensive than a PEP.
While we're still awaiting guidance on
some of the nuances of these SECURE Act
changes, it's important for advisors and
sponsors to understand the impact they
can have on both new and existing plans.
We all know 2021 will continue to bring
with it new regulations and challenges, so
the best thing we can be is prepared by understanding
the impact of these changes.
Allison Brecher is General Counsel and Chief Compliance
Officer at New York City-based digital retirement
platform provider Vestwell. She has more
than 20 years of legal and regulatory experience
having handled high-profile and complex litigation
involving employee benefits, ERISA, regulatory
matters, data privacy, and electronic discovery.
ISSUE 1 2021 | 401kSpecialist.com
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401(k) Specialist Issue 1 - 2021

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